Posts Tagged ‘IRA-LLC’

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IRAs and Radioactive Spiders

Friday, June 10th, 2011

A self directed IRA or 401k offers you, the investor, a much greater level of control over your investment. When you make traditional investments, you basically give your money to the custodian, and hope they invest it wisely. The problem is, this limits your possibilities. With a self directed investment, you get to choose where the custodian invests your money, with varying levels of control, depending on how much risk your comfortable with and how much time you want to put into it.

There is a flip side of this coin though. Just like Uncle Ben told Peter Parker, with great power comes great responsibility. The risk/return trade off applies not only to the investments themselves, but also to the control you choose. If you want greater personal control over your IRA, you also assume the risk of the IRA performing less than phenomenally, and you have to be committed to maintaining your account. Spiderman would never have defeated Venom if he went after him half hearted!

IRA custodians are trained to follow the trends in the market and make wise decisions with your money. If you want to leave it all up to them, a self directed IRA may not be right for you. Maybe you should just stick to photography. By all means, however, find a custodian you can trust.

But if you’re ready to step up, strap on your webslingers, and take control of your financial situation, now is the time to switch to a self directed IRA or 401k. Three levels are available to fit your current heroic nature:

  1. The petty criminal level- This plan offers minimum control and convenience. You open a self directed IRA account, then select your investment and work through your custodian. If you’re just getting your feet wet and finding if you’re really into fighting crime, this is likely the way to go.
  2. The minor villain – For medium control and convenience, you open your account, then a separate IRA Trust that your IRA will invest in, with the option of a connected checkbook account. You will be the investment manager, with administrative power and control. Like facing the Scorpion or Lizard, this is a much greater commitment.
    Learn more about the iTrust
  3. The arch-nemesis – Maximum control and convenience comes from the Self Directed IRA LLC. After opening the IRA, an LLC is setup in which you invest. As the administrator of the LLC and IRA account owner, you will be allowed the necessary powers and control over management of the IRA’s assets. You can buy and sell assets at your own discretion. This is not for the feint of heart! Now your going up against the Kingpin himself! If you are committed though, you can do a great deal with this plan.
    Learn more about the IRA LLC

For more information, feel free to contact your friendly neighborhood consultant.

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IRA vs. Roth IRA

Friday, July 9th, 2010

Self Directed IRAs are great accounts to have for retirement. There are a few different options when deciding which type of IRA to place your money in. Two popular options are traditional IRAs and a Roth IRAs. Both have great benefits as far as taxes are concerned.

A Roth IRA seems to be the most popular option of the two for a few different reasons. One reason is that your money is always tax free even when you take it out of the account. This really helps with any investments made. Without having to pay tax these investments can grow much quicker.

A Roth IRA also allows you to withdraw any money that you have paid into it without penalty. This is a great option for individuals who aren’t completely financially stable. However, this also means that if you want to take out money that has been earned through investments, you will be penalized.

On the other hand, there is no time when you are forced to withdraw your money. You can leave your money in or take it out without penalty. You can also keep adding funds to your account for as long as you want.

While the Roth IRA may seem more beneficial that the traditional IRA, there are limits to who can have one. If you are filing alone you can’t make over $95,000 a year and if you are filing jointly you can’t make over $150,000. This limit was placed to keep those in the upper income bracket from enjoying the benefits.

A traditional IRA has its benefits as well. It too has a major tax relief however, it comes in the form of a tax break. If you fall within the regulations, you will receive a tax break on the money you place in your IRA.

Unfortunately with a traditional IRA, you cannot withdraw funds without a %10 penalty before the age of 59 ½. You are also required to withdraw funds at the age of 70 ½. When you do make withdraws whenever they may be, you must pay taxes on them.

There have been some changes made to Self Directed IRAs beginning in the year 2010. One change dealing with Roth IRAs is allowing anyone to convert a traditional IRA into a Roth IRA. There is no income limit as there was before. You will need to pay taxes on all the funds being transferred to the Roth IRA and once it’s in the Roth IRA there are income limits for someone to make a contribution.

Another restriction placed on these IRAs is the amount you’re allowed to contribute each year. For both Roth and traditional IRAs you are not allowed to deposit more than $5000 if you are age 49 and younger and $6000 for those 50 and older. Both Roth and traditional IRAs do have the luxury of having the funds invested. Whether investing your funds, or simply saving up for retirement Self Directed IRAs are a smart way to go.

