How to Keep Your Self-Directed IRA Assets from Going Through Probate

Probate is a long, frustrating and expensive process. It takes time for court probate officials to notify and sort through all the potential creditors’ claims, deal with unpaid tax liability and track down all the heirs. It is expensive, too: All these court officials and clerks need to be paid, and with probate costs sometimes consuming up to 8 percent of your assets and more. But when it comes to IRAs, Self-Directed IRAs and other kinds of retirement accounts, there is good news: Probate is entirely voluntary. There is an easy and straightforward way for you to keep your Self-Directed IRAs, 401(K)s, Self-Directed SEP IRAs, Self-Directed SIMPLE IRAs and other tax-advantage investments out of probate and pass them directly to your heirs:

Designate beneficiaries by name.

When you name a designated beneficiary on a Self-Directed IRA or other retirement account, the assets in that Self-Directed IRA do not go through probate. They bypass probate law and go directly to the designated beneficiary under contract law, which is much more straightforward.

Creditors do not get to intercept the money, probate attorneys do not get to subtract their 3 to 8 percent, there are no taxes at the federal level, and the money passes to heirs in days, not months.

If you fail to designate a named beneficiary, the process is very different. First, the court will consider any Self-Directed IRAs or other retirement accounts for which you did not name a beneficiary to be part of your estate. As such, it will go through probate, and the attorneys, accountants, clerks and judges will each take their cut. Then the IRS and state revenue agencies will subtract their piece from what’s left over.

Then probate officials will subtract any money owed to any creditors who come forward out of what’s left over.

Often there is little, or nothing left over for heirs who are not named beneficiaries on your IRAs, Self-Directed IRAs and other retirement accounts.

Note: Simply writing a will does not avoid probate. A will can simplify the process of determining who is entitled to inherit what assets, and will generally overrule the state intestate laws, which are a series of defaults that courts must observe when someone dies without a will. But assets in wills still go through the probate process, unless you have named a designated beneficiary in writing.

In addition to named beneficiaries on your Self-Directed IRAs and other retirement accounts, you should also consider naming beneficiaries on your bank and brokerage accounts, annuities, pension plans and life insurance policies.

It is also important to revisit your beneficiaries every so often and make sure the beneficiaries on these documents still reflect your wishes.

If you are holding your investments with American IRA, LLC, naming your beneficiaries is very easy: Just contact us at the below phone number or website, or download the Change of Beneficiary Form from our site.

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 www.AmericanIRA.com.

Self-Directed IRAs for Business Owners – The Self-Directed SIMPLE IRA

Many business owners want to combine the tax advantages and flexibility of Self-Directed IRA investing with the higher contribution limits available in employer-sponsored plans. The Self-Directed SIMPLE IRA is a common and popular variant of the IRA designed for small businesses with 100 or fewer employees who do not want to go through the trouble of setting up and administering a full-fledged ERISA-qualified 401(K) plan.

Self-Directed SIMPLE IRAs allow contributions from both employees and employers. Employees can contribute up to $13,000 for 2019, or up to 100 percent of compensation. Those ages 50 and older can contribute an additional $3,000 per year.

Self-Directed SIMPLE IRAs do involve some commitment on the part of plan sponsors: The company must make contributions each year, which can be either a match of up to 3 percent of compensation or a non-elective contribution of at least 2 percent of each employees’ compensation.

Compared to a qualified plan like a 401(K), SIMPLE IRAs and Self-Directed SIMPLE IRA plans allow employees more flexibility in when they can take distributions. While 401(K) plans only allow for distributions upon reaching age 59½, death, disability and termination of service to the company, SIMPLE IRAs are eligible for distributions at any time.

However, distributions are taxable and subject to a penalty of at least 10 percent prior to age 59½. Distributions within the first two years of participation are subject to a draconian penalty of 25 percent, so participants should be very confident they will not need to access that money for at least two years.

