Self-Directed Real Estate IRAs Provide Refuge from Stock Market Volatility

The higher the stock market goes, the more important it is to diversify into real estate and other asset classes. A Self-Directed Real Estate IRA provides important tax advantages, while still preserving the diversification benefit, income, long-term capital appreciation and access to leverage that real estate investing historically provides.

Rental property has important advantages and features that in combination are unusual in most stocks and mutual funds:

  • Regular income, over and above the costs of ownership in many cases;
  • Long-term capital appreciation;
  • Depreciation benefits;
  • Tax-free exchanges;
  • Asset protection: While any given stock can become worthless almost overnight…

… a house and land has tangible value that, absent a volcanic eruption, almost never goes to zero. People will always need a place to live, businesses will always need a place to operate. And that’s true no matter what the stock market does. Even an out and out market crash like we have not seen since 1929 did not destroy the market for housing – people needed to live somewhere.

And that’s the logic of real estate investing.

Meanwhile, the monthly rental income provides a valuable ballast that can see you through times of market volatility: Even when prices fall, you get paid a steady rental income to wait it out. You can even use that rental income to buy more property at a discount.

Taken as a whole, real estate tends to be less volatile than the stock market. But individual investments can vary substantially. The stability of real estate is largely in the steady cash flow of rental income, as well as the ready access to cash, since it’s usually not hard to get a loan against equity.

Some of the advantages do not apply within Self-Directed Real Estate IRAs. For example, there are no tax-free exchanges like you can make in taxable accounts. But that’s because Self-Directed IRAs already provide shelter from current year taxation. There’s no need for tax deferred exchanges, because sales of IRA properties are already generally tax-deferred (or for Roth accounts, tax-free).

Self-Directed IRAs also provide some added protection from the claims of creditors – which is important for those who own multiple properties.


Direct ownership of Self-Directed Real Estate IRAs is not for everybody.

First, direct ownership of rental real estate either requires the willingness to be a landlord (and answer the phone for those 2 AM plumbing emergencies that always seem to come up) or hire a property manager to handle those problems, tenant screening and collections from late-payers on your behalf at around 10-15 percent of the monthly rent.

But if you buy at a good price, the rental income you receive can even more than offset this cost of doing business as well.

Real estate is also not very liquid. The monthly rental income is quite liquid, and that can go a long way to cushioning the blow, if you need cash for some reason or other. But if you need to access a very large sum all at once, real estate takes a lot of time and expense to sell. You can potentially get an equity loan in a few days, assuming you have equity in the property. But you cannot personally access loan proceeds in a Self-Directed Real Estate IRA. The money has to remain within your IRA.

If you want access to the real estate market without direct ownership of real estate itself, you may consider REITs, or Real Estate Investment trusts. These can be excellent income vehicles that still have potential for capital appreciation.

Their key advantage: Unlike C corporation stocks, REIT stocks can pass income to you free of federal income tax at the corporation level. Corporations have to pay corporate income tax on earnings before they pay it out as dividends. That corporate income tax was 35% until late 2017, when the Tax Cuts and Jobs Act was passed into law. Now the corporate income tax is much lower – 21% – but still significant. You take a 21% haircut on earnings before you even see the cash from a C corporation stock dividend, which comprise the vast majority of publicly-traded stocks. And then you have to pay personal income taxes on the dividend. The double taxation is quite a nasty bite.

But if you hold the asset in a real estate Roth IRA, there is generally no federal income tax due at all. *

*If you have a mortgage, you may be subject to unrelated debt-financed income tax, in proportion to the amount of income you received that is attributable to borrowed money, rather than your own equity. So, if you have a mortgage balance of 33% of the value of the property, you may be subject to UDIT on 33% of the income, and on 33% of the gain if you sell at a profit.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

What is Compounding and How Can It Work for You in a Self-Directed IRA?

There’s a good chance you have heard the term “compound interest.” You might even understand what it means, but you would be in the minority if you do. According to a survey conducted by ValuePenguin, which helps consumers with financial decisions, 69 percent of Americans do not fully comprehend it.

Compounding is such a critical part of saving and investing, whether it’s inside or outside a Self-Directed IRA. It makes your money grow at a faster rate than simple interest because you not only earn interest on the funds you invested but you also eventually start earning interest on the interest that your original investment earned.

