Once an investor considers holding real estate in his or her IRA, it is important to take the first step and discover whether or not the current IRA custodian will even allow real estate to be held as an investment. Often, investors must move to a self-directed IRA custodian because their current provider either will not work with real estate or has little experience with holding real estate in an IRA. The name self-directed IRA can be a little confusing because many traditional brokerage custodians offer a “self directed IRA” for investing. The trick to comparing providers is finding out if their plans are only eligible for investments into securities like stocks, bonds, and mutual funds. The key is to find an IRA custodian that will handle real estate and other alternative investments. New Direction IRA provides real estate investors with plan options that make real estate IRA investing easier than most.
Creating real estate income is something many investors have come to view as a basic portfolio ingredient. Whether you are in the accumulation phase or retirement phase of your life, betting on the paltry bond market for income has become frustrating at best. Many investors do not want to expose their portfolios to the risk of a volatile stock market either, though. Thus, many turn to real estate as a source of retirement income and historical capital appreciation. What many investors do not understand is that by holding real estate in a self-directed IRA, investment returns can be sheltered under the tax-advantaged umbrella associated with retirement plans. A self directed IRA removes one major real estate profit loss – taxes on capital gains.
Since its creation in 1997, the Roth IRA has become a popular retirement solution for many investors. This popularity is largely due to the account’s unique advantages. While the Roth IRA isn’t the only way to plan for retirement, knowing its benefits can help you determine what kind of role the account can play in helping you prepare for your future.
Careful planning for future education expenses is becoming more common as the national average for college tuition costs continue to rise. Many savers are already familiar with tax-advantaged vehicles such as the 529 Plan or Coverdell Savings Account but did you know that all IRA account structures offer certain incentives for educational expenses as well? This article explores IRS Publication 970 and the exception to additional tax on early IRA distributions for qualified education expenses.
The typical stereotype when opening an IRA account is that all underlying investments must be exchange traded stocks, bonds, and mutual funds. Stock market volatility frequently intimidates retirement investors to the point that they simply do nothing and forego crucial retirement planning. Roth IRA account owners will be pleased to know there is an entire spectrum of alternative investments unrelated to the stock market that can be held under a ROTH umbrella.
Do you really know how to use your Health Savings Account? Most people don’t. A large number of people who have HSAs use them as “health spending accounts,” and “spending” is the opposite of “saving.” HSA owners aren’t at fault for not maximizing their HSAs’ potential, though. There simply isn’t a great deal of information available on what they can really.
With instability in the stock market, many retirement investors are looking to alternative assets including precious metals. Gold, silver, and other metals carry intrinsic value not found in many traditional assets which makes them particularly valuable in uncertain times. Many IRA custodians only provide their clients with the option to invest in a Gold or Silver Exchange-Traded Fund (ETF) and give them no opportunity to purchase physical precious metals.
Energy consumption is on the rise, both nationally and globally, and many new energy companies are popping up to fulfill the increased demand. Growth in the alternative energy industry has increased the number of wind turbines and solar panels that provide power to our homes. The oil and natural gas industry is also still booming, with technological advances in shale extraction leading to more opportunities for expansion. All this growth has caused many of our self-directed IRA holders to ask us how they can take advantage of this emerging industry as part of their retirement portfolio.
Whether you’re getting close to retirement age or you’re just beginning to look into retirement planning, it is important to understand how each type of retirement account fits into your overall retirement plan. Common retirement accounts, such as the Traditional IRA, Roth IRA, and HSA, each play their own role in a well-rounded retirement strategy. Knowing how to utilize each type of account will allow you to develop the best retirement plan for your personal retirement goals.
Many self directed IRA investors have purchased real estate and for good reasons. Real estate is a tangible asset that most people have had experience with, either through purchasing their own home or working as a real estate professional. Real estate is also an asset which rarely loses its entire value, unlike some investments which have that potential downside. While real estate is a very accessible asset, investors do need to be mindful of the various strategies when it comes to investing with their retirement funds. Knowing these strategies can help you achieve your retirement goals.
IRA holders may have become aware of the events at American Pension Services, an IRA provider in Utah. For the last several months, while legal proceedings have been underway, the accounts there have been “frozen”. This has meant that American Pension Services account holders have not had the ability to move their IRAs to another provider. Traditional and Roth IRAs, as well as HSAs, are typically completely portable and account holders can move all or part of their account at will.