However, unlike 401(K)s, SIMPLE IRAs, including Self-Directed SIMPLE IRAs, are eligible for ‘hardship’ exemptions to the 10 percent penalty.

Self-Directed SIMPLE IRA Employer Compliance

Plan sponsors must comply with deposit rules. Salary deferral (employee) contributions must be made within 30 days of the end of the month in which the salary would have been paid out had it been paid in cash. However, self-employed individuals have more flexibility in the timing of the contributions: They have until 30 days after the end of the plan year – normally until January 30th for those businesses using a calendar year. Employer contributions must be made by the due date for the business’s tax return including extensions.

Setting up a SIMPLE IRA for Self-Direction

With a Self-Directed SIMPLE IRA account, participants are not limited to mutual funds, stocks, bonds, and other paper investment. They can hold all manner of alternative investments, and hold assets like rental property, gold and precious metals, closely-held C-corporations and limited partnerships, farms and ranches, tax liens and certificates and others.

However, you need a custodian or third-party administrator that is set up to hold these types of assets and record these transactions. That’s where American IRA, LLC comes in. As an administrator that focuses on self-directed investing, American IRA can work with you no matter what types of assets you select. As long as the assets are legal to hold within an IRA, American IRA can support the transaction.

Interested in learning more about the advantages of Self-Directed SIMPLE IRAs, Self-Directed SEP IRAs and 401(K)s for small business owners and self-employed individuals? Download our free guides or visit us online at www.AmericanIRA.com.

Self-Directed IRAs, Correlation and Diversification

One of the key advantages of Self-Directed IRA investing is its tremendous flexibility: While retaining all the tax advantages of using conventional IRA accounts, self-directed investing also allows investors to range far and wide in search of assets that would effectively diversify against the behavior of a retirement portfolio that’s heavy on U.S. large cap stocks (think the S&P 500) and U.S. investment grade bonds that dominate most Americans’ retirement accounts.

Now’s the time to consider diversifying into a Self-Directed IRA.

That’s important today, as stocks continue to flirt with all-time highs (though in recent days, as of this writing, we have seen some significant downside volatility starting to show up in the stock market), and as interest rates continue to rise. Both portend danger ahead for those investing primarily in Wall Street paper assets. If you are not already diversified into other types of asset classes, now would be a good time to consider making some moves.

Conventional diversification measures and asset allocation is getting less effective over time.

Buying international stocks is no longer the diversifier it once was. During the 80s, the correlation coefficient between international and U.S. stocks was less than 0.50. That is, international stocks offered a meaningful way to maintain exposure to the long-term expected returns, while even a small addition of these more volatile assets could help offset the short-term volatility of the S&P 500.

But much of that diversification benefit for international stocks has vanished: Since 2000, the correlation coefficient of international vs. U.S. equities has increased to more than 0.87 through the end of 2016.

Investors looking for substantial diversification against the S&P 500 must get more creative.

According to this matrix from Morningstar, the most effective diversifiers against the performance of U.S. large cap stocks are cash (with an only slightly positive correlation coefficient of 0.052), commodities (0.141), U.S. investment grade bonds (0.230), emerging markets stocks (0.537) and real estate (0.588).

But cash tends to get swamped by inflation, bonds are getting drowned by a rising tide of interest rates in the short-term, and commodity investing is not palatable to most people, except as an inflation hedge.

Self-Directed IRAs Allow for Easy Diversification

Self-Directed IRA investing allows investors to take a much more granular approach to asset allocation and invest with a rifle scope approach rather than a scatter shot approach that most investors limited to fund and index investing must take.

This means that Self-Directed IRA investors can commit retirement funds to investments that are, from a diversification point of view, literally “off the chart.”

A REIT fund would likely behave very much like the real estate asset class as a whole, unless it was carefully targeted at a specific niche market. But any given rental property can behave radically differently from a REIT index, simply because so much of real estate investing is governed by hyperlocal trends, local employers, schools, tourism factors, seasonality and, of course, the investor’s own effort and skill in unlocking value in a closely-managed rental property.