Financial experts call this process “exponential growth,” but all that the rest of us need to know is that as long as we are reinvesting our interest from savings or investments, the interest we earn will also earn returns on top of those received on the original principle. That’s the power of compounding, and it will work its magic on your Self-Directed IRA and 401(k) to help it grow over the years.

An example of compounding

Let’s assume you have $10,000 in an investment that’s growing at 8% annually.  After the first year, your investment will be worth $10,800.  In year two, the 8% growth is on the $10,800. So, instead of earning $800, you would make $864, and your entire balance would have grown to $11,664 after two years—all without you adding any more money to the account. And each year your account will grow faster.

Investments do not grow at a consistent rate, however. Some years they might produce at two percent or less, while other years will be 15 percent or more. Either way, compounding continues.

Compounding’s effect on your retirement plan

Self-Directed IRAs, whether traditional or Roth, provide perfect illustrations for compounding. Since retirement investors are in for the long haul, their accounts are earning interest, dividends, and capital gains, all of which become part of the compounding process. The primary difference in these plans’ centers on taxes.

Retirement investors with traditional plans fund their accounts with pre-tax money. Once they make their contributions, the funds grow tax-deferred, and taxes are not due until withdrawals begin during retirement. Roth plans, on the other hand, are funded with after-tax money, and withdrawals at retirement are tax-free.

Because of this difference, those with Roth accounts must come up with more money to fund their accounts to the maximum allowed ($6,000 in 2019). Since the taxes are taken out up front, you will have to come up with that money.

For example, if you want to contribute $230 from your bi-weekly check and you are paying 20 percent in taxes ($46), you will need to come up with that extra $46 for your Roth. The good news: Your Roth will compound tax-free over the years, and you will be able to withdraw it at retirement without paying taxes on the original contribution or the money that was earned through compounding.

Retirement plans vs. personal savings

It’s quite shocking to see the difference that investing within a retirement plan can make in the amount you accumulate. Here’s a comparison of two 25-year-olds who begin investing the same amount at the same time. Investor “A” will be using a Self-Directed IRA while Investor “B” will be using personal funds.

Each of these individuals will contribute $2,000 each year and continue until they reach the age of 70.  By the end, they will each have contributed $90,000 over those 45 years and will have earned 10 percent annually. Investor “A” will have amassed $1,581,590 in the Self-Directed IRA account, while Investor “B” will have accrued $713,983 in personal funds—less than half of “A’s” total!

How is that possible? Both investors had the benefit of compounding, but “B” paid taxes on his earnings every year, and “A” had the bonus of tax-deferred compounding. Compounding that is coupled with the tax advantages of a retirement account is impossible to beat. Investors who avail themselves of these two benefits will almost certainly eliminate the possibility of having financial regrets in their later years.

Invest early and often

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Give Your Self-Directed IRA Retirement Savings a Boost

There is good news for retirement savers in 2019: The IRS has increased the maximum Self-Directed IRA contribution from $5,500 to $6,000, and if you are 50 years of age or over, you can add a $1,000 catch-up contribution for a total of $7,000.

There is one important stipulation, however. You must have earned income of at least the amount you wish to contribute. In other words, if your earned income for 2019 turns out to be $5,000, that’s all you may add to your Self-Directed IRA, even though the maximum limit is $6,000. And “earned income” means just that. You cannot include passive income such as social security, interest, or capital gains.

So how does someone without earned income set aside money for retirement?

The Spousal IRA might be the answer

A Spousal IRA can be either a Traditional IRA or Roth IRA registered in the name of a non-working spouse. The working spouse can contribute to his or her own Self-Directed IRA and the Spousal IRA, giving them both an opportunity to save for retirement even though only one of them has earned income. A Spousal IRA is an excellent way to boost the couple’s total retirement savings.

There are rules for Spousal IRAs

To qualify for a Spousal IRA, you must be married and file your taxes jointly. The working spouse’s income must be at least equal to the contribution to the Spousal IRA. If the contributing spouse also has a Self-Directed IRA, the taxable income must be at least equal to the total contributions to both IRAs.

If you decide to use a Traditional IRA, you will make contributions that you may deduct at tax time. You will pay income tax on those distributions at retirement and also be subjected to Required Minimum Distributions (RMD) when you reach 70 ½ years of age.

If you choose a Roth IRA, you will make your contributions after taxes, so there are no RMDs or taxes owed on distributions. If you are a working spouse, you have the option to use one type of Self-Directed IRA, while your non-working spouse uses the other.