At New Direction IRA, a self-directed IRA and HSA provider, we hear a lot of questions about UBIT, or Unrelated Business Income Tax. To get a basic understanding of UBIT and Unrelated Business Taxable Income (UBTI) and Unrelated Debt-Financed Income (UDFI), that two types of income that may be assessed UBIT, let’s go straight to the source: the IRS. The IRS Publication 598 outlines what these tax consequences are and how you’ll incur them.
In addition to a basic overview of the Individual 401(k) plan, this blog will also discuss the 7 benefits of having one. Read on to learn more!
In the following case, Bernard and Claire Berks invested in notes with their IRAs, but the borrowers either defaulted or their collateral did not adequately secure the debt. This resulted in the notes being worth zero. The Berks called the provider and told them that “the notes are worth zero.” No documentation supporting this assertion was provided. Read on to find out the results!
One of the advantages of self-directed IRAs is that they provide more than one way to invest in any given asset. Let’s look at an example to see how.
Leveraging is a valuable tool to increase the buying power of an IRA. Leveraging means borrowing funds to increase purchase power and acquire a property that would otherwise be un-affordable. Surprisingly, many people aren't aware that their IRA or 401k funds can be leveraged and utilized as a down payment for a real estate IRA investment. In order to use leverage, a non-recourse loan is required. The IRS restricts an IRA holder from personally guaranteeing the account or its assets. Consequently, lenders usually offer borrowers non-recourse loans with slightly different terms and loan-to-value requirements.
“Alternative assets” is the broader name for the suite of investment opportunities afforded by self-directed IRAs (SDIRAs). These alternative assets include real estate, precious metals,private equity and more. Alternative assets could even be oil rigs, tractors or trees. According the IRS, alternative assets can be anything except collectibles (wine, stamps, etc.) or life insurance. The flexibility afforded by alternative assets and SDIRAs allow the IRA holder to choose what types of assets his IRA invests in. People with self-directed IRAs can rely on their own investment expertise, making tax-free or tax-deferred investments in assets they know and understand personally.
Real estate IRA frequently asked questions and their answers live here! If this doesn't quite answer your questions, please refer to the Real Estate Investing Guide.
The biggest appeal of Checkbook IRAs (IRAs that invest in LLCs created by the IRA owner) is that they allow the IRA, by extension, to purchase things quickly. However, the Checkbook IRA structure is currently under intense scrutiny by the IRS and sets up a situation where unscrupulous account holders can make mistakes and put themselves at risk of penalties, taxes and forced distributions.
Self-directed IRAs, or SDIRAs, are becoming increasingly popular because they allow account holders to choose from a world of investments. At New Direction IRA we’ve seen IRAs invest in everything from trailer parks to oil fields to Middle Eastern currency and more. The sheer number of investments could seem daunting, but many investors view this as an opportunity to invest in what they know and trust. Here, we’ll go through the main alternative asset types and share how you might begin looking for investments.
A Health Savings Account, or HSA, is a valuable tool in managing medical expenses. They can help you save, pay for certain expenses not covered by your insurance and you can reimburse yourself at any time in the future for medical expenses you incur while the HSA is open.
Roth IRAs--passed into law in 1997--are a very popular way to save for retirement because investment earnings are tax-free. Roth IRA holders may also withdraw the amount they contributed at any time without penalty or tax liability. Given the unique tax benefits, Roth IRAs are a powerful tool to save for retirement to begin with. But you can maximize your Roth IRA further by self-directing your IRA and investing in alternative assets like real estate, precious metals, private equity and more.
Most people don’t know that their retirement funds can be used to purchase “alternative” assets and still receive the tax benefits associated with their account. We’ve learned as much in our ten years as administrators of self-directed IRAs (SDIRAs). So, it was gratifying to see that SDIRAs were part of Forbes’ “365 Ways to Get Rich” article published this month. “Number 33” on the list encourages investors to put alternative assets in their IRA and the article even goes on to cite IRS code relating to SDIRAs. In this economic environment, where investors are exploring how to achieve real diversification for their portfolios, adjust to market conditions, or both, self directed IRAs are moving into mainstream consciousness.
Many investors ask us if they can hold proof American Eagle coins in their IRAs. The short answer is “yes.” However, it is a good idea to be familiar with the relationship between proofs and IRAs. A “proof” American Eagle is unusual because it is considered both a collectible, which is categorically disallowed by the IRS, and a bullion product, which is allowed by the IRS. Let’s look at these two characterizations.
