Michigan Self-Directed IRA

Michigan Self-Directed IRA

Michigan Overview

The Great Lakes State is reasonably friendly toward retirees – especially at higher income levels, since the flat Michigan income tax rate caps out at 4.25 percent, which tends to benefit those with more discretionary income.  Michigan also exempts a significant amount of retirement income from various sources according to an age-related scale discussed below – which means it’s a quite workable retirement destination even for those on more modest streams of retirement income.

Like other states in the Upper Midwest, Michigan has mild summers, beautiful, crisp autumns and cold, snowy winters.

There is a vast expanse of freshwater coastline, and great fishing and hunting throughout the rural areas of the state. You do not have to be near the coastline to have access to great fishing. Michigan has thousands of lakes throughout the state, and tens of thousands of miles of streams.

There are loads of picturesque lakeside towns and resorts all along the Michigan coast.

Retirees and Michigan Self-Directed IRA owners will be attracted to the tax advantages afforded to retirement income as well as the very reasonable cost of living throughout the state.

Why a Michigan 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 Michigan Self-Directed IRA means freedom, opportunity, and self-determination. It means not being satisfied that the “market” is the only market that exists. It doesn’t 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, Michigan Self-Directed IRAs come with all sorts of investment protections.

Understand Your Michigan 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’re 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 Michigan 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 Michigan 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 Michigan 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’s 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 Michigan 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.

Financial Considerations for Michigan Self-Directed IRA Owners

Michigan has some high tax rates, though their relatively high tax burden is balanced out by other factors: They have a reasonably good deduction on some types of retirement income. And Michigan’s cost of living is reasonably low, housing costs about 24 percent below the national average, according to Sperling’s Best Places. Health care costs – also a critical consideration for retirees looking to make their nest eggs last –are also about 13 percent below the national average.

Property taxes are on the high side for most homeowners, but sales taxes are reasonable.

Military Retirement Income

Military retirement income is not taxed.

State income taxes on Michigan Self-Directed IRA Income

Michigan has a flat state income tax rate of 4.25 percent. But there are a number of exemptions and carve-outs that benefit retirees.

First, Michigan does not tax Social Security income. However, that may change beginning in 2020 for those born after the year 1952.

Michigan also offers senior citizen taxpayers a substantial deduction to taxable income which is on a sliding scale based on age. At ages 65 and 66, the current allowable deduction is $20,000 for singles and $40,000 for joint filers.

At ages 67 through 70 the allowable deduction increases to $35,000 and $70,000, respectively.

At ages 71 and up the allowable deduction is over $50,000 and $100,000 respectively. Those age 71 and older are also eligible for over $11,250 and $22,500 per year in deductions to dividend, interest and capital gains income. These amounts are increased periodically for inflation, so be sure to check with the Michigan Department of Revenue for the most current information.

Michigan also treats pension income differently based on the year of your birth. Those born before 1946 can deduct over $50,000 (single) and $100,000 (married filers), as well as more than $11,250/$22,5000 in interest, dividends and capital gains.

For those born between 1946 and 1952, there’s a lesser deduction to public pension income available of $20,000 for single filers and $40,000 for joint filers, though at age 67, this is replaced with a standard deduction available against all income, not just public pension income.

These taxpayers are not eligible for the dividend, interest and capital gains deduction.

For those born after 1952, under current law, military and retirement benefits are exempt from Michigan income tax. But they cannot take the state interest, dividend or capital gains deduction. They can, however, deduct either Social Security/military/Railroad Retirement income, or deduct up to $20,000 (single filers) or $40,000 (joint filers) from all other income sources. Speak with your tax advisor as to which one would be more beneficial for you.

IRA income qualifies for Michigan Retirement Income Exemption.

Public Pensions

If you are receiving or expect to receive income from a public pension in Michigan, you should understand the age-sliding scale for public pensions. For Michigan taxpayers born before 1946, Michigan exempts pensions from states that exempt Michigan from their own state income tax in a reciprocity arrangement.

For those born between 1946 and 1952, you can deduct up to $20,000 (single filers) or $40,000 (joint filers) from public pension income, but this deduction is replaced at age 67 by a standard deduction you can take against income from any source, not just public pensions. However, the law reduces the deduction by the amount of any deductions taken for military retirement pay or for Railroad Retirement benefits. These taxpayers are not allowed to take the deduction for interest, dividend and capital gains income.

Michigan sales taxes

Michigan has a 6 percent sale tax throughout the state, with no additions from local governments. Food and prescription drugs are exempt from Michigan state income tax. Home heating oil is taxed at a reduced rate of 4 percent.

Military retirement pay is not taxed.

Michigan Self-Directed Real Estate IRAs and property taxes.

Property taxes in Michigan are steep: The effective average property tax rate in the Great Lakes State runs to more than 1.71 percent, with Wayne County charging a stratospheric 2.69 percent.

This makes Michigan a tough environment for Michigan Self-Directed Real Estate IRA investors, though this effect has been mitigated in recent years by strong rental yields on properties in certain struggling markets.

Property owners ages 62 and older with lower incomes may be able to defer property tax payments.

Michigan Estate and Inheritance Taxes

Michigan does not have an estate or inheritance tax.

Other Michigan Taxes

Michigan imposes a tax of 44.70 cents per gallon of gasoline and 50.70 cents per gallon of diesel. There’s also a tax of $2.00 per pack of 20 cigarettes.

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 Michigan 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 Michigan 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 Michigan 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 Michigan Self-Directed IRA solutions, talk to our valued partner TurnKey IRA.