If you cannot have a Solo 401(k), use a SEP IRA

A Solo 401(k) plan covers one employee, so if you are self-employed or a small business owner with no full-time employees, these plans are perfect. The problem is that they must have been established by December 31st of last year so you can make contributions for this year.

If you cannot take advantage of this popular plan this year, consider using a Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) instead. A SEP IRA is a profit sharing plan that allows an employer to make up to a 25% profit sharing contribution to all eligible employees up to a maximum of $56,000 for 2019. In cases of a single-member LLC or sole proprietorship, the employer can contribute up to 20%. And, unlike the Solo 401(k), you can open and contribute to a SEP IRA for last year any time before April 15th.

Boost your retirement savings with an HSA

Anyone covered by a High Deductible Health Plan (HDHP), is allowed to set aside funds, up to the contribution limit, to pay for qualified out-of-pocket medical expenses.

Health Savings Accounts have several advantages:

  • Contributions to an HSA are 100% deductible (up to the legal limit) –just like a Self-Directed IRA.
  • Withdrawals used to pay qualified medical expenses–including dental and vision–are not taxed.
  • Interest earnings accumulate tax-deferred, but if you use them to pay qualified medical expenses, they are tax-free.
  • Any unused money in your HSA account is not forfeited at the end of the year but is carried forward and continues to grow tax-deferred.
  • HSAs can be invested in mutual funds, stocks, and other investment tools to generate even more money.

The maximum 2019 contribution is $3,500 for individuals and $7,000 for families. There is a $1,000 catch-up for individuals over the age of 55.

Talk to the professionals for other ways to boost your retirement savings

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

US News Best Places Ranking Offers Promising Self-Directed Real Estate IRA Opportunity

Want to find great potential Self-Directed Real Estate IRA investment opportunities? Concentrate on finding places that are simply great cities to live in. That’s a great driver of long-term investment returns, and helps prevent big market downturns, because great communities always have people who want to live in them, and that generates long-term demand for housing, as well as commercial real estate.

Of course, you want to concentrate on cities with substantial economic diversification: If you invest in houses in a company town, and the company goes under, or just decides to move its operations somewhere else, it will be landlords left holding the bag.

U.S. News and World Report just released its annual “Best Places” list of top 25 cities to live in, and the results read like a who’s who of great Self-Directed Real Estate IRA markets.

U.S. News ranked cities by affordability, job prospects, quality of health care, school districts, low crime rates and median household income, along with a number of other factors. Here’s what they came up with:

  1. Austin, Texas (for the third year in a row!)
  2. Denver, Colorado
  3. Colorado Springs, Colorado
  4. Fayetteville, Arkansas
  5. Des Moines, Iowa,
  6. Minneapolis-St. Paul
  7. San Francisco,
  8. Portland, Oregon
  9. Seattle, Washington
  10. Raleigh-Durham, North Carolina
  11. Huntsville, Alabama
  12. Madison, Wisconsin
  13. Grand Rapids, Michigan
  14. San Jose, California
  15. Nashville, Tennessee
  16. Asheville, North Carolina
  17. Boise, Idaho
  18. Sarasota, Florida
  19. Washington, D.C.,
  20. Charlotte, North Carolina
  21. Dallas-Fort Worth, Texas
  22. Greenville, South Carolina
  23. Portland, Maine
  24. Salt Lake City
  25. Melbourne, Florida

Austin was ranked number 1 for the third year in a row, proving that it pays to be weird. However, we are getting reports that it’s becoming pretty pricey for the people who live there. It’s certainly expensive compared to other nearby real estate markets. But the lively arts, culture and emerging technology scene make Austin worth the price.

We were pleased to see several cities from the Southeastern United States named, including our own Asheville and Charlotte, where American IRA has offices, as well as Raleigh-Durham and Greenville. Winston-Salem also did really well, clocking in at #31 on U.S. News’s list. Jacksonville, Florida was #52, and Charleston came in at #45. Knoxville was #46. Chattanooga was #55 and Tampa was #56.

Many of our own clients are naturally here in the Southeastern United States, and our region has done well for Self-Directed Real Estate IRA investors in recent years, and should continue to do well, as the region continues to balance natural beauty, a pleasant climate and affordability.

You can still buy Self-Directed Real Estate IRA properties at very favorable rental yields (capitalization rates) throughout the region – especially as you get 20-30 minutes out from the major cities like Miami and Atlanta.

