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Sharks and Self-Directed IRAs

Self-Directed IRAsIn this political environment many middle class families are feeling like they are being circled by sharks. Higher prices in the grocery store, higher prices on gas, higher prices on electricity, higher prices on fuel for heating their homes, and now a new health care tax that ranges up to 9.5% for some families. With all these costs circling the middle class some individuals are holding their breath. I submit to you that perhaps instead of holding your breath it might be time to take action…scan the surface for your options and make your future bright. Self-directed IRAs can help you to cut back on some of that tax burden by allowing you to invest with a tax advantaged or tax free account such as a self-directed Roth IRA giving you much needed funds for those real estate deals.

Equal and Opposite…

It is commonly known that with every action there is an equal and opposite reaction which means that when some people hold their breath there is more oxygen available to others in the room. This holds absolutely true in the real estate market. When investors ‘hold tight’ to their money and stop buying real estate…it drives the competition down and allows for more real estate available at better prices to other investors. Self-directed IRA investors get an even further advantage by enjoying the benefits of those investments tax-deferred and/or tax-free.

Opposites Attract…

Yet another cliché that we often hear is that ‘opposites attract’. In my experience, the best situation is when this happens in the investment world. There are investors out there that enjoy making their money by lending money to other investors and collecting their interest. Their opposites are the investors out there that want to purchase real estate but would prefer to do so with other peoples’ money. When the private lender and the real estate investor come together they enjoy a mutual relationship where each one benefits by investing in their preferred method.

Sharks and Self-directed IRAs

Can self-directed IRAs really keep those sharks at bay? The answer to that depends largely on how motivated you are to take control of your future. Self-directed IRAs do offer tremendous flexibility in what you can invest in and the tax-deferred and or tax-free benefit allows you to keep more of the money you earn. While self-directed IRAs are a great tool that offers great flexibility and great tax benefits, they are after all a tool. The key to your being able to keep those sharks at bay is learning how to use this tool to your greatest advantage. The team at American IRA was founded by investors for investors so they understand this tool extremely well and are available to speak to you today about how self-directed IRAs can be used to grow your retirement account.

Creative Solutions

With over 40 years of investment experience, the American IRA team has put together some resources that can teach you some very creative and advanced real estate investment techniques. Please view their website for a listing of webinars currently available…featuring their newest “Growing Your Self-Directed IRA with Real Estate” and “Advanced Real Estate Concepts” webinars.

Getting Started

If you want to diversify your retirement portfolio with real estate, getting started is easy: Open an account with American IRA. You can start the process by calling us at 866-7500-IRA (472). We will send you everything you need to fund your account. Once your account is funded, simply provide us written instructions on the specific property, location, amount, and who we need to make the check out to. We will work with your professionals to ensure the property is titled correctly, and to ensure that you don’t unwittingly generate a prohibited transaction that could result in a penalty. American IRA does not provide any recommendation on the quality, profitability or reputability of any investment.

 

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Alternative Self-Directed IRA Investments for the Self-Employed and Small Business Owner – Part 1

Self-Directed SEP IRAsSelf-directed IRAs allow you to take personal charge of your IRA holdings and direct your investment dollars into any number of non-traditional retirement account holdings – including real estate, private IRA lending, private placements, tax liens, precious metals, and much more. This can be an important factor in diversifying your retirement portfolio, or allowing you to pursue greater returns than you may expect in stocks, bonds, mutual funds and CDs.

Good News

The good news is that the many benefits of self-directed IRA accounts aren’t limited to IRAs. The tax code also allows you to use self-direction within other popular small-business retirement plans, including SEP-IRAs, SIMPLE IRAs and Solo 401(k) plans (also called “individual 401(k) plans).

Even if your income renders you ineligible to make deductible contributions to a traditional IRA, you can still make deductible contributions to these retirement plans – and in most cases, you can contribute a lot more than $5,500. Under the right circumstances, your tax deductible retirement account contributions can be as high as $51,000 in a calendar year.

SEP IRAs

The SEP IRA, or simplified employee pension plan, is one of the more popular retirement solutions for small business owners. It is relatively easy to set up, and works extremely well for organizations with just one or two highly-paid principals.

