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Protect Your Self-Directed IRAs

July 23, 2013/in Prohibited Transactions, Real Estate IRA Investing, Resources, Self-Directed IRA, Self-directed IRA Account /by American IRA

Lack of Knowledge

Many people make mistakes due to a lack of understanding of the governing rules related to self-directed IRAs. This article covers two of the most common mistakes. Understanding these rules can help you grow your self-directed IRAs without fear of losing out to avoidable errors.

Violating Once-Per Year IRA-To-IRA Rollover Rule

You have two options when moving assets between your self-directed IRAs; one is a transfer and the other is a rollover. Under a transfer, the delivering IRA custodian pays the amount to the receiving IRA custodian for the benefit of your IRA. Transfers can be done for an unlimited amount of times.

Unlike a transfer, a rollover can only be done once during a 12-month period per IRA. Failure to follow this rule will result in loss of tax-deferred status, which means that the amount would be treated as ordinary income and could be subject to the 10% early distribution penalty if the distribution occurs while you are under age 59½. The amount could also be subject to a 6% excise tax if not corrected by your tax-filing deadline, plus extensions.

Example:

John decided to purchase a rental property with his self-directed IRAs and moved $100,000 from his Traditional IRA #1 to his self-directed Traditional IRA. He requested a distribution of the amount on January 30, 2013 and rolled over the amount on February 10, 2013. John found another rental property and consequently withdrew an additional $200,000 from IRA #1 on April 2, 2013 which he rolled over to his self-directed Traditional IRA on April 10, 2013.

John’s Mistake: John should have used the transfer method for at least one of those transactions, because only one distribution can be rolled over from IRA #1 during a 12-month period.

The Consequences: John must include the $200,000 as ordinary income for 2013. If he was under age 59½ on April 2, 2013, he will also owe the IRS a 10% early distribution penalty, unless an exception applies. John may also owe a 6% excise tax if he does not distribute the amount as a return of excess contribution by his 2013 tax filing deadline, plus any extensions, along with any net income attributable (NIA).

Missing 60-day Deadline

If you take an eligible rollover distribution from your self-directed IRAs or any other retirement account, the amount must be rolled over within 60-days of receipt in order for it to be excluded from your income. Failure to meet this deadline could cause the amount to become ineligible for rollover.

Example:

Tim requested a $100,000 distribution from his Traditional IRA on January 10, 2013 and received the amount a few days later. Tim deposited the amount to his regular checking account as he planned to use it as a down payment on a property he knew he could flip quickly. However, the closing was delayed on the property until March 31 (well past the 60-day deadline).

Tim’s Mistake: Tim should have used another source to cover his short term financial needs or borrow the funds from another source in order to rollover the amount within the 60-day deadline.

The Consequences: Tim must include the $100,000 in income for 2013. If he was under age 59½ on January 10, 2013, he will owe the IRS a 10% early distribution penalty on the amount, unless an exception applies. If Tim rolls over the amount after the 60-day deadline, the consequences will be the same as those that apply when someone violates the once per 12-month rule for IRA-to-IRA rollovers (explained above).

Conclusion: Use the Right Options

Many investors call our offices wanting to know about the 60 day rollover and we encourage them to use the transfer method instead whenever possible.

Using the 60 day rollover method to acquire real estate is full of danger due to the uncertainty of closings, the selling of the property, and so forth. Whatever you are going to make on the real estate transaction, you may lose in your self-directed IRAs.

Disclaimer

American IRA, LLC does not give investment advice. We do offer guidance as to the rules and regulations related to self-directed accounts and the benefits of different account types so that our clients can take that information to their professionals to discuss the ramifications of various decisions on their individual situation.

For more information about self-directed IRAs visit our FAQ page, or to explore your options, call American IRA today at 866-7500-IRA (472). We look forward to working with you.

Self-Directed IRA Due Diligence

July 16, 2013/in Real Estate IRA Investing, Resources, Self-Directed IRA /by American IRA

Self-Directed IRA Due Diligence When Investing With a Self-directed IRA and/or Self-directed 401(k)– Where do I Start?

