Delaware Self-Directed IRA
Delaware has long been known as among the most business-friendly jurisdictions in the country. The state also features urban living in Dover, a picturesque coastline easily accessible by car from all areas of the state, and great blue-water fishing and sailing. The lifestyle is relaxed, but it’s still conveniently located to Baltimore, Philadelphia and within easy driving range of New York City, for those who want to stay connected to family and business contacts in these larger cities.
Do not want to drive? Amtrak runs a convenient high-speed Acela train that will get you to New York City in just a couple of hours.
Why a Delaware Self-Directed IRA?
Stocks. Mutual funds. CDs. Bonds.
For years, you have heard that these are the types of investment vehicles through which to secure your retirement. The stock market tends to appreciate over the long haul, after all, and bonds are conservative and low on risk. Mutual funds have popped up in recent decades as one of the most popular investment vehicles as well, closely monitoring certain aspects of the stock market.
What most people do not know is that these are not the only investment types available for retirement.
In fact, if you choose self-direction, you will find that the IRS allows for all sorts of different types of investments in a retirement account. You can invest in gold and precious metals, real estate, private companies, and more. There are a few select limits on the sorts of investments you can make, but the good news is: you often have more legal options than you have limits.
For many people, a Delaware Self-Directed IRA means freedom, opportunity, and self-determination. It means not being satisfied that the “market” is the only market that exists. It does not mean you have to switch away all of your old investments. But if you want to invest in real estate or gold to help ensure a secure retirement, those options are indeed open…
And, like other IRA types, Delaware Self-Directed IRAs come with all sorts of investment protections.
Understand Your Delaware Self-Directed IRA Plan Options
Let’s take a moment to consider the various retirement account types:
- Traditional Self-Directed IRA: A retirement account in which you can invest pre-tax or after-tax dollars, and in which your investments grow tax-deferred, meaning you will pay taxes on them once you begin withdrawing them. When you start making retirement withdrawals–defined as withdrawals after you turn 59.5 years old–the money is treated as income.
- Self-Directed Roth IRA: Similar to a Traditional IRA, except you make after-tax dollar contributions so you are paying taxes on the front end. This allows your investments to grow tax-free. After the account has been established for 5 years and after you turn 59.5, your withdrawals are tax and penalty-free.
- Traditional 401(K): A qualified plan that allows employees to make pre-tax elective deferrals. Business owners who want to self-direct can use these as well and allow employees to self-direct their accounts.
- Self-Directed SEP IRA: Simplified Employee Pension that allows employers to make contributions to the retirement of their employees. An employer can also contribute to their own retirement with a Self-Directed SEP IRA.
- Self-Directed SIMPLE IRA: Savings Incentive Match Plan for Employees. A “tax-favored” plan that small businesses and individuals can set up for their employees.
- Self-Directed Solo 401(K): A 401(K) plan that a self-employed individual can use for retirement that offers high contribution limits.
As noted throughout, these same accounts offer a high degree of self-direction if you want to direct your own accounts.
A Variety of Investments
One of the chief benefits of directing your own retirement account is that you get to choose your investments from a wide range of options:
- Real estate: Apartment buildings, commercial property, retail space, raw land, etc. If you want to earn an immediate income for your retirement account with your investments, rent can be one of the most powerful ways to ensure that. You can also use leverage in a Delaware Self-Directed Real Estate IRA when using non-recourse loans.
- Private IRA Lending: You can negotiate the terms, interest rate, and length of the loan, as well as other variables like the monthly payment amounts and whether the loan is secured or unsecured.
- Private companies: Public stocks are what most people think of as “investments,” but there are also private stocks to consider. There is a lot of opportunity for growth in private company stock, but also plenty of risk to consider.
- Tax liens: With a high rate of return, these investment types are ideal for self-directing investors with smaller accounts.
- Precious metals: Gold, silver, platinum, palladium. These metals are famous as a “hedge” against economic downturn, which is why many people turn to them as a way to avoid putting all of their eggs in the stock market basket.
- Single Member LLC: An investor can create an LLC to be owned by their Delaware Self-Directed IRA, managing it themselves. This gives a significant degree of protection; however, you will likely want to consult with a professional to learn how to do this properly.