Investments in tax liens and certificates would likely tend to generate positive returns even in falling interest rate markets – and therefore be an effective diversifier.

Self-Directed IRAs and Alternative Asset Classes

Both of these assets lend themselves very well to Self-Directed IRA investing – they are easily managed using a third-party administrator like American IRA, LLC, and investors can exercise very close control of these transactions without having to leave the decisions up to a money manager many hundreds of miles away.

This home court advantage can be invaluable for investors – and can be had without paying crazy ‘2-and-20’ fees to hedge fund managers.

In fact, due to the nature of the Self-Directed IRA market, American IRA is able to forego the inefficient expense ratio/AUM fee pricing model and charge a low flat fee for each transaction. In many cases, this saves hundreds and even thousands of dollars per year – especially on larger accounts.

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 www.AmericanIRA.com.

The 6 Most Popular Cryptocurrencies

By now everyone has heard of Cryptocurrency, and there are even a few investors out there who understand it completely. In a nutshell, digital currency works as a medium of exchange. There was quite a bit of hype in 2017 when the market capitalization for Cryptocurrencies grew from $18 billion in January to $800 billion over the next twelve months.

As recently as September of 2018, however, things had pulled back, and the market cap stood at under $200 billion. Despite their volatility, Cryptocurrencies are garnering plenty of attention. And while there are many different kinds of Cryptocurrency, these six are the most popular for 2018. So, here is the list, along with a brief explanation of why these digital currencies have a position at or near the top:

  1. Bitcoin (BTC)

Bitcoin is the oldest and the most commonly used digital currency. Created in 2009 using blockchain technology, Bitcoin allows users to make transparent peer-to-peer transactions, which are secured through an algorithm within the blockchain. In other words, everyone can see the transaction, but only the owner of that particular Bitcoin can decrypt it with a “private key.”

Bitcoin has a significant community of developers and investors backing it for future growth, and it has been adopted by mainstream corporations such as Microsoft, Overstock.com, and Expedia. Since it is easy to buy and is supported by the top exchanges and wallets, Bitcoin is popular with both beginners and experts.

  1. Ethereum (ETH)

Ethereum is second to Bitcoin in market value. Created in 2015, Ethereum goes beyond being merely a digital currency. It is also a blockchain-based platform for developing decentralized apps and smart contracts.  And Ethereum offers an excellent platform for launching the Initial Coin Offerings (ICOs) for other blockchain projects. One other plus: Ethereum has a transaction speed of a few seconds versus the 10 minutes or more of Bitcoin.

  1. Ripple (XRP)

Ripple is a unique Cryptocurrency. Released in 2012, it is both a Cryptocurrency and a digital payment network for financial transactions. It was set up to create a fast, secure, and economical way to transfer money. It differs from other currencies in that it allows for any currency to be exchanged and it connects to banks.

Its primary focus is on moving sums of money on a larger scale rather than person-to-person transactions. Unlike traditional international money transfers that can take about a week, Ripple can make it happen within seconds and at a significantly lower cost.

  1. Bitcoin Cash (BCH)

Bitcoin Cash was forked from the original Bitcoin in 2016 after its developer community could not agree on the changes required in Bitcoin’s code. BCH was created to improve specific features of Bitcoin by increasing the size of blocks, which allowed for more and faster processing of transactions. It was created to solve some of the existing problems of Bitcoin, namely scalability and transaction fees.

5. EOS

EOS is on the list of top Cryptocurrencies even though its platform was just launched in June of 2018. Its token was launched a year earlier. Most experts predict that it will be a direct competitor to Ethereum since it provides a platform for developers to build decentralized applications and smart contracts with a significant improvement in technology.

EOS should be more scalable than Ethereum because it uses an advanced mechanism to verify transactions. It is reportedly capable of completing 10,000 to 100,000 transactions per second!