With a self-directed IRA and/or a self-directed 401(k) you are always hearing that you must do your ‘self-directed IRA due diligence’. At American IRA, we discovered that many clients did not know how to do their ‘due diligence’. While we cannot give investment advice at American IRA, we can offer a detailed summary of ‘due diligence’ items that our clients can use as a guide. This list gives our clients a healthy starting point that they can use during discussions with their professionals. In this article we share with you ‘due diligence’ items related to real estate acquisitions. As every investment is different, you should consult with your professionals about whether there are ‘due diligence’ items you need to consider in addition to what we share in this article.

Self-Directed IRA Due Diligence – Real Estate Acquisition – The Basics

These are the basics that you look at if you’re buying any property whether you are buying it with your real estate self-directed IRA or self-directed 401(k) or whether you are buying it outside of your IRA. These are some items you absolutely must look at:

Location – is the real estate located in a desirable location?
Financing – you want to make sure you get the type of financing you need, whether it’s owner or bank.
Property values and comps – you absolutely ‘must’ obtain these so you are educated about what you are purchasing and what its true value is in the market place.
Homeowner’s association rules and fees – it is critical that you know these in advance. Did you realize that some homeowner’s association rules actually ‘prohibit’ you from renting or leasing the home?
Property liability insurance – make sure the real estate is insurable and find out how much that insurance costs. There are some wonderful homes that are sold cheap and would make great vacation rentals in places such as Florida…but they are either uninsurable or the insurance premiums are so high that their current owners are selling.
Title insurance and title issues – always make sure a title search is done on the real estate before you purchase it and always follow-up by protecting yourself with title insurance.
Surveys – it is critical to obtain a survey to make sure the real estate you are purchasing as well as the land it is situated on is free from encumbrances.
Property condition – a home inspection is a great way to properly assess the condition of the real estate.
Rental values – check the rental values in the area to make sure that you can obtain enough in rent to cover all your expenses and still make a profit.

Self-Directed IRA Due Diligence – Real Estate Acquisition – The Don’ts

When investing in real estate via your real estate self-directed IRA or self-directed 401(k), it is critical to avoid some common mistakes.

Do not trust the seller’s numbers.
Do not take too long to decide. Good deals do not last.
Do not trust appraisals unless you ordered it, paid for it, and gave the appraiser instructions.
Do not fudge, play with or use ‘hope that this will happen with’ the numbers.Do not underestimate the time to flip.
- I hope that I can rent it for $1,100. You need to know that you can rent it for $1,100. If you don’t know, use $1,000. Use the number that you know.
Do not overestimate the rental market
Do not underestimate the repairs.
Do not underestimate the “as is” value.

Self-Directed IRA Due Diligence – Real Estate Acquisition – Key Thoughts

Here are some final thoughts to keep in mind when investing in real estate:

Do good deals.
Follow through and deliver as agreed to with whatever person you’re dealing with.
Use professionals. Many times you think ‘I don’t need that professional’. Trust me when I tell you that I have seen many things that had a professional been involved, they would not have the problems they have.
Stay on top of the numbers/bookkeeping.
Do not cut corners. I have been punished every single time I’ve cut a corner. The corner-cutting gods come down with lightning bolts and they strike.
As soon as you think you are smarter than everyone else, you will find out “The Hard Way” that you’re not.
Slow and steady beats fast and sloppy – ALWAYS!
Have a plan and work your plan.
Do not get tangled up in the bigger better deal mentality.
You’ve got to be prepared to walk away at any point in time that the deal does not match up to what you want or what you believe is in your best interest.

Disclaimer

The self-directed IRA due diligence items listed, the examples, and the references in this article are merely examples. This is not an all-inclusive list of what you need to include in your real estate investment portfolio; this is absolutely for illustration purposes only.

American IRA, LLC does not give investment advice. We do offer guidance as to the rules and regulations related to their self-directed accounts and the benefits of different account types so that our clients can take that information to their professionals to discuss the ramifications of various decisions on their individual situation.

For more information, or to explore your options, call American IRA today at 866-7500-IRA(472). We look forward to working with you.

July 12, 2013/in Events, Resources /by American IRA

Location: Since these are webinars, you can attend from anywhere as long as you have a computer and a phone or alternatively a computer with speakers.

Details:

Have you ever looked at your retirement account statements and thought, “At this rate, I will NEVER be able to retire.”

Come join us for an information packed webinar to learn how you can take control of your financial future by “Self-Directing” your IRA or 401k.