If there ever was a subject that will stop an accountant is his or her tracks it is UBIT, which stands for unrelated business income tax. Many investors shy away from certain IRA investments out of fear that UBIT will take out a big chunk of their earnings. But the truth is that these investors are misinformed about the tax.
Self-directed IRA administrators/custodians are now forced to provide current values for all IRA assets for IRS reporting purposes. IRA holders have always been required to provide a valuation of their account assets, but the request has become a requirement due to the changes in the banking industry. Some IRA account holders are not happy about this.
Summer vacations are the perfect time to find a dream home in an ideal location. Today’s investors sometimes need clever solutions for affordability, so it’s important to be aware of all of the available investment tools. One such tool is the self-directed IRA. Did you know that your IRA/401k funds can be used to buy real estate? Let’s look at some of the options available for purchasing a second home with IRA funds:
Saving for retirement is crucial and the IRS has provided several tools to help you do so. Read on to learn more about the different tax structures for IRAs and how they can apply to your strategy!
Owners/managers of IRA-owned LLCs (also known as IRA LLCs or Checkbook IRAs) could be hit with taxes and penalties if they provide “prohibited services” to their IRA and the LLC it owns. In a recent ruling, the U.S. Tax Court clarified that it will base decisions regarding prohibited transactions on a broad reading of the tax code. So what does this mean for IRA owners?
“I have an IRA invested in Real Estate. Now how do I take that real estate to live in, when I’m retired?”
When researching Checkbook Control IRAs, it is a good idea to look into the drawbacks as well as the benefits before moving forward. There are responsibilities the IRA holder must understand. You might want to ask yourself, “Do I really want this much control of my retirement funds?” Ask the following questions before proceeding:
Many self-directed investors who call our office ask, “Can I act as the property manager for my IRA owned real estate?” The answer is yes, but there are several rules that must be followed in order to comply with IRS guidelines.
For those with a penchant for real estate investing, IRAs are a potent vehicle indeed. Outside of a tax-advantaged account, such as an IRA or a SEP IRA, rental income is taxable every year, as you receive it, and passive activity rules restrict your ability to claim losses from real estate. If you use a self-directed IRA, or a real estate IRA, however, you can accumulate all of that rental income tax-deferred, or tax-free if you hold the asset in a Roth IRA. If you have the patience, liquidity and know-how to be a successful real estate investor, it can make perfect sense to leverage these skills in a self-directed IRA or other retirement account as well.
U.S. Department of Labor ruling 2000-10 allows you to partner with your IRA but there are special circumstances under which it is allowed. Otherwise it's self-dealing and a prohibited transaction. Here are the basics for partnering with your IRA.
Read on to learn more about the obscurities in IRA-Owned real estate investing!
When it comes to owning real estate assets in an IRA, it may be tempting to live in the property or work on the property before it is distributed out of the IRA. However, these are prohibited by the IRS and can result in steep penalties and a distribution of the account. At New Direction IRA, we hear a lot of questions from investors asking what they can and can’t do with their IRA property according to IRS rules. Here’s a few of those questions and some basics about how the IRS treats prohibited transactions within real estate IRAs.
There are some compelling logistical advantages to having the financial control that a single member LLC (a.k.a. “checkbook” LLC) can create, but these conveniences are only realized by venturing close to certain IRS prohibitions. In some cases, it is easy to characterize a particular asset or transaction in an IRA as allowed or not, but with a checkbook LLC the parameters are less clear. The question about how to use a single member LLC within the IRS rules for IRAs comes down to interpretation and risk tolerance. Let’s talk a little more about the Single Member LLC IRA disadvantages.
At New Direction the focus, rather than selling or recommending investments, is to help the clients learn about their options and guide the client through the process of making it happen. The self directed investor must be willing to take the responsibility for investment choices, although their outside advisers or associates can help.
Health Savings Accounts (HSAs) are becoming increasingly popular for investors looking to save money and help pay medical expenses. Most investors don’t realize that like other IRAs, the HSA can be used to invest in alternative assets such as gold and other precious metals.
If you own real estate property, you have to submit a valuation to your administrator every year to ensure proper tax reporting by your IRA administrator. A fair market valuation is used to establish or change the value of a real estate holding. All IRA custodians are required to provide a year-end value for IRA accounts. A qualified real estate professional who is not a disqualified person to your IRA may provide a comparative market analysis to meet this requirement.
Securities brokers and some accountants will be the first to tell you that you don’t want leveraged property in either a Traditional or a Roth IRA because you will have to pay additional taxes, specifically Unrelated Business Income Tax (UBIT) but many don't know exactly how it works. Read on to learn more about this specialized tax.