In contrast, Northeastern cities have not been fairing as well. “Our Northeastern cities, which are epicenters of higher education and economic development, are not growing nearly as much as places in Florida, California and Texas,” said U.S. News real estate editor Devon Thorsby.  “They are expensive to live in. Top-ranked places have the characteristics people are looking for, including steady job growth, affordability and a high quality of life.”

New York City was #90.

We were curious about how San Jose, CA made the top 20 in any index that ranked affordability, but it turns out that the epicenter of Silicon Valley also has the highest average salary in the country.

Huntsville, Alabama took the top honors for housing affordability, so this could be a great market for value-focused Self-Directed Real Estate IRA investors.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

The Process of Investing in Real Estate with a Self-Directed IRA

Most IRA owners are still investing in stocks, bonds, and mutual funds because insurance companies, banks, and brokerages typically control the type of investments that may be used. But a growing number of investors are choosing to be independent of the limited choices being offered by these firms. They are taking a different route by using a Self-Directed IRA.

Self-Directed IRAs are legally structured just like a traditional or Roth IRA. The annual contribution limits and tax advantages are identical, but the choices of investments are greatly expanded. While common stocks, bonds, and mutual funds are still available through Self-Directed IRAs, the addition of private stocks, tax liens, precious metals, joint ventures, private notes, and real estate add diversity and control into retirement investing.

Real estate appeals to a wide variety of investors

As the name suggests, real estate is tangible. It is more predictable than many of the traditional investments, and it can be passed down through multiple generations. In other words, it can be a key ingredient in anyone’s retirement portfolio.

As mentioned, diversity and control are the two overriding factors that steer many investors toward a Self-Directed IRA in real estate. Confidence in Wall Street and money managers has waned over the years, and investors are becoming aware that there are so many avenues for researching alternative investments, such as real estate, which gives them the confidence to direct their funds and have the potential for higher returns.

Purchasing real estate with your Self-Directed IRA is not difficult

Here’s how it works:

  • After you open your Self-Directed IRA, you will also open a checking account that’s associated with your IRA. The checking account, set up at your bank, will be the platform through which you purchase and manage your investment properties.
  • After you have completed the necessary research and are ready to buy a property, you write a check from the dedicated account.
  • All deposits, such as rent checks and the proceeds from any sales, are made into the checking account. Conversely, any expenses–mortgage payments, real taxes, improvements, utility bills, repairs, etc.—are paid from the same account.

Keep in mind that Your IRA owns the property. You manage it on behalf of your IRA, but every transaction must go through your IRA checking account.

Follow the rules for Self-Directed IRAs in real estate

While there are no restrictions on the type of real estate your Self-Directed IRA may purchase, there are rules that govern the ownership and servicing of the property. Failure to abide by them could have your entire account deemed a full distribution with taxes and penalties.

Here are the rules:

  • Your Self-Directed IRA may not purchase a property that you already own. Similarly, you are not allowed to buy a property that your IRA owns.
  • You may not live in, or vacation in, any property that your IRA owns.
  • You may not hire a business owned by a disqualified person to provide a service to your IRA-owned property. In other words, if your IRA owns a rental property, you may not hire your father’s roofing company to replace the roof.
  • You are not allowed to receive a salary for managing the property. You may, however, perform managerial services without charging your IRA.
  • You may not perform physical work to the property that your IRA owns.

Due diligence is the key to successful real estate investing

The first step into real estate investing should be to research the market, which includes demographics, income, and job growth. If you are hiring someone to manage the real estate, make a thorough inquiry into that individual. And also research the custodian who will be handling your transactions.

Do you have questions about using a Self-Directed IRA to buy real estate?

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Self-Directed IRA Transfers and Rollovers are not the Same Things

Sometimes it’s annoying when people dwell on semantics. Other times it’s important to understand the differences between certain words or terms. For instance, take the words “transfers” and “rollovers” as they pertain to retirement accounts. You often hear them used interchangeably, but they have distinctly different meanings.

These differences matter a great deal to the IRS, and if you do not understand them, it could have a substantial impact on your taxes. If you are trying to move your current retirement savings into a Self-Directed IRA and are unsure of how to proceed, here are the details:

Transfers are fairly simple

Transfers are the basic method of moving your Self-Directed IRA from one firm to another. The funds move directly from one IRA to another, and the IRA owner never sees the money. Transfers are not reported to the IRS, and there are no limits on the number of times you can transfer your account.