In this webinar we will explain:

Why most Americans are not on track to retire.
What is a Self Directed IRA/401k?
How to UNLEASH your IRA or 401k to invest in what you UNDERSTAND.
The process to make an investment with your Self-Directed IRA/401k.
Strategies that clients are using to get quality returns.

How to Join:

Please register for the meeting at one of the times listed below.

July 17th @ 12:00PM
Register at: https://www4.gotomeeting.com/register/577673375

July 23rd @ 12:00PM
Register at: https://www4.gotomeeting.com/register/135545279

July 31st @ 12:00PM
Register at: https://www4.gotomeeting.com/register/821431687

Cost: These webinars are open to the public and free to all!

Self-directed IRA Private Lending

July 12, 2013/in Private IRA Lending, Resources, Self-Directed IRA /by American IRA

Self-Directed IRA Private Lending Explained

If someone wants to just simply hold the paper secured by an asset in their self-directed IRA, their self-directed IRA is actually going to be a private lender for that asset. That’s right…self-directed IRA private lending simply means a private individual is using their self-directed IRA to loan the money rather than a bank or lending institution.

Self-Directed IRA Private Lending…The Numbers

In this example, Jack Brown has $100,000 he rolls over into his self-directed IRA. He wants to loan it to an investor as a first mortgage on a property worth $135,000.

Self-Directed IRA Private Lending…Determining the Value

Perhaps Jack’s realtor, an appraiser or some resource told him, or perhaps he’s sophisticated enough to look at the deal and say I’m comfortable that the deal is worth $135,000. We always suggest doing your ‘due diligence’ and using professionals to assess the value of an asset you are going to loan money on.

In this case, we’re looking at an LTV – Loan to Value – of 75%. This is not a hard and fast rule, with self-directed IRA private lending, the Loan to value is negotiated between the private lender and the private borrower.

Self-Directed IRA Private Lending…The Terms

The two parties – the lenders as well as the borrower – agreed to a 9% interest rate with interest only payments over five years and no amortization of the loan. With self-directed IRA private lending, the interest rate is negotiated by the private lender and the private borrower. They agreed on a straight interest-only payment, just to make it really clean and easy.

The property is going to be secured by a mortgage and a promissory note, and it’s going to be recorded with an attorney.

Self-Directed IRA Private Lending…Preparing for the Closing

Jack is going to send us what we call a buy direction letter. It’s an internal document that he completes to tell us the details of what he wants his IRA to invest in.

Jack will then review and approve all the closings documents. He’s the account holder and the decision-maker. He needs to understand the deal, and it’s only going to be funded if Jack is comfortable with it.

Self-Directed IRA Private Lending…The Closing

Even though this loan is being made through his self-directed IRA, this is going to be a regular closing that we’re used to as real estate investors. The documents are going to be recorded, and the only difference is that the original documents are actually going to be held by our office in our fireproof safe at American IRA.

As you can see, we’re not making the decisions. The client is directing us all along the way as to how and when to make the investment. In this case, because it’s a Traditional IRA, the interest is going to be tax deferred in a monthly amount of $750. That’s just 9% of $100,000 broken down into monthly payments.

Self-Directed IRA Private Lending…The Profits

At the end of the five years the loan is repaid, and the interest accrued over those five years is $45,000!

All self-directed IRA private lending investments have inherent risks. With proper due diligence and a professional team, risk can be managed but not eliminated-that is our job as investors. If you don’t want to take a risk whatsoever, tongue in cheek I say “Put it in U.S. Bonds or FDIC Insured CDs…though as you all know…Bonds and CDs are offering very low returns”.

Disclaimer

American IRA, LLC does not give investment advice. We do offer guidance as to the rules and regulations related to their self-directed accounts and the benefits of different account types so that their clients can take that information to their professionals to discuss the ramifications of various decisions on their individual situation.

For more information, or to explore your options, call American IRA today at 866-7500-IRA (472). We look forward to working with you.

Self-Directed IRA for Retirement

July 8, 2013/in Resources, Self-Directed IRA /by American IRA

What’s the difference between an old fashioned traditional retirement account and a 21^st century self-directed IRA account? If you’re familiar with the old adage of “not placing all your eggs in one basket,” this classic advice still rings true. The difference is that an old fashioned retirement account is primarily securities based and a 21^st century self-directed IRA truly allows you to diversify the assets in your retirement account.