6. Cardano (ADA)

Cardano was created in September of 2017 by Charles Hoskinson, who is Ethereum’s co-founder. Like Ethereum, Cardano has been developed as a platform for decentralized apps and smart contracts.

Just like EOS, the difference between Cardano and Ethereum shows up in its technological improvements. Cardano is considered among the most advanced generation of blockchain technologies and is supported by an academic community of global researchers and scientists contributing to its blockchain development.

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 www.AmericanIRA.com.

Due Diligence on Self-Directed IRA Advisors

Fortunately, the vast majority of our colleagues in the Self-Directed IRA industry are honest and are out to do the right thing by investors. So, on the rare occasions when we do become aware of scams affecting Self-Directed IRA investors, it is no fun writing it up. But we believe all investors in the Self-Directed IRA space have a right and a need to know about them.

Here is an episode that came to light earlier this year, which underscores the need for investors to conduct proper due diligence on anyone advising them on their Self-Directed IRAs: Perry Santillo, the founder and CEO of Baltimore-based High Point Wealth Management and co-host of a popular radio broadcast called The Money Guys, has been found guilty of soliciting at least 99 investors, convincing them to sell annuities and other assets in their existing retirement accounts, and roll the proceeds over to a Self-Directed IRA.

There’s nothing inherently wrong with that, so far – provided the new investments meet the suitability standard expected of financial advisors, and that it is a bona fide financial advisor making the recommendation.

But once the rollover was in place, the State of Maryland says Santillo steered those investments into promissory notes for his other companies and those of an associate.

This is a blatant conflict of interest. At American IRA we do not attempt to steer clients in or out of any legal investment. The High Point Capital case underscores the very real danger a conflict of interest poses when an administrator or custodian is also acting as a financial advisor and has side business interests that present a temptation to steer investor’s assets to serve their own interests, instead of those of their clients.

Neither Santillo nor his firm were registered with the State of Maryland as financial advisors, and so should not have been providing specific investment advice at all. Furthermore, neither Santillo nor his firm were registered with the State of Maryland as financial advisors, and so should not have been providing specific investment advice at all.

According to court filings, Santillo and his staff at High Point Capital improperly steered at least $6,290,000 of their clients’ money into his other firms’ coffers via unsecured promissory notes. What’s more, he named himself as an “interested party” on the transfer forms.

Their transfer forms also did not include disclosures required by law that would have alerted investors to potential red flags.

The Maryland Commissioner ruled that in promoting his own interests under the guise of advising clients about their Self-Directed IRA investments, Santillo committed the following violations:

  • Offering and selling unregistered securities.
  • Improperly holding himself and his firm out as a financial advisor and appropriating the term “wealth management.”
  • Recommending that advisory clients sell securities and invest in pooled real estate investments and/or promissory notes.
  • Employing or associating with unregistered investment adviser representatives.
  • By effecting or attempting to effect securities transactions in pooled real estate investments and/or promissory notes while they were not registered with the Division as a broker-dealer or agent.
  • Offering and selling unregistered, non-exempt securities that are not federal covered securities to at least 21 investors, and by failing to disclose to those investors the risks associated with the securities, including that the FNS promissory notes are unsecured.
  • Failing to disclose the risks of the unregistered securities they were improperly selling.
  • Misrepresenting the investment track record of the unregistered securities they were improperly selling.
  • Convincing clients to sell annuities and incur material surrender charges without informing them what they recommended as a replacement.
  • Failing to disclose material conflicts of interest.

…and many others.

As a result of these violations, Santillo and his corporations were fined $3.99 million, plus an additional $430,000 for Santillo and FNS, and permanently barred from the securities industry in Maryland.

As a third-party administrator of Self-Directed IRAs and other retirement accounts, we have no conflict of interest that would lead us to steer investments to other investments that we control. We are investment neutral, and we do not give recommendations to buy or sell any given security or other investment. Instead, we work with your existing financial advisors, and simply execute the transactions that you direct, while in many cases saving thousands of dollars in AUM fees and expense ratios, thanks to our unique menu-based pricing structure.

