USA Today: “A self-directed IRA allows you to invest in things other than securities registered with state or federal authorities. For example, you can use the assets in a self-directed IRA to buy a rental property, or even as the down payment for a mortgage on a rental property. There are restrictions, however, on self-dealing: You can’t rent the place to yourself, for example. And you must have a qualified third-party custodian for the IRA. Self-dealing restrictions on investing in small businesses — especially sole proprietorships — are also complex, and you should see a tax lawyer before you put IRA money into a small business. ‘Self-directed IRAs have helped fund thousands of small businesses that otherwise wouldn’t be there, says Tom Anderson, president of the Retirement Industry Trust Association, a trade group.”
Warren Baker’s post on the WealthCounsel blog states: “Let’s assume for a moment that your client’s goal is to invest into a piece of residential rental real estate. Your client can either: (1) request that the new custodian purchase the property directly on behalf of the IRA; or (2) direct the custodian to first invest the IRA into a Limited Liability Company (“LLC”) that is thereafter 100% owned by the IRA and purchase the property using the LL (note: your client will act as the Manager of this LLC). The latter option gives your client the flexibility to purchase the property using a check from the LLC’s checking account, which depending on the custodian’s ability to move quickly, will be quicker than option number one.”
Question: Can I cause my self-directed IRA to invest in any type of asset I desire?
Answer: No. Section 408(a)(3) of the Internal Revenue Code says that an IRA may not invest in life insurance contracts (life insurance). The IRS also restriction investments in “collectibles.” Here is what IRS Publication 590 says about IRAs investing in collectibles:
“If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later.
Collectibles. These include:
- Alcoholic beverages, and
- Certain other tangible personal property.
Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.”
The following article was posted by Ryan Rippy, the Business Development Manager of The Entrust Group.
Save more with an Individual 401(k) plan and expand your investment options with a self-directed account. An Entrust self-directed Individual (k) Retirement Account gives you the maximum flexibility and financial ability in investing for your future. The Individual (k) is similar to a 401(k) but for businesses that employ only the owners, their spouses, and partners.
An Individual (k) plan has two components based on your employer and employee roles:
- (Employee) Salary deferral, based on earned income, up to the allowed limit
- (Employer) Profit-sharing contribution, maximum 25% of compensation, up to the allowed limit
With Entrust, you can establish the salary deferral component as either a Roth or traditional tax-deferred plan, which reduces your taxes now and offers tax-deferred savings. With the Roth, you make after-tax contributions to the account, and like a Roth IRA, future withdrawals are tax free.
If you currently have an Individual (k) and want to self-direct your funds into nontraditional investments, you can transfer or rollover the funds to Entrust without penalty.
Consider an Individual (k) retirement account if:
- You are a sole proprietor with no employees other than your spouse or partners.
- You are looking for the largest potential contribution for a business without employees.
- You want the flexibility to invest beyond stocks and mutual funds.
- You want the capability of borrowing from your plan.
- You want to purchase leveraged real estate in your plan and avoid UBIT (Unrelated Business Income Tax).
Consult with your CPA or investment adviser to determine whether an Individual(k) works for you.
Entrust Offer These Administrative Options:
With Entrust, you can choose from various service options. Entrust provides the following, depending on the service model.
- Traditional Service
Required plan documents
Recordkeeping on your self-directed investments
- Do Your Own (DYO)
Required plan documents
- Outsourced Service (you must have your own plan documents)
Recordkeeping on your self-directed investments
Individual 401(k) Contribution Limits
The employee salary deferral can be up to 100% of your earned income, up to the maximum annual contribution limit. The employer portion can be up to 25% of compensation. The maximum compensation amount that can be used for calculating your contribution is $250,000 for 2012.
Ryan Rippy, Business Development Manager
The Entrust Group
7700 Irvine Center Drive, Suite 800
Irvine, CA 92618
t 949.788.2970 | f 866.815.5168
From the using your IRA or retirement account to self-direct investments department. An article in Investment News states, “Hal Mottet, a Lake Oswego, Oregon, businessman bought a family-owned packaging company for $3.5 million in late 2007, and he and a partner financed 40 percent of the sales price with their retirement money. Mottet and his partner used a loophole in U.S. tax law to roll over $1.4 million from their existing 401(k) retirement plans to finance the purchase of Carson, California-based Empire Container Corp. . . . Here’s how it typically works: An investor sets up a corporation, establishes a new 401(k) plan there, rolls over his or her existing 401(k) or Individual Retirement Account, and then uses part or all of the plan’s assets to buy shares of the new company. This funds the new business, while keeping the tax- advantages of the retirement plan.”
Laurie Bachelder, Principal of NUA Advisors, LLC, writes: “Investors tired of watching their retirement accounts ride the Wall St. rollercoaster are searching for other ways to create wealth in their retirement accounts. If you turn to most business or financial publications or websites you will find many articles about investing in real estate with a Self Directed Retirement Account (‘SDRA’). The majority of articles written about investing with a SDRA pertain to real estate as a popular choice for an alternative investment, and why wouldn’t it be. Real estate offers several advantages.”
Ann Siford, Manager of Professional Network at Equity Trust Company writes: “A self-directed IRA allows investors to directly manage their retirement portfolio, diversifying beyond the traditional mutual funds, stocks and bonds to include assets such as real estate, promissory notes, tax liens, private placements and oil/gas.”
Wall St. Journal: “Is there a Ponzi scheme lurking in your IRA? That may sound like a bizarre question. But in recent years, a number of well-off professionals and their families have been ensnared in frauds that prey on individual retirement accounts, according to securities lawyers and firms that manage these accounts. The vehicle typically targeted by such schemes is a self-directed IRA . . . .”