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How Self Directed IRAs work with Investment Purchases

Friday, June 11th, 2010

Self directed IRAs provide great investment opportunities. You can use your SDI account to make investments that are then used specifically for your retirement funds. SDIs are a popular choice for many people.

The reason they are such a popular choice is because it allows you the chance to have complete control over your investments. You can use traditional investments, such as stock options and bonds. It also allows you to have alternative investments, such as real estate, etc.

Self directed IRAs allow you to invest in alternative investments that you would like to use towards your retirement plan. Real estate, personal loans, private businesses, tax liens, and much more are able to be invested in with SDIs.

These alternative investments are specially used through SDIs. Other IRAs are not able to make these types of investments.

Another reason that SDIs are popular is because they are easy to use. You simply make your investment and you do not have to worry about transaction fees. A custodian is not used, so you don’t have to worry about high fees because of him, or holding or asset-based fees either.

Account owners of SDIs can be a form of their own custodian. They can save literally hundreds, to thousands, of dollars in savings because they do not have to pay for those transaction and asset-based fees. Self directed IRAs also can diversify their retirement account money too through 401(k)s, IRAs, etc.

SDI owners can use the same self directed IRA LLC to purchase both nontraditional and traditional investments. That means they can invest in real estate as well as stocks or bonds. If they follow the specific guidelines in regards to real estates purchases, they can even buy their retirement home now at today’s prices, rent it out, and then move in to it later once they qualify for their IRA distribution.

Other perks are that owners can buy foreclosed properties and tax liens right then because they do not have to deal with custodial delays. They can also buy and sell their properties they have as self directed IRA investments. This can be domestic, residential, rental, commercial and foreign properties that will have profits tax-deferred and put in your retirement account.

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Posted in self directed ira | 1 Comment »

NEW! Self Directed IRA Video!

Tuesday, June 1st, 2010

This is our latest educational/promotional video detailing the Self Directed IRA.

Offering a simple diagram explanation of how the Self Directed IRA with Checkbook Control works, and provides a simple example of a SDIRA Real Estate Transaction.

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Posted in Uncategorized, checkbook control ira, self directed ira, self directed ira custodian | 11 Comments »

Self Directed IRA – Unrelated Debt Finance Income (UDFI)

Sunday, February 7th, 2010

A subset of UBIT is the Unrelated Debt-Financed Income (UDFI) tax. Under IRC § 514, the IRS will assess a tax on any income that is derived from the use of “acquisition indebtedness” in passive Self Directed IRA investments. For example, if your Self Directed IRA uses $30,000 of its own funds and also borrows $70,000 (using a non-recourse note, of course) to purchase a $100,000 rental property that generates $10,000 annual rent, the IRS would assess UDFI tax on about $7,000 of the profit (since 70% of the investment came from leverage). It is “about $7,000” because it is not simply a one-time fraction of loan-to-value. When calculating your UDFI tax percentage, you use the average indebtedness of the past 12 months and divide that by the adjusted basis in the property (typically, the original purchase price). So, as you pay down the mortgage each year, the UDFI tax percentage becomes less. One year after paying your final mortgage payment, the UDFI tax disappears altogether. When selling passive investments for a profit, the UDFI fraction will determine the taxable amount. Then, appropriate capital gains rates are applied to that amount (trust rates for short-term gains; capital gain rates for long-term gains. [See IRS Pub. 598.]

Remember that UDFI rules apply only to passive investments. If your IRA makes an investment, regardless of leverage, in an active (pass-through) business, including any active real estate business (flipping, rehabbing, developing raw land, etc), then the net income (above $1,000) is subject to UBIT.

Disclaimer

This brief discussion of prohibited transactions and UBIT/UDFI is not intended to be relied upon as legal or tax advice. It is very general information and is designed only to make you aware of some issues you might not have thought of and may need to discuss with your advisors. These rules can be very complex. Some of the rules have exceptions (and even exceptions to the exceptions!) and rules can and do change

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Posted in checkbook control ira, self directed 401k, self directed ira, self directed ira custodian | No Comments »

New Self Directed IRA Video*

Wednesday, January 6th, 2010

Just a heads up: NAFEP will be releasing a new overview video on the Self Directed IRA, or Checkbook IRA product. This new video will be part of a series of videos we will produce this year. Our goal is to get people educated, and excited about taking control of their own IRA and starting their own wealth building strategies.