What You Can’t Do with a Delaware Self-Directed IRA
As fun as it is to talk about the various options you can have with a self-directed retirement account, it should be noted that there are certain limits, as well. You cannot self-direct a retirement account to invest in life insurance, collectibles like art, gems/jewelry, coins, alcoholic beverages, and tangible personal property. As enticing as it might be to put that wine cellar under a Self-Directed IRA protection, it is simply prohibited–so look for your protected retirement investments elsewhere.
Who You Cannot Do Business With
A disqualified person is anyone the Self-Directed IRA has decided is not “arm’s length” from the IRA. Your IRA cannot engage in any transactions with these individuals or you risk the tax-status of your IRA.
A Disqualified Person is:
- Your spouse
- Any of your lineal ascendants or descendants (parents, children, grandchildren, and the spouses of children, grandchildren, etc. – including legally adopted children).
- Any investment providers or fiduciaries of the IRA.
- Any entity (a corporation, LLC, trust, etc.) where a disqualified person owns more than 50%.
- Any entity (like previously listed) where the IRA account holder is an officer, director, a 10% or more shareholder, or a highly compensated employee.
Although we have thrown a lot of abbreviations and words at you, you should know that self-directing your retirement isn’t as complicated as it might sound. The steps are very simple:
- Open a Delaware Self-Directed IRA with American IRA. Make sure to put thought into the type of account you would like to open; review the options available to you and select the one that makes the most sense for your individual situation.
- Fund your account. This is where the options can throw people off. Let’s take a look at them quickly:
- Contribution: Simply putting money into the account throughout the year. This is what a lot of the funding will look like once the account is already opened.
- Conversion: Withdrawing part or all of the cash/assets from a Traditional IRA and putting them into a Roth IRA is called a conversion. Once the cash/assets are distributed, you have 60 days to put them in the Roth IRA account.
- Rollover: A tax-free distribution of cash/assets from one account to be put in another retirement account. You are permitted one rollover per year.
- Transfer: Transferring cash/assets directly from one retirement account to another retirement account. Because you do not take direct possession of the cash/assets, you are allowed unlimited transfers and there is no tax.
How it Works
1.) Open an American IRA Self-Directed IRA
- Select the type of account that you would like to open.
2.) Fund Your Account
- Move money into your account by transfer, rollover or contribution.
3.) Select an Investment
- Find an asset you want your IRA to purchase and submit an Investment Form. American IRA will work with you and your professionals for a smooth closing.
4.) Review the Instructions
- Visit the “How it Works” page on our website to review the instructions for the asset you want to purchase and submit the paperwork required for the investment you have chosen.
5.) Provide Payment Authorization
- Submit Payment Authorization Forms for expenses that pertain to the asset your IRA has purchased.
6.) Submit Deposit Coupons
- Deposit income generated from the asset your IRA purchased by submitting a Deposit Coupon along with the funds.
Tax and Financial Considerations for Delaware Self-Directed IRA Owners
When it comes to the overall tax picture, Delaware is one of the most retiree-friendly states in the nation – especially at lower income levels. However, the retiree-friendliness of the tax code – especially on property taxes – is undercut somewhat by the high cost of living. Delaware is roughly 10.2 times more expensive to live in than the U.S. average, according to data from Sperling’s Best Places.
Most of the high cost of living in Delaware is attributable to the relatively high housing costs: The median home price is $224,800, according to data from Zillow. However, the overall average house price in Delaware is skewed upward by the fact that because the state is so small that seaside/coastal development has a bigger influence on the state as a whole than it does in bigger states. If you look at comparable properties, away from major urban centers, Delaware’s pricing is not very different from Maryland’s, New Jersey’s and Virginia’s.
State income taxes
There are seven income tax brackets in Delaware, ranging from a marginal tax bracket of zero up to 6.6% on earners in the top bracket, which starts at $60,000 per year for all filers. The city of Wilmington also imposes an income tax of 1.25% on all income for those who live or work within city limits.