A self-directed IRA account from American IRA, for example, enables you to invest in assets that offer much more diversity. Rather than pouring all of your hard-earned savings into turbulent stocks or even the rapidly shifting bond market, you can instead focus on private lending, real estate, joint ventures, and other asset classes. The long term effects of this flexibility are quite striking – if a given asset class is constantly shifting, your self-directed IRA’s other assets can go a long way toward reducing account volatility.

So in a nutshell, what we’re calling a “self-directed IRA” is one that allows you to make the most of your investing knowledge by giving you the ability to invest in what you understand.

Are you an experienced tax lien investor? Do you regularly buy and sell real estate? Would you like to start your own private company with many of the benefits that a self-directed IRA brings? Self-direction is an amazing way to enhance your portfolio’s diversification!

If you have any questions about opening a new account, contact us at 1-866-7500-IRA(472) or info@americanira.com. If you’d like to transfer your existing portfolio, contact us at 1-866-7500-IRA(472) or transactions@americanira.com.

Self-Directed IRAs a Social Security Solution

July 8, 2013/in Resources, Self-Directed IRA /by American IRA

Current news headlines are full of retirement-related stories and specials. The world’s most developed nations have benefited from greater nutrition levels, more effective healthcare treatment, and generally more resources as a whole. The result of this higher standard of living directly impacts retirement plans. As the massive Baby Boomer generation enters retirement and stresses our economic system, self-directed IRAs are an important Social Security Solution.

Whether or not you’re a Baby Boomer, this large age cohort will soon start drawing social security benefits and impacting the nation’s finances. Current Congressional Budget Office reports are predicting that the program will peak in the year 2016 – in other words, the Trust Fund will run out unless Congress passes major reforms. Here’s what this means for you: your Social Security benefits may be greatly reduced, and you should immediately start preparing for this eventuality.

Self-directed IRAs are a highly-effective way to account for Social Security’s current insecurity. For example, with a self-directed IRA from American IRA, your IRA can invest in real estate and rent out a property for recurring income. Combining this fairly consistent revenue source with such investments as private loans and tax liens can help you protect yourself against an uncertain future.

Self-directed IRAs don’t rely on the fluid world of politics and policy; instead, they allow you to control your future and determine the success of your own retirement. Self-directed IRAs unlock your full potential as an investor, so why not protect yourself against Social Security’s unknown future today?

Click here for a free IRA analysis. You can’t afford to wait!

Brokerage Accounts

January 30, 2013/in Resources /by American IRA

Self directed IRA investors insist on maximum flexibility and diversification within their accounts. You may be surprised to find out that traditional stocks are among the investments they want in their self directed IRA. So, can you have traditional stocks in your self directed IRA? Yes you can!

Benefits of Opening a Brokerage Account

Pay Less Fees
- You can move funds within your brokerage account without incurring wire and check fees.
Maximum Diversification
- When you open a brokerage account, you can hold non-traditional assets and traditional stocks in the same self directed IRA account.
Funds Move More Quickly
- A custodian to custodian transfer of funds can take up to 14 days. Upon written direction from you, American IRA can get funds from your brokerage account in just 2 days! This allows you to be in the position to move quickly on a good deal…so you won’t lose that fabulous deal you have been waiting for.
Accessibility
- Since Charles Schwab has locations nationwide, you can work with your local office at your convenience.

Important Things to Keep in Mind

At American IRA, we set up a fiduciary Charles Schwab account per your direction. You then have full control over trading within the Charles Schwab account. The only difference is that you cannot withdraw funds nor add funds to the Charles Schwab account because your IRA owns it. Upon written direction from you, the American IRA team can withdraw or add funds on behalf of your IRA account.

Important Guidelines You Should be Aware of

It takes approximately 5 to 10 business days to open a brokerage account.
Your account cannot be at risk of going below a $0 balance.
In-kind transfers are not allowed. If you wish to transfer or convert your account, you will need to liquidate your assets first.
- You IRA is prohibited from making purchases using margin
Your IRA is a separate entity from you.
- You cannot move funds between your personal account and your IRA’s brokerage account.
You can move funds from your IRA to/from your brokerage account as often as you like.
You cannot open a brokerage account yourself on behalf of your self directed IRA as this can cause a taxable event and can be construed as a prohibited transaction by the IRS.