However, as this incident shows, you should do your own due diligence on any advisors you choose to engage. Look into their backgrounds with state securities regulators and with FINRA, understand the required disclosures on any given transaction, and insist on frankness and transparency when it comes to any potential conflicts of interest.

To read the entire ruling, click here.

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 www.AmericanIRA.com.

Explaining the Self-Directed IRA Single Rollover Rule

A couple of years ago a lot of Self-Directed IRA owners and even advisors believed believed you could execute an IRA rollover once per year for every account. But that is not the case. The fact is that Self-Directed IRA owners can only execute one IRA rollover per year per taxpayer. If you blow that rule and attempt to take multiple rollovers, you could face serious tax consequences: Including the loss of retirement savings.

Worse, the IRS does not provide any remedy for avoiding the penalty once the prohibited rollover happens. There’s no ‘take-backs’ or do-overs.

Here’s the rule:

You can make only one rollover from a Self-Directed IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement  2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

  • Trustee-to-trustee transfers between IRAs are not limited.
  • Rollovers from traditional to Roth IRAs (“conversions”) are not limited.

If you withdraw funds from an IRA or Self-Directed IRA thinking you are going to roll the funds over to another IRA, and you later learn that you are ineligible because you already did your one allowable rollover for the year, you are facing a taxable distribution of the entire IRA.

That is, you will not even have the Self-Directed IRA by the time the IRS done with you, and you will probably be looking at a big tax bill – especially if the IRA was something other than a non-deductible IRA.

To add insult to injury, if you are under age 59 ½, you are also facing a 10 percent early distribution penalty on the entire pre-tax account.

That is right: You do not pay a 10 percent penalty on the amount you get to keep after taxes; you must pay the ten percent on the full gross (pre-tax) amount distributed.

Wait… it gets even worse.

If, having taken a prohibited distribution, you try to deposit the funds into a new Self-Directed IRA or conventional IRA account thinking you are just going to do a normal rollover, you will instead have an excess IRA contribution on your hands, with a whole new layer of penalties.

The IRS can occasionally cut some slack on the 60-day rule. But Congress gave no waiver authority to the IRS when it comes to the single rollover rule. Do not bother trying to appeal it: The IRS is simply not allowed to bend the rules on this one.

To avoid the penalty, do not get involved. You can still make multiple rollovers as long as you use the trustee-to-trustee method, in which you transfer assets directly from one administrator or custodian to another, and do not attempt to take possession of the funds using a 60-day rollover.

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 www.AmericanIRA.com.

Getting Started with a Self-Directed IRA

You have probably been hearing a lot of talk about Self-Directed IRAs lately. That is because retirement savers are becoming retirement investors, and they are starting to take advantage of these accounts to diversify their portfolios with a whole new world of alternative investments.

Up until the last few years, most retirement funds went into Traditional IRAs that were limited to ordinary investments such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Some of the most conservative savers were still opting for the “safety” of certificates of deposit (CDs) and annuities.

But attitudes are changing as the so-called average investor begins to understand that safety does not come from money market accounts and CDs that pay interest rates far below the modest rate of inflation. Instead, it comes from a diversified portfolio of investments that provides growth for an IRA without subjecting it to the roller-coaster ride that is often inherent when there is a limited range of investments.

Self-Directed IRAs give you an opportunity for true diversification and growth potential

With a Self-Directed IRA, you can break free of the constraints of a Traditional IRA. Here are some of the ways you can diversify:

  • Real estate
  • Private stock
  • Private lending notes
  • Precious metals
  • Tax liens
  • Joint ventures and partnerships
  • Single-member limited liability company (LLC)

A Self-Directed IRA allows you the same tax benefits of a Traditional IRA while providing you with an opportunity for higher growth potential than you would have with standard investments like stocks and funds. And Self-Directed IRAs are the only retirement-planning vehicles that permit individual investors to pursue these alternative investments as a creative way to save for the future.

