With your retirement funds it is possible to invest in real
estate, mortgages, private notes, structured settlements,
factoring, hard money lending, franchise, natural gas
investments, golf courses, joint ventures, RV parks, fisheries
investments, bonds, mutual funds, commodities and futures,
marinas, stocks and limited partnerships. These are
IRS-permitted investments. They have to be made within a
qualified retirement account. Once stablished the account holder
asks the Custodian or Facilitator to roll current retirement
funds into a self-directed IRA owned LLC. This type of business
transaction is legal and is penalty-free.
If it's penalty free and legal, why are the vast majority of
Americans and their financial advisors not aware of the use of
these self-directed IRAs? The reason primarily is due to the
lack of knowledge on the subject. There are, literally, only a
handful of financial service firms in the nation willing to
provide the required custodial and administrative services for
such accounts... [and] undertake the challenging research,
extensive paperwork, and IRS-reporting required to administer
non-traditional assets within IRA accounts. The wonderful news
is that they exist. These Custodians or Facilitators should not
be interested in selling you a product. Their sole purpose is to
be the third party as required by IRS rules and make sure that
the IRA statement to the IRS at the end of the year (for tax
purposes, even though taxes are not paid - reporting to the IRS
is required) will simply reflect one asset (the LLC). They also
help by identifying prohibited transactions (see below).
If you are unhappy with the returns or flexibility of your
current retirement plan there is another option available to
you: The self-directed IRA. Remember to enlist the help of an
IRA custodian or facilitator to legally protect your hard earned
retirement savings (this is required by IRS rules). Why do may
experts say that self directed IRA spells trouble? The trouble
is, accountants and tax-law experts say, many self-directed
accounts are accidents waiting to happen. Perhaps the biggest
risk is "self dealing." According to the federal government, an
IRA is supposed to provide for your future retirement -- not
your current needs or wishes. Therefore, you aren't supposed to
benefit from the investment before you start making withdrawals
in retirement. So, if a person uses IRA money to buy an asset
that he currently uses (say, a vacation home, or an apartment
for a child in college), it could be in violation of tax law. In
those cases, the Internal Revenue Service could step in and
simply disqualify the IRA, resulting in huge tax bills along
with additional penalties for account holders who are younger
than age 59‡.
You can stay out of trouble by (advice from WSI Research): 1.
Avoiding the pitfalls - when operating a self directed IRA,
transfer only part of your existing retirement account into the
new self directed account. That way if the investments in the
self directed IRA fail or if you run into regulatory problems,
you haven't put your entire nest egg at risk. 2. Get advance
approval - for any transaction in your self directed IRA that
might be considered self-dealing, you can get a "prohibited
transaction ruling" form the US Labor Department and/or the IRS
code (Tax on prohibited transactions Title 26, subtitle D,
Chapter 43, Sec. 4975). 3. Brig in outside investors - if you
use a self directed IRA to start and operate a small business,
inviting in independent investors with a big stake this might
make it possible for you to draw a salary or at least cut down
on possible self-dealing problems. Good luck and happy
investing!
About the author:
IRA-LLC specialists. If you have further questions contact us at
our feedback form found at
www.kit-for-self-directed-ira-llc.com
