New Mexico Self-Directed IRA
New Mexico Overview
New Mexico offers retirees a mild climate in much of the state, 300 days of sunshine per year and some of the most beautiful scenery in the country. But thanks to a relatively high tax burden and a top tax rate that kicks in at just $16,000, New Mexico is not a particularly friendly environment for retirees and New Mexico Self-Directed IRA investors. A 2018 report from Bankrate.com pegged New Mexico as the second worst state to retire in.
New Mexico is also plagued by a shortage of doctors, and the ratio of doctors to population is one of the lowest in the country. New Mexico frequently gets low marks from “best places to retire” surveys in financial and lifestyle media because of the difficulty some may find in receiving health care.
There are several cities with thriving arts and culture scenes, including Taos, Santa Fe and Silver City, though the cost of living is higher in these areas, as well.
Golf aficionados will find some great courses at Pinon Hills in Farmington, the Championship Golf Course at the University of New Mexico in Albuquerque, Rockwind Community Links in Hobbs, Cochiti Golf Club in Cochiti and Red Hawk Golf Club in Las Cruces.
For those who lead active lifestyles and who enjoy the great outdoors and can appreciate New Mexico’s beautiful scenery, the taxes just may be worth it.
Why a New Mexico 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 New Mexico 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, New Mexico Self-Directed IRAs come with all sorts of investment protections.
Understand Your New Mexico 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 New Mexico 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 New Mexico 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 New Mexico 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 New Mexico 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 New Mexico Self-Directed IRA Owners
The cost of living in New Mexico is slightly lower than the country as a whole – about 3.7 percent less than the national average. The median house price is $187,100, compared to 216,200 nationwide, according to Sperling’s Best Places.
However, the modest cost of living is offset by some high tax rates, discussed below.
Military Retirement Income
Military retirement income is taxed.
State income taxes on New Mexico Self-Directed IRA Income
New Mexico slaps a state income tax on all forms of retirement income, including Social Security income and New Mexico Self-Directed IRAs, pensions, and military retirement income. However, there is an $8,000 tax deduction available for seniors with incomes below $28,500 ($51,000 for married couples filing jointly).
Note that the tax deduction is not doubled – just the income threshold.
As of 2019, the New Mexico state tax brackets start at 1.7 percent and go up to 4.9 percent of all taxable income over $16,000.
New Mexico residents age 65 or older who have unreimbursed medical expenses of $28,000 or more for themselves, a spouse or a dependent may qualify for a tax credit of up to $28,000.
New Mexico gross receipts taxes
There’s no sales tax per se, though New Mexico does impose a 5.125% tax on gross receipts on businesses, which is typically passed on to the consumer. Local governments can add an additional tax onto the state gross receipts tax, which can go as high as 3.56%, so the added expense can be substantial, compared to most states’ sales taxes – up to 8.6875%. Prescription drugs are exempt. More information is available here.
New Mexico Self-Directed Real Estate IRAs and property taxes.
Property taxes in New Mexico tend to be quite low, with the average property tax rate running at around 75% of appraised value. However, as in most jurisdictions, rental income is subject to state income taxes. There are a few outliers, though, including Los Alamos and Bernalillo Counties.
Seniors with lower incomes may qualify to put a freeze on the assessed value of their personal residences, which will help limit property tax increases in the future.
New Mexico also caps valuation increases on properties that do not change hands at 3% per year – which primarily benefits people who live in “hot” real estate markets.
Homeowners with modified gross incomes of $16,000 or less may qualify for a property tax rebate of up to $250.
Those with higher incomes considering New Mexico for their retirement years should note that a recently-passed tax bill would increase taxes on couples earning over $315,000 per year from 4.9% to 5.9% if the state’s general fund does not increase by 5% next year.
New Mexico Estate and Inheritance Taxes
New Mexico has no estate or inheritance tax, but if an inheritance is reflected on an individual tax return it may be taxed.
Other New Mexico Taxes
There’s a capital gains tax on 40% of all capital gains, or all capital gains above $1,000, whichever figure is larger.
There’s another tax of 37.28 cents per gallon of gasoline and 47.28 cents per gallon of diesel fuel. Cigarettes are taxed at $1.66 per pack of 20.
There’s a 4% tax on the purchase of new motor vehicles.
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 New Mexico 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 New Mexico 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 New Mexico 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).