Be sure to check back often to see this new video, and the continuing series that is to follow. http://www.nafep.com

-jeff

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Posted in checkbook control ira, self directed ira | 7 Comments »

ASK a Self Directed IRA/401k Question and get a Live Response!

Tuesday, November 24th, 2009

I have just updated the website www.nafep.com, to include a LIVE CHAT feature. So now you can ask a question about the Self Directed IRA or 401K or any other product for that matter, and get a LIVE person to answer your questions immediately. So, try it out! Ask Away…

www.nafep.com

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Top 10 Self Directed IRA/401k Mistakes – #10 Self Directed IRA Owners Flipping Real Estate is Not UBTI

Sunday, November 22nd, 2009

The receipt of rental income is considered to be passive income and therefore not subject to UBTI. However, some self directed IRA owners fall into the trap of thinking that this means that they can buy and sell properties on a routine basis (i.e. flipping), and that this would not be active income or running a business.

Even though there are not any bright lines as to when buying and selling real estate through your self directed IRA would constitute UBTI, the general guidelines will be based facts and circumstances. Some of the factors that would be used to determine if the real estate transactions would meet the requirement for UBTI are:

  • The purpose for which the property was acquired
  • The frequency, continuity and size of sales
  • The extent of improvements
  • The activities of the owner in improving and disposing of the property
  • The purposes for which the property was held
  • The proximity of purchase and sale (i.e. how close together were the transactions)

In general we advise clients that flipping or turning one property may or may not meet the UBTI standard. However, if you show a routine pattern of buying and selling property and if there appears to be the intent of turning properties for profit, then you will most likely be subject to UBTI.

For more information on self directed IRAs go to:

www.iracentral.com

www.nafep.com

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Top 10 Self Directed IRA/401k Mistakes – #9 Self directed IRA owner attempts to receive fees and commissions from IRA transactions

Sunday, November 22nd, 2009

There are cases where the self directed IRA owner is a real estate agent and they want to earn a commission from selling property to their IRA or some other disqualified party’s self directed IRA. Such a transaction would be viewed as conducting a transaction with your IRA or receiving an indirect benefit. Either way, it would be considered a prohibited transaction.

Another common scenario is that someone is a good money manager or investment guru type and they want to bring in or combine several family member’s IRA account and manage it as a pool. In exchange, the money manager (a related and disqualified party) wants to earn fees or commissions from their activities. In this case the money manager is a disqualified party, and they receiving a direct benefit from the IRA accounts of disqualified persons. This clearly would not be allowed.

A disqualified person can be paid reasonable fees and expenses for providing services to the IRA. Such an example could be that your spouse is a CPA and your self directed IRA LLC hires your spouse to do tax work. There are not any clear lines as to what constitutes reasonable. So, our position on any transactions with any disqualified party is just don’t do it!

As tempting and harmless as some of these transactions appear to be, we feel its better to steer clear of having to potentially defend your actions in the event of an audit.

These scenarios and opinions expressed above are for informational and educational purposes and are not intended to be an exhaustive list of scenarios. If you feel your situation may have an exception or you require a more definitive opinion then you should contact your personal tax advisor.

To learn more about self directed IRAs go to:

www.nafep.com

www.iracentral.com

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Top 10 Self Directed IRA/401k Mistakes – #8 Self directed IRA owner thinks a passive investment in active business is not subject to UBTI

Sunday, November 22nd, 2009

UBTI is the tax that levels the playing field for tax exempt entities that invest and compete against businesses that pay taxes. Self directed IRA account owners find unique business or investment opportunities in small businesses. Even though the opportunity is compliant and reasonable, and the IRA is passively invested, this does not necessarily mean that that the self directed IRA is not engaged in an active businesses.

Regardless of how involved the self directed IRA account owner is in the business, the business is active and it is competing against other businesses that are required to pay taxes. As such, the IRA would be subject ti UBTI tax regardless of the account owners involvement in the business.

To learn more about self directed IRAs go to:

www.nafep.com

www.iracentral.com

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Posted in checkbook control ira, self directed 401k, self directed ira, self directed ira custodian | 6 Comments »

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