For Delaware residents, the amount of your pension and 401(K) income that is taxable for federal purposes is also taxable in Delaware. However, individuals 60 years of age or older are entitled to a pension exclusion of up to $12,500, or the amount of the pension and eligible retirement income (whichever is less). Eligible retirement income includes dividends, interest, capital gains, net rental income from real property and qualified retirement plans (IRS Sec. 4974), such as IRA, 401(K), and Keough plans, and government deferred compensation plans (IRS Sec. 457).
The combined total of pension and retirement income eligible for this exclusion may not exceed $12,500 per person age 60 or over.
If you are under age 60 and receiving a pension, the exclusion amount is limited to $2,000.
Social Security and Railroad Retirement benefits are not taxable in Delaware and should not be included in taxable income.
Delaware Self-Directed Real Estate IRAs
Delaware is very friendly to Delaware Self-Directed Real Estate IRA owners – especially those with Roth accounts – because of the extremely low property tax burden. The average effective property tax rate in Delaware is just 0.55 percent – the fourth best in the country. And as long as the property stays in the IRA or other self-directed retirement account, the capital gains tax generally will not apply, though you may still see some tax on income and gains attributable to leverage within your Delaware Self-Directed IRA or other retirement account, under unrelated debt-financed income tax rules.
Click here for more complete information on Delaware property taxes for each of Delaware’s three counties.
Delaware has no sales tax, which favors in-state residents who do a lot of consumption.
The state also imposes a fuel tax of 23 cents per gallon, which is well under the national average, according to The Tax Foundation and much less than the 33.5 cents gas tax imposed by the neighboring state of Maryland.
Delaware imposes a capital gains tax of up to 6.6%, applicable to both long-term and short-term capital gains.
Homeowners 65 and older may be eligible for a tax credit equal to 50 percent of school property taxes, up to a cap of $400. But this is for existing residents only. For those who moved to Delaware after January 1, 2018, they are not eligible for this credit until they have lived in the state for ten consecutive years.
Benefits of Retiring in Delaware
If you are interested in seeking retirement in Delaware, or if you simply want to think about it as a long-term option, you might consider a Self-Directed IRA. A Delaware Self-Directed IRA will allow you to handle plenty of different investments under your own control—all while enjoying the tax protections of retirement accounts.
Are you interested in retiring in Delaware? Want to learn more about how to take advantage of all of the retirement capabilities you have? Then it’s time to think about a Self-Directed IRA. Continue browsing this website to learn more about a Delaware Self-Directed IRA or contact us at 828-257-4949 to learn more about how you can secure a retirement for yourself.
About American IRA, LLC
American IRA, LLC is one of the leading third-party administrators for self-directed retirement accounts in the United States. The custodian New Vision Trust Company is a South Dakota regulated trust company. Founder and president Jim Hitt has been investing his own personal assets in Self-Directed IRAs, including Self-Directed Real Estate IRAs, for more than 35 years, and has helped thousands of others declare independence from Wall Street investment companies with their high fees and limited investment menus and become successful Self-Directed IRA investors.
American IRA has offices in Asheville and Charlotte, North Carolina, and Atlanta, GA, but we serve investors from all over the United States and even expats who want to realize the benefits of self-directed retirement investing techniques in Delaware Self-Directed IRAs, Self-Directed Roth IRAs, Self-Directed SEP IRAs, Self-Directed SIMPLE IRAs and even Self-Directed CESAs and Self-Directed HSAs.
A Delaware Self-Directed IRA with American IRA, LLC can help you achieve greater diversification by making it easier to invest in alternative asset classes not commonly available from large investment companies. Self-Directed IRAs also allow you to take more direct control of your retirement assets, while minimizing exposure to needlessly high expense ratios, commissions, wrap fees, 12-b-1 fees and AUM fees commonly charged by Wall Street investment companies. Our much more efficient flat-fee, menu-based fee schedule frequently allows investors to save thousands in fees each year – particularly with larger accounts and buy-and-hold investors.
With a Delaware Self-Directed IRA from American IRA, LLC, you can quickly and easily invest in alternative asset classes like direct real estate ownership, tax liens and certificates, mortgage lending, precious metals, and much more.
To get started, click here to open an account, or call American IRA today at 866-7500-IRA(472).