You can still choose between Traditional and Roth IRAs

Self-Directed IRAs give you the same tax advantages as regular IRAs, but those benefits will depend on the type of account you use. With a Self-Directed Traditional IRA, for instance, you get an immediate tax break and defer paying taxes on your contributions and earnings until you take distributions during retirement. And with a Self-Directed Roth IRA, you get no up-front tax benefit, but your profits will grow tax-free.

You have more control with a Self-Directed IRA

As the name implies, a Self-Directed IRA gives you more control. Say you have always wanted to invest in precious metals like gold, silver, and platinum, or perhaps the thought of owning a commercial property has always intrigued you.  With your Self-Directed IRA, you decide which metals you want to hold or which real-estate investment is right for you.

Of course, you will be required to follow specific rules, especially if you decide to purchase real estate, but the rewards can far outweigh the effort it takes to familiarize yourself (or to seek professional help) with the tax rules associated with the investments. In any event, you will find a sense of control in these alternative investments that you would not be able to replicate in a large mutual fund.

Getting started is simple

First and foremost, you will want to work with an experienced administrator–and that is where we come in. We are American IRA, and everything we do revolves around Self-Directed IRAs. If you would like to open a new account or have questions about opening a new account, please contact our office 1-866-7500-IRA(472), or info@americanira.com.

Once your account is open, you can add funds to it by transferring money from an existing IRA, initiating a rollover from an employer’s plan (such as a 401(K)), or contributing cash for the 2018 tax year. Keep in mind that annual contributions are limited to $5,500 if you are under 50 years of age or $6,500 for those 50 and over. You must also have earned income of at least the amount you put into your IRA.

After you have funded the account, you may start investing right away. American IRA has simplified our process so that you can quickly and easily take care of your Self-Directed IRA transactions.

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 www.AmericanIRA.com.

Self-Directed 401(K) Basics

A Self-Directed 401(K) is a variant of the popular employer-sponsored defined contribution retirement plan most of us are familiar with. The difference is this: Where most off-the-shelf 401(K) products offered by investment companies restrict participants to a limited menu of approved investments, a Self-Directed 401(K) is set up with a custodian or administrator that allows the plan participant to invest in anything they like, except for a few types of assets that have been prohibited from 401(K)s by Congress.

With a Self-Directed 401(K), then, you can choose any mutual fund on the market, or any stock, bond or other publicly-traded security anyone will sell to you. You can also choose non-publicly-traded securities (private placements), private debt instruments and mortgage lending, tax liens and certificates, most forms of gold, silver, platinum and palladium coins and bullion, direct ownership of real estate, venture capital, partnerships, privately-held corporations (though not S-corporations), LLCs, farms and ranches, equipment leasing and financing, forex, oil and gas projects and much more.

In most instances, a Self-Directed 401(K) is a type of Self-Directed Solo 401(K), a special variant of the 401(K) developed for small-business owners with just one full-time employee, or a married couple acting as the only full-time employees, or for self-employed individuals.

Self-Directed 401(K)s do come with some investment restrictions. Investing in the following assets using a Self-Directed 401(K) is prohibited by law:

  • Life insurance,
  • Alcoholic beverages
  • Collectibles
  • Jewelry
  • Gems
  • Precious metals of insufficient purity or consistency

Additionally, you cannot use your Self-Directed 401(K) to transact directly with the following ‘disqualified persons:’

  • Yourself.
  • Your spouse.
  • Your descendants or those of your spouse.
  • Your ascendants (parents or grandparents) or those of your spouse.
  • Any professional who advises you on your 401(K) in a fiduciary capacity.
  • Any entities in which any of these individuals own a controlling interest.