When transferring Self-Directed IRAs, however, your account must be going into the same type of account. For example, if you are moving a Traditional IRA into a Self-Directed IRA, it cannot be a Self-Directed Roth IRA. Remember, \Traditional IRA transfers into another Traditional IRA and Roth into Roth.

There are two types of rollovers

Direct rollover:  When someone moves funds from a qualified retirement plan other than an IRA—their employer’s 401(k), for instance—into a Traditional IRA, the funds are sent directly from one provider to another. As with a transfer, you will not see the money until it shows up in your new account. The difference from a transfer is that the IRS is notified of the transaction. But not to worry, there is no tax due on the rollover funds since you are “rolling” them into another retirement account.

Indirect rollover: This is the type of rollover that has the potential to cause trouble. Also known as a 60-day rollover, you get to take possession of your money personally before depositing it into an IRA within a 60-day window. In other words, you take the money, deposit it into your checking account, and then write a check for the same amount and add it to your Self-Directed IRA.

The trouble comes if you fail to re-deposit the money in the 60-day time frame and the IRS taxes the entire amount. Also, the IRS allows only one indirect rollover within 12 months regardless of how many accounts you have.

Transferring your retirement account is a low-hassle process

Make sure your old account is compatible with the new one, and the entire process will be a breeze. As mentioned above, you may only transfer a Traditional IRA into a new Traditional IRA account or a Roth IRA into another Roth. The firm into which you are transferring funds can provide you with the form to fill out and send to your current IRA provider. The funds will go directly from your current to your new Self-Directed IRA, and you can do as many as you want in one year.

One small caveat: You must rely on your old custodian to transfer the money on their timeline, so it can be a slower process.

Rollovers are perfect for moving a 401(k) from a former employer

Direct rollovers are ideal for removing funds from your company’s retirement plan and depositing it into your IRA. It’s quick and simple. All you need to do is open an IRA account, which can often be done online. Keep in mind; a Self-Directed IRA offers you many more investment options for your retirement funds.

Better yet, contact a professional

If you own a Self-Directed IRA or are looking to open one, it’s important to have an expert on IRA transactions on your side before you start the process of a transfer or rollover. Any mistakes could prove costly—the IRS can assess taxes and penalties—and you could put your entire IRA at risk.

American IRA, LLC specializes in serving the needs of owners of Self-Directed IRAs and other retirement accounts, and we will help to ensure that your transfers and transactions are executed properly and promptly, in compliance with IRS regulations and tax law.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

The Ins and Outs of Bankruptcy Protection for Self-Directed Inherited IRAs

IRAs enjoy a tremendous amount of protection when it comes to bankruptcy and the claims of creditors. But it’s not the same for all IRAs, and it’s not the same in all states. Depending on the jurisdiction, Self-Directed Inherited IRA assets may be subject to seizure in the event of a judgment. If you have a large Inherited IRA, or you have reason to believe you may go bankrupt in the future or you may be subject to a lawsuit involving a substantial sum of money that could be life-changing if you received a judgment, it’s a good idea to take stock of the law in your state before making any major decisions.

The general limit

Normally, IRAs are protected from creditors, up to a limit of $1,283,025. This amount is adjusted every three years according to the cost of living, and the next adjustment is due some time in 2019. Qualified workplace retirement plans, like 401(k)s and 403(b)s, enjoy even greater protection: They have no dollar caps on the amount that is protected from creditor claims.

Furthermore, any assets that you accumulate within a 401(k) that you later roll over into an IRA, including a Self-Directed IRA, also enjoy unlimited creditor protection nationwide. So, if you have a substantial 401(k) balance from a prior employer and you are interested in rolling it over into an IRA or Roth IRA, you do not have to worry about losing creditor protection.

However, a 2014 Supreme Court decision, Clark v. Rameker, the Justices unanimously held that Inherited IRAs did not warrant the same level of creditor protection extended to self-funded IRAs.

Their ruling was that Self-Directed Inherited IRAs do not qualify for the status of retirement plans under federal bankruptcy law and are fair game for creditors seeking damages. The court’s reasoning was three-fold:

  • Unlike retirement plans, Self-Directed Inherited IRAs do not allow further contributions.
  • Unlike non-inherited IRAs, Inherited IRAs can be liquidated at any time and for any reason, without penalty. Other IRAs are subject to a 10 percent penalty for early withdrawal, except for specific hardship circumstances.
  • Self-Directed Inherited IRA owners have to withdraw all their account funds within five years of inheriting the assets, or begin taking minimum distributions every year, regardless of how far from retirement the inheritor is.