As of 2013, you can contribute up to 25 percent of your taxable compensation, or $51,000 – whichever is lower – into a SEP IRA, except for self-employed individuals (see below).

Some factors to keep in mind:

  • Your business must contribute to SEP accounts for all qualified employees.
  • Generally, a qualified employee is any employee who is at least 21 years of age, has worked for you in at least three of the previous five years, and who earned at least $550 during the year from you.
  • You aren’t required to make company contributions to employee SEPs every year. However, if you do make any contributions, you have to contribute to everyone’s account that performed services for your company that year.
  • To deduct a SEP contribution for a given tax year, you must make the contribution by the due date of your tax return for the year, including extensions.

What About Schedule C Business Owners?

Some self-employed individuals – the truly self-employed, as opposed to those who are owner-employees of their own corporations – assume that they cannot open a Solo 401(k) plan or other small-business retirement plan. This is incorrect: There is nothing in the law that prohibits you from creating and contributing to these plans, making fully tax-deductible contributions.

If you file your income taxes using a Schedule C to report business expenses, you can still contribute to any of these plans. However, calculating your maximum contribution is a little different for self-employed individuals, because you must take into account the fact that you must pay self-employment taxes. In practice, then, after self-employment taxes are accounted for, most self-employed business owners can only contribute about 20 percent of your net Schedule C income into a SEP IRA.

Getting Started

For more information on this or any type of self-directed IRA account, please feel free to contact American IRA, LLC via e-mail [info@americanira.com] or via phone [1-866-7500-IRA(472)], or visit our website [www.americanira.com].

 

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Alternative self-directed IRA Investments for the Self-Employed and Small Business Owner-Part 2

SIMPLE IRA Solo 401KFor those at higher income levels, traditional IRAs can be problematic, because of the strict income limits on these accounts. If you have an income over a certain amount, your ability to deduct contributions to traditional self-directed IRAs is reduced or eliminated. You can still make traditional self-directed IRA contributions on a non-deductible basis, but the overall $5,500 limit on IRA contributions ($6,500 for those over age 50) is still limiting for successful self-employed people and small business owners.

Solo 401(k)s

Under some circumstances, creating a Solo 401(k) plan can enable you to set aside even more money on a pre-tax basis than you can in a traditional self-directed IRA. In addition to the potentially higher contribution limits, there are other important potential benefits to creating a self-directed 401(k) as well:

Under Some Circumstances, Exempt from UDIT Taxes. UDIT, or Unrelated Debt Income Tax, is a special kind of tax the IRS imposes on tax exempt entities and retirement plans. Specifically, it is a levy on any income the plan realizes that is attributable to borrowed money, as opposed to your own contributions. 401(k) plans may be exempt from this requirement.

Loans. You can set up your 401(k) plan to allow for plan loans. This can be an important source of short-term capital for small business owners: Loans from 401(k) plans don’t require a credit check. You just have to pay the loan back to your 401(k) to avoid penalties.

Designated Roth Accounts. As of 2006, 401(k) plan sponsors have been allowed to create designated Roth accounts within their plans. Contributions to these accounts are not tax deductible, but the growth in these accounts is tax free. There are also no required minimum distributions to worry about.

SIMPLE IRAs

If you have more than just a couple of employees, you may want to consider a self-directed SIMPLE plan. These plans may make sense under the following circumstances:

  • You have fewer than 100 employees
  • Your business consists of more than just you and your spouse and one or two low-wage earning employees.
  • You need a retirement plan to help you attract and retain talent in the marketplace.
  • You don’t want to commit to funding a fixed amount towards employee’s plans every year.

As of 2013, employees – including owner employees – can defer taxes on up to $12,000 each year. Those over age 50 can contribute an additional $2,500 on a tax-deductible basis. You can also contribute another 3 percent of your compensation each year as an employer contribution.

Getting Started

For more information on this or any type of self-directed IRA account, please feel free to contact American IRA, LLC via e-mail [info@americanira.com] or via phone [1-866-7500-IRA(472)], or visit our website [www.americanira.com].

 

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Advanced Real Estate Concepts

Presenters: Jim Hitt and Sean McKay

4 Dates and Times to select from:

November 13th at Noon

November 13th at 7 p.m.

November 28th at Noon

November 28th at 7 p.m.