Recently, much of the appeal of real estate investing is the positive cash flow it can generate. For IRAs owning real estate, generating income can make it an attractive option even without the potential for appreciation. The tax your IRA may incur at the end of an investment is only one factor to consider. Smart investors can generate significant revenue from rent. Cap rates of 4 to 10% are not uncommon and, when compared to returns from other assets, can be very enticing for investors in today’s economy. In many cases, income generated from real estate assets can cover any Required Minimum Distributions (RMDs) required for Traditional IRAs at age 70 ½ . Remember, the point of owning real estate or any asset in an IRA is to increase the total value of your IRA.
The term Alternative IRA, which has been in the news so much recently, is frequently misunderstood. It is often thought to be an IRS designation that signifies an account type that is different from a traditional IRA or a Roth IRA, which are designated IRS account types. It is also not unusual for people to be under the impression that self directed means that the IRA owns an LLC which holds the IRA assets. Neither of these is the case. Read on to learn more!
One of the more frequent inquiries we hear at New Direction regards the transacting of business between an IRA and a private company. For us to perform our jobs successfully for your IRA, we will often need a discussion with the account holder to discern whether the participation in the private company is a loan or a private stock (or equity) purchase. Both investments involve sending IRA money to the company with the expectation of a return, but the supporting documentation for the two types of investment is different.
If you’re one of many investors contributing to a Roth IRA or considering a Roth Conversion for an existing pre-tax retirement account, it’s important to understand exactly how the “Five Year Rule” works. Below is a short explanation of how the rule affects your IRA distributions.
he IRS is on high alert regarding any type of misuse or abuse with Checkbook IRA LLC accounts. If investors are considering a Checkbook IRA/LLC for retirement investment, they should be aware that the IRS sent an internal notice focusing on the danger of personally providing services to an IRA-owned LLC or other entity.
Most people don't know that their Individual Retirement Account can be legally invested in almost any type of asset except collectibles and life insurance. That means you can invest your retirement funds in precious metals like gold, silver, platinum and palladium—and it's a relatively easy process.
As a self-directed IRA provider, we get dozens of questions about UBIT, taxes on IRAs and taxes on other retirement accounts every day. Most perplexing to clients, it seems, is Unrelated Business Income Tax, or UBIT. Here are two of our most commonly asked questions and our answers.
Self-directed IRAs allow control of one’s retirement investments. Clients can benefit from self-directed IRAs by reducing their taxes while enhancing their asset protection and estate planning. With this insight, your clients can unlock their own investment expertise, making tax-free or tax-deferred investments in assets they may know and understand personally.
Planning for investment cash flow needs is critical for any investment strategy, particularly illiquid assets like real estate. The investor needs to determine how much cash will be needed and how much will be available to be successful in retirement.
It’s not expensive to invest your IRA in real estate. At New Direction, we have a structured fee schedule so you’ll know exactly what you have to pay and when. These fees include a one-time startup fee and no fees until you make your first transaction. Read on to learn more about the fee structure and what to look for!
Rather than giving up the depreciation tax advantage, you are trading it for a different and possibly better tax advantage. If you buy real estate with personal funds, you can expense a portion of the cost of the real estate over the allowed time period, usually 27.5 to 39 years. Depreciation expense, which doesn’t require current cash (since you already invested the cash when you initially purchased the property) lowers your taxable income. IRA-purchased real estate is different and carries its own significant tax advantage.
A lot of people are surprised when they learn that IRA rules allow them to hold real gold bullion, gold coins and other similar forms of precious metals within their retirement accounts. But IRA rules give investors a lot of leeway as to what they can hold in their accounts. IRAs are not restricted to stocks, mutual funds, bonds, certificates of deposit, annuities and other conventional financial products. With a self-directed IRA account, you can hold precious metals including gold, silver, platinum and other precious metals. Here are some basic requirements:
It’s not been widely known that the IRS allows retirement accounts such as IRAs to hold goldand other precious metals. That’s because most retirement accounts are administered by bank and brokerage companies, who have no incentive to allow client to diversify into asset classes that are not within their expertise. So what exactly are the other options for holding precious metals in an IRA? Here, we’ll look at the types of metals and IRA can purchase and in what form those metals can be.
This discussion is relevant to those of you who receieved a 1099-R without making a distribution and/or anyone who rolled over funds from a 401k to an IRA. This post is designed to help you learn about how 1099-R and 5498 forms.