You also cannot use property or other assets within your Self-Directed 401(K) to benefit yourself or any other disqualified individual or entity. For example, if you own a rental property on the beach within your Self-Directed 401(K), you cannot stay in it over the weekend, nor can you pay yourself a salary from within the 401(K) for managing it, nor can you hire your son-in-law’s property management company that he owns more than 50 percent in to manage the property on your 401(K)s behalf.

To open a Self-Directed 401(K), contact American IRA, LLC today and fund an account. You can fund it from new contributions, profit sharing contributions from your employer (which is you, of course, if you are self-employed!), or transferred funds from other 401(K)s, Traditional IRAs, Self-Directed SEP IRAs or Self-Directed SIMPLE IRAs.

Note that you cannot roll Roth IRA money into a Self-Directed 401(K) plan or any other 401(K) plan. However, you can establish a Self-Directed Roth 401(K) account, create a Self-Directed Roth IRA or both. This allows you to choose to forego a current-year deduction on contributions, but instead choose to allow the growth to occur tax-free for as long as it is in the account, and income to come out generally tax-free as well in retirement (as long as the assets remain in the Roth 401(K) for at least five years.

401(K)s potentially allow small business owners and self-employed individuals to set aside a much larger amount of money on a tax-advantaged basis than you can with a Self-Directed IRA alone: As an employee, you can contribute up to $18,500 for the year (those ages 50 and over can contribute an extra $6,000, for a total potential salary deferral contribution of $24,500.

Employers can contribute up to $36,500 from matching and profit-sharing contributions for the year, for a total combined potential contribution of up to $55,000 for the year.

Choosing a Self-Directed Solo 401(K) may be a good way to help maximize tax-advantaged retirement contributions for small business owners who don’t have any full-time employees other than themselves and a spouse. If you have employees, or plan to have employees, you may want to consider a Self-Directed SEP IRA, though at present, Self-Directed SEP IRAs do not have a Roth option.

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 www.AmericanIRA.com.

Yes, you can invest in (or create) an LLC within a Self-Directed IRA. But be careful!

Occasionally, we get asked if limited liability companies (LLCs) are allowable investments for Self-Directed IRAs. The answer is yes – and they are frequently excellent vehicles for Self-Directed IRAs, depending on the circumstances. They allow for more direct control of IRA assets, and it is even possible to set up a checking account in the LLC’s name to handle transactions made by the IRA.

An LLC within a Self-Directed IRA can also help facilitate joint ventures – if you do not have the assets within your Self-Directed IRA to purchase the entire property, and you do not want to or cannot get a mortgage, your LLC within your Self-Directed IRA can be a partner in the investment along with other entities not related to the Self-Directed IRA at all.

The IRA can be a member in an LLC that is jointly owned by multiple partners. This is frequently the case when Self-Directed IRAs take ownership positions in closely-held family businesses and farms, or when buying apartment buildings and commercial real estate properties.

LLCs within IRAs also may require additional care and due diligence on the part of the Self-Directed IRA owner – especially in the case of single-member LLCs.

Here is what Self-Directed IRA investors should bear in mind when considering investing Self-Directed IRA assets in an LLC:

  • If you are holding your LLC within an IRA, it is the IRA, not you, who should be listed as the member.
  • You need an operating agreement document tailored for your Self-Directed IRA. You cannot use the standard operating agreement that most attorneys use for their standard LLC products.
  • You must send a copy of the managing operating agreement to American IRA or whatever custodian or third-party Self-Directed IRA administrator you select.
  • You must maintain a strict separation between your own personal finances and those of the IRA.
  • You cannot act as a personal guarantor or offer any assets outside of the IRA as collateral for any loans taken out by the LLC within a Self-Directed IRA.
  • You cannot use the LLC to invest in life insurance, collectibles, gems, jewelry, certain kinds of gold and precious metal coins and bullion of insufficient or inconsistent purity, or alcoholic beverages.
  • If you purchase an investment property using an LLC within a Self-Directed IRA, you cannot use the property for your own personal benefit or convenience, nor for the benefit of your spouse, children, grandchildren, parents, grandparents or those of your spouse’s, nor for any entities they control.
  • Your LLC within your Self-Directed IRA cannot pay a salary to any of the above individuals, nor transact directly with any entities they control.
  • You cannot let your financial advisor, attorney, real estate agent or other fiduciary who gives you advice on your Self-Directed IRA or the LLCs within it to use the property for their own benefit or convenience.