Details:

Do you ever wonder how investors realize tremendous rates of return with minimal investments?

In this webinar you will learn about some of the advanced tools these investors are using including:

• LLC’s
• Options
• Wrapping Mortgages
• Partials
• And so much more…

Click here to register! http://www2.onlinemeetingnow.com/register/?id=6c50827432

Self-Directed IRA Client Testimonial

A Thank-You Letter From A Client

Mr. Hitt,

I recently used my self-directed IRA with American IRA to purchase some real estate under an LLC. Your staff was extremely professional, responsive, and helpful in answering questions and keeping me informed at each step of the process. At one point they spent 30 minutes on a call with my attorney to answer questions. I have nothing but praise for your staff.

Part of the process involved the creation of the LLC, and then funding it with the IRA money. My personal attorney offered to perform the legal work in order to “save me a few dollars”. A month later I was still in the initial stages of the process and had missed the first month’s rent. I switched to using the Turn Key IRA, LLC group that your office recommended. They were able to complete the process in a few days and at a very reasonable price. I’m very satisfied.

Sincerely,

John A.

Client Video Testimonials

2013 National New Strategies Summit, sponsored by OREIA

Sean McKay, Senior Vice President at America IRA, LLC, will be attending this event.

Event Location: Great Wolf Lodge

Address: 2501 Great Wolf Drive, Mason, OH 45040

Date: 11/7/2013 – 11/10/13

Details:

Dozens of new ideas for making money in today’s fast-changing, opportunity-rich real estate market!

Tons of new resources for finding deals, finding resources, finding buyers and renters, and running your business more profitably and with less hassle for you!

A new, more motivated and positive mindset about your own ability to build high income and generational wealth!

New like-minded friends and connections that will continue to give you more “a-ha moments” for months and years to come!

The full agenda can be found here: http://oreiaconvention2013.com/agenda/

Cost: Early bird registration price of $79 for 1, $99 for 2 for the main convention, and $79 per person for the all-day pre-convention workshops  

Can I own Gold in my Self-Directed IRA?

Precious MetalsMany people are under the impression that it is illegal to own gold or other precious metals within your self-directed IRA. This is not the case: The law provides very few restrictions on what IRAs can own – and many forms of gold and other precious metals are among the assets that you are allowed to hold in your self-directed IRA.

Why Own Gold?

The United States is currently running an unsustainable budgetary deficit – especially when you take future entitlement obligations such as Social Security and Medicare benefits into account. Meanwhile, the Federal Reserve continues to pursue an inflationary policy of increasing the money supply – electronically printing money by the hundreds of billions – while keeping interest rates pushed down so low that money market and CD investors are experiencing negative real, inflation-adjusted returns.

Monetary and fiscal policies seem to be conspiring against the dollar, and any paper assets denominated in dollars. Investing in tangible property such as gold and real estate are now vital aspects of a diversified portfolio. And self-directed IRAs are a natural way of including these assets in your retirement account.

The Basics

IRS rules require you to retain a custodian to hold any gold or precious metals you own within your self-directed IRA. This is a separate financial institution – not controlled by you or your immediate family – that holds the gold itself on your IRAs behalf.

Furthermore, the IRS also requires your gold or other precious metal investment to be of sufficient standardization and purity. Not every form of gold or precious metal investment will qualify to be held within your self-directed IRA. Specifically, your coins and other precious metals must meet these purity standards:

  • Gold .995+
  • Silver .999+
  • Platinum .9995+
  • Palladium .9995+

Generally, your self-directed IRA can own bars and rounds that have been produced by a refiner, assayer or manufacturer that has been certified by NYMEX/COMEX, NYSE/Liffe, ISO 9000, LBMA, LME, or a national government mint, meeting these minimum requirements for fineness.

Your self-directed IRA can generally own bullion that meets these standards for purity, as well as most minted coins. However, the coins must not be “collectible.” Their worth must be primarily the result of the intrinsic value of the metal and not due to speculation due to their rarity.

The IRS rules effectively disallow your self-directed IRA from owning the following common coins:

  • Proof American Buffalos (United States)
  • Kruggerands (South Africa)
  • Britannias (United Kingdom)
  • Most gold coins minted or issued by the United States prior to 1986.

What can your self-directed IRA own?