Getting Started

Contact our office today to open a Brokerage Account IRA. Our team will guide you through the EZ application process and get you on your way to earning tax-deferred and/or tax-free income within your retirement account. 1-866-7500-IRA(472) or sean@americanira.com. If you are an American IRA Client and you have questions regarding the investment process, please contact our office 1-866-7500-IRA(472) or transactions@americanira.com.

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A fraud warning for self-directed IRAs

November 7, 2011/in Articles, Coverdell Education Savings Account, Health Savings Account, Roth IRA, SEP, Simple IRA, Traditional IRA /by American IRA

Do your diligence on all your investments.

In September, the SEC issued an investor alert warning investors to be wary of fraudulent promoters targeting self-directed IRAs.

The alert began with a brief overview of conventional individual retirement accounts and self-directed IRAs, and pointed out some key differences, one being that while most IRA custodians are banks and broker-dealers that limit the holdings in an IRA, self-directed IRAs can offer investors the opportunity to invest their “retirement funds in other types of assets, such as real estate, promissory notes, tax lien certificates and private-placement securities.”

Although self-directed IRAs have the potential to offer owners otherwise unavailable investment opportunities, the Securities and Exchange Commission noted that they also can come with unique risks such as “a lack of disclosure and liquidity — as well as the risk of fraud.”

According to the alert, self-directed IRAs account for about 2%, or $94 billion, of all IRA funds. It is possible, however, that the recent volatility and uncertainty surrounding the markets could help foster an increased “grass is greener” attitude with some clients, prompting additional funds to be allocated to self-directed accounts.

The SEC alert explained that promoters of fraudulent investments may seek to target self-directed IRAs in a variety of ways. One way is to misrepresent the custodian’s responsibilities.

Often, these promoters will suggest or even out-and-out state that a self-directed-IRA custodian has done some level of due diligence on its investment to verify its validity.

The alert points out that this is usually not the case, as most self-directed IRA custodians won’t evaluate the merits of an investment its clients make. In fact, in most cases, the custodial agreement signed when a client opens a self-directed IRA explicitly states that the custodian bears no responsibility with regard to an investment’s performance.

The SEC’s investor alert also indicated that fraud promoters are likely to target owners of self-directed IRAs because of the special tax characteristics associated with the accounts. Such characteristics include the 10% penalty for early (pre-591/2) distributions that discourage many IRA owners — both self-directed and regular — from accessing their retirement funds at an earlier age.

The SEC also pointed out that many of the alternative investments that self-directed IRAs typically hold, such as real estate, mortgages, tax liens, precious metals and private-placement securities, don’t have the same types of financial information available to investors as do publicly traded securities.

Although the risk of fraud in any type of account and, in particular, self-directed IRAs can never be completely eliminated, the SEC’s alert provides a number of safeguards that potential investors can employ to minimize the possibility of falling for a fraudulent investment.

One such step is to be cautious of investments that offer high returns with seemingly little or no risk.

As the SEC put it, “low risk generally means low yields, and high yields typically involve higher risk. Fraud promoters often spend a lot of time trying to convince investors that extremely high returns are “guaranteed’ or “can’t miss.’ Don’t believe it.”

The alert also cautions investors to be wary when they receive unsolicited offers, even when approached by someone the investor trusts, such as a co-worker, friend or even a family member.

Other helpful tips included asking the right questions, verifying the information presented on a self-directed-IRA statement and, of course, consulting with a knowledgeable professional.

The SEC alert discusses self-directed IRAs and never makes a distinction between self-directed traditional IRAs and self-directed Roth IRAs. However, from the client’s perspective, a fraudulent investment made in a Roth IRA is far worse.

Not only would the client be out the money they put into the bogus investment, but they could potentially be out the funds used to pay the tax on the Roth IRA funds when they were first contributed/converted to the Roth account.

The full version of the alert at sec.gov/investor/alerts/sdira.pdf also contains a brief description of several recent court cases that involved fraudulent investments made at least in part through self-directed IRAs.

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Benefits of Opening a Brokerage Account

Important Things to Keep in Mind

Important Guidelines You Should be Aware of

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Do your diligence on all your investments.

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