Violations of these prohibited transaction rules could result in the IRS disallowing your IRA, potentially causing severe unwanted taxes and penalties.

LLCs in self-directed and Self-Directed Real Estate IRAs can be invaluable in establishing limited liability – thus helping wall off other assets in the IRA from being seized by creditors with claims against the property or asset within the LLC. But investors should use extreme caution – particularly when using the ‘checkbook control’ technique. This is an advanced strategy that should only be undertaken with the assistance of experienced tax and legal counsel.

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 www.AmericanIRA.com.

Protecting Yourself from Rising Interest Rates Using a Self-Directed IRA

Warren Buffett famously quipped “it is only when the tide goes out that you see who has been swimming naked.”

Well, for investors, rising interest rates are the market’s way of making the tides go out. Investors in paper assets who are not careful could wind up high and dry. Rising interest rate environments are not too bad for Self-Directed IRA investors and Self-Directed Real Estate IRA investors, though, because they generally have the luxury of long-time horizons, and more flexibility to direct their investments into assets that are not negatively affected by increasing interest rates.

Assets to Avoid

Bonds generally do not do well when interest rates are rising. When interest rates rise, bond prices fall. A few bonds in unique credit situations or with extenuating circumstances may escape the overall trend, but the overwhelming majority of publicly traded bonds will generally follow market trends – and investors with a significant exposure to bonds will typically see the value of their portfolios decline, in the short run. Longer-duration bonds will be affected more than short-duration bonds.

This is not generally a reason to panic: You should still get your coupon payments as scheduled, and you should get your capital returned when any given bond reaches maturity. But you could take a loss in the meantime if you are forced to sell.

You may want to focus on high-yield and private placement bonds within your Self-Directed IRA. These bonds are not as closely tied to interest rates. Also, short-term bonds will only be minimally affected by modest interest rate changes. You can also reinvest quickly at higher rates as these bonds mature.

Assets to Consider

Self-Directed Real Estate IRAs

Self-Directed Real Estate IRA investors may be affected by interest rate fluctuations in the short-term. As interest rates rise, homes at any given price point become less affordable.

But long-term, buy-and-hold rental property investors may benefit: The higher mortgage rates rise, the more demand there is for rental property, as people put off home purchases. This can be very good for Self-Directed Real Estate IRA investors, as it helps support rent prices and drive down vacancy rates.

Self-Directed Gold and Precious Metal IRAs

When interest rates rise, it is typically because central banks are detecting inflationary pressures in the economy. That is why they are increasing interest rates – inflation is making them nervous.

It should.

But inflationary pressures generally work out well for gold and precious metals investors, who typically do well when inflation is high, or when the economic situation is uncertain.

You can own certain gold and precious metal coins and bullion within a Self-Directed Gold and Silver IRA. However, the coins and bullion must meet certain thresholds for purity and consistency, and not every coin or bullion form qualifies. You also cannot hold the assets directly. You must hold these assets through a third party such as American IRA.

Tax Liens and Certificates

These are increasingly popular instruments with Self-Directed IRA investors. The IRA holder identifies a property with a delinquent property tax bill attached to it and pays the taxes on the property owner’s behalf. The county gets its tax money, and you get a lien on the property that has to be repaid – typically at a very attractive interest rate.

These are technically debt instruments – but their interest rate bears little relationship to overall interest rate trends. Tax liens and certificates are often used to help diversify investment portfolios against interest rate risk and stock market risk.

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 www.AmericanIRA.com.