Your self-directed IRA can own any precious metal that meets the above standards for purity, provided you don’t own a collectible in your IRA.

Coins to avoid

IRS regulations effectively prohibit owning these coins within a self-directed IRA or other self-directed tax-advantaged account:

  • Austrian Corona and Ducat
  • Belgian Franc coins
  • Chilean Pesos
  • Columbian Pesos
  • Dutch Gilders
  • French Francs
  • German Marks
  • Hungarian Koronas
  • Italian Lira
  • Mexican Peso and Ounza
  • South African Krugerrands
  • Swiss Francs
  • Any coin considered rare or collectable.

The Process

It’s very easy to create a self-directed IRA for gold or other precious metals (also known as a self-directed Gold IRA). The first step is to call American IRA at 866-7500-IRA (472) to set up and fund your account. American IRA is a third party administrator specializing in self-directed retirement accounts. Once your account is set-up and funded, you are ready to begin purchasing gold and other precious metals with your self-directed IRA.

Note: American IRA does not provide individual investment advice. You are in full control of your self-directed IRA investments. As a third party administrator, we simply work to facilitate your investment decisions, and we work with your advisors to ensure that your instructions are executed swiftly.

Life Settlements in Your Self-Directed IRA? Not So Fast!

self-directed IRAWe have been noticing an increase in the number of advisors suggesting that investors place a portion of their self-directed IRA investments in life settlements. These are life insurance policies purchased from the original policy owner who, for whatever reason, no longer needs or wants a life insurance policy. When this happens, the policy owner may surrender the policy back to the insurance company for the cash surrender value. In some cases, though, a third party may be willing to pay more for the right to the eventual death benefit than the insurance company is willing to pay. This is especially true if the insured is in poor health and expected to pass away before his or her normal actuarial life expectancy passes. The third party buys the policy, pays any premiums that come due, and collects the death benefit when the insured dies.

Advantages

Over time, investors have found that a portfolio of life settlements is a good way to generate solid investment returns with only modest risk – chiefly that the insured individuals don’t die on schedule as expected. Furthermore, life settlements have proven to have no correlation with other asset classes, like stocks or bonds.

Disadvantages

In the context of self-directed IRAs, however, there is one issue that makes using life settlements in IRAs extremely problematic: It’s against the law.

Specifically, Section 408(a)(3) of the Internal Revenue Code specifies that “no part of trust [IRA] funds will be invested in life insurance contracts.” If you do, and the IRS finds out, they may disallow the entire account. When this happens, you may have to pay income taxes on the entire account value, plus penalties – the IRS will potentially deem you to have taken a distribution of all the assets in the account.

In short, there is simply not enough case law on this particular point to establish the legality of the practice. You could have an arguable case, sure – and even a plausible case. But unless the amounts involved are trivial, and you can easily afford to lose, the risks of not getting the verdict you hoped for are simply not worth the risk of attempting to own life settlements within a self-directed IRA.

Other considerations

Even if you could be certain that IRS and courts would allow you to hold a life settlement contract in a self-directed IRA, you should also carefully consider liquidity risk: There is no guarantee that the insured will die on schedule, before you turn 70½. This could cause you to have difficulty taking required minimum distributions – resulting in severe penalties equal to half the RMD amount you were supposed to take. You may be able to borrow money to bridge the gap – but it is impossible to predict the availability of credit years from now. You may not be able to get a loan against the policy to pay RMDs. You could try to sell the policy – but these are relatively illiquid investments, and you may not be able to find a buyer in time.

Simply put, there are too many pitfalls with holding life settlements within an IRA at this point for us to recommend the practice. If you encounter someone who is recommending you hold life settlements within your self-directed IRA, be very careful.

American IRA does not provide specific tax or legal advice. For advice pertaining to your specific situation, it’s important to retain the services of a qualified professional.

Alternatives

Fortunately, there are a lot of alternatives to life settlement investing that don’t present the same legal and practical difficulties. Our clients enjoy the freedom of choice to invest in a variety of assets with their self-directed IRAs including, real estate, private companies, limited liability companies, private placements, private loans, tax liens, gold or other precious metals, and so much more!

For more information, or to open an account with American IRA, call us today at 866-7500-IRA (472). We look forward to hearing from you.

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