The courts held that once an IRA is inherited by a beneficiary other than a spouse, it no longer contains funds that were set aside specifically for the purposes of providing for retirement security, and therefore should be treated the same as all other assets when it comes to creditor protection.

So, under the federal system, Self-Directed Inherited IRAs are subject to creditor claims and may be seized in the event a creditor obtains a judgement and a court order to that effect.

But when it comes to bankruptcy proceedings, not every state is under the federal system. A number of states have opted out of the federal system and give debtors a choice between handling bankruptcies under federal or state guidelines.

Those states that have opted out of federal bankruptcy rules may have exemptions that are much more favorable to those with Self-Directed Inherited IRAs, and for those with IRA balances that exceed the current limit of $1,283,025.

Currently, these states include Arizona, Alaska, North Carolina, Missouri, Florida, Texas, and Ohio. A more detailed chart can be found here.

This issue does not just affect those who have Self-Directed Inherited IRAs. Parents in or nearing retirement whose children have legal issues or are chronic spendthrifts may also want to take measures to set up a trust to inherit assets, rather than passing IRAs directly on to their children where they would be quickly gobbled up by creditors, depending on the state.

American IRA does not provide individualized legal advice. For information pertaining to your individual situation, you should consult a qualified attorney licensed in your state with experience in bankruptcy law.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

What if You Have an Excess Contribution in Your Self-Directed IRA?

A Self-Directed IRA is a wonderful tool for saving for a secure retirement, and anyone who does not take advantage of them by contributing up to the allowable limits ($6,000 in 2019, $7,000 if you are age 50 or over) is wasting an opportunity and leaving gaps in their retirement funding. It should be every retirement saver’s goal to meet these annual limits each year. But what happens when someone exceeds them? Is there any way to correct it?

Well, it happens so many times that the IRS has a name for it: it’s called an excess contribution. And yes, it can be corrected. Here are the details:

How do excess contributions happen?

It seems simple enough. You are allowed to contribute $5,500 to a traditional or Roth IRA for the 2018 tax year, so you write a check for no more than that amount and send it to your Self-Directed IRA custodian. What could go wrong?  Here are some of the ways people lose track:

  • You have exceeded the IRA limit through multiple accounts:The annual limit on IRA contributions is the combined total of traditional and Roth IRAs, not each IRA. Add up all of your IRAs, both traditional and Roth, to make sure you have not contributed too much.
  • You have got your Self-Directed IRA savings on autopilot: Also known as an automatic investment plan, you can have your monthly withdrawals taken from your checking account. If you have the amount set too high, you will go over the limit. For example, with the contribution limit at $6,000 for 2019, make sure your monthly investment does not exceed $500.
  • Your income is too high for a full Roth IRA contribution: Unlike Traditional IRAs, Roth IRAs have income limits to determine who qualifies. Contributions are reduced or phased out at higher income levels.
  • You have reached the age of 70 ½: Some people do not realize that contributions to a Traditional IRA are not allowed in and after the year they turn 70 ½. This rule does not apply to Roth IRAs or rollover contributions.

How do I fix things if I contribute too much?

If you have contributed too much to a Self-Directed IRA, it’s an easy fix if you do it before filing your taxes. Contact your IRA custodian and let them know you have an excess contribution. They will provide the appropriate paperwork.

Withdraw the excess contribution and any earnings from the Self-Directed IRA. Earnings are calculated through a formula called “net income attributable,” and they are taxable as ordinary income. You might need to contact a tax professional for help in calculating your earnings.

If you discovered your mistake after filing your taxes, you still have a few options:

Call your IRA custodian. If you remove the excess contribution and earnings and file an amended tax return by the October extension deadline, you can avoid a 6% penalty.

You may also carry the excess forward to the new tax year. For example, if you contributed $250 above the limit in 2018, you can count it toward your 2019 contribution. You will pay a 6% penalty while the excess contribution is on the books, but you will avoid any future penalties.

Another option, which is typically not recommended, is to do nothing and pay 6% on the excess every year. Some Self-Directed IRA holders reportedly over-contribute to their accounts intentionally, rationalizing that their investments will do better than the 6% penalty. But your accountant will likely warn you not to follow this risky path.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at