Kentucky Self-Directed IRA

Kentucky Self-Directed IRA

Kentucky Overview

The Bluegrass State of Kentucky gets high marks from analysts when it comes to tax-friendliness towards retirees. It does not do so well when intangible quality-of-life factors are included. Kentucky scored near the bottom in WalletHub’s 2018 “Best Places to Retire” list, which listed Kentucky 47th out of 50 states in quality of life as well as health care availability, and just 38th when it comes to affordability.

The state is characterized by a beautiful, mountainous eastern third, where fans of the unique U.S. Appalachian culture will find a welcoming home and rolling plains as you get out to the Western side of the state. There’s lots of golfing and fishing throughout, and, of course, terrific horse racing in Lexington.

The eastern regions have been struggling in recent years thanks to massive reductions in coal output and employment, driving down both populations and housing costs, though leaders in the region have begun actively seeking ways to diversify their economy in Appalachia and throughout the state.

Why a Kentucky 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 Kentucky 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, Kentucky Self-Directed IRAs come with all sorts of investment protections.

Understand Your Kentucky 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 Kentucky 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 Kentucky 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 Kentucky 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:

  • You
  • 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.

Getting Started with American IRA

Although we have thrown a lot of abbreviations and words at you, you should know that self-directing your retirement is not as complicated as it might sound. The steps are very simple:

  • Open a Kentucky Self-Directed IRA with American IRA. Make sure to put thought into the type of account you’d 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 Kentucky Self-Directed IRA Owners

The cost of living in Kentucky is about 10.5 percent cheaper than the average for the United States, according to Sperling’s Best Places. The biggest reason for the lower cost of living in Kentucky is the modest house prices: The average listing price for a home in Kentucky is just $139,000, compared to over $216,000 in the rest of the country, on average. That translates to a discount of about 24 percent on the cost of housing, according to Sperling’s numbers.

Average health care costs are relatively low, again according to an analysis by Sperling’s Best Places.

State income taxes on Kentucky Self-Directed IRA Income

Kentucky has a state income tax with brackets ranging from 2% to 6%, with the highest bracket applying to income in excess of $75,000, which is the same for both single or married filers. The Commonwealth of Kentucky recognizes a standard deduction of $2,480 for both single and married tax returns, which means there is a substantial marriage penalty in the Kentucky state income tax regimen.

However, Kentucky fully exempts Social Security benefits from state taxes. They also exempt up to $31,110 per person in income from other retirement accounts, as well, which makes the state a fairly friendly jurisdiction for retirees – especially at more modest income levels.

Residents generally enjoy relatively low property taxes, as well.

A credit equal to 25 percent of the amount of the federal American Opportunity Credit and the Lifetime Learning Credit is available in Kentucky. The credit applies only to undergraduate studies, phases out for higher incomes, applies to most higher education opportunities within Kentucky and may be carried forward for up to five years.

Kentucky sales taxes

There’s a state sales and use tax of 6%, which is below the national average. There is no local sales and use tax in the state. Kentucky recently increased sales and use taxes by including more categories of goods and services including admission to events, auto repair and gym memberships, which were previously exempt. A state supreme court ruling held that the Kentucky State Constitution does not exempt non-profits from the sales and use tax, so even admission to charitable events can be subject to the 6 percent levy.

Kentucky Self-Directed Real Estate IRAs

Property taxes are quite low, with total assessments per homeowner at less than half the national average. This contributes substantially to the profitability of rental properties, to include Kentucky Self-Directed IRA properties.

Campbell County has the highest effective average property tax rate, at 1.18 percent, while Carter County’s 0.56 percent average is the lowest.

Kentucky Estate and Inheritance Taxes

There’s an inheritance tax. However, property from residents going to a surviving spouse, parent, child, grandchild, brother, sister, half-brother or half-sister is exempt from state inheritance taxes.

Property going to a niece, nephew, half-niece, half-nephew, daughter-in-law, son-in-law, aunt, uncle, or great-grandchild is subject to an exemption of $1,000, and an overall tax rate of between 4% and 16%.

Everyone else, including nieces and nephews by marriage and great-nieces and great-nephews by marriage, is subject to an inheritance tax of 6% to 16%, over an exemption amount of $500.

Other Kentucky Taxes

Kentucky recently raised cigarette taxes from 60 cents to $1.10 per pack.

The fuel tax in Kentucky amounts to 26 cents per gallon of gasoline, and 23 cents per gallon of diesel. However, the state is contemplating a 10-cent increase in gas taxes.

Benefits of Retiring in Kentucky

If you are interested in seeking retirement in Kentucky, or if you simply want to think about it as a long-term option, you might consider a Self-Directed IRA. A Kentucky 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 Kentucky? Want to learn more about how to take advantage of all of the retirement capabilities you have? Then it is time to think about a Self-Directed IRA. Continue browsing this website to learn more about a Kentucky 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 Kentucky 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 Kentucky 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 Kentucky 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).

For other easy Kentucky Self-Directed IRA solutions, talk to our valued partner TurnKey IRA.