Common Questions

New contribution limits for 2012 for Roths, IRAs, SEPs and Simple IRAs

We are often asked about the contribution limits for qualified plans. Here is a great graphic that you can reference that we recently posted on our blog. Have a look around our blog there is a lot of great information and don’t forget to download our ebook by completing the form on the right-hand side of the page…

What is a Truly Self-Directed IRA?

A truly self directed IRA is really not much different from any other IRA The same rules still apply. The term “truly self-directed” label simply indicates that you are truly able to choose your IRA’s investments without hassle, limitations or interference from a custodian. Often most Custodians, Administrators, Trustees or Banks that offer “self-directed” accounts often tie down their clients with either their own in-house guidelines that go beyond even the IRS rules and limit clients to investment options related to their own investment products. On top of that, they are known to charge onerous fees for this privilege.

What can a Self-Directed Account Invest in?

The rules governing what an Individual Retirement Arrangement can invest in are exclusive – not inclusive. The guidelines generally only specify where you cannot invest your funds. It’s virtually open to an unlimited number of alternative investment possibilities. The IRS only defines the following assets as strictly prohibited:

  • Life insurance contracts (e.g., a life insurance policy on the life of the account owner);
  • Collectibles (e.g., antique rugs, cars, stamps, furniture, jewelry, etc.);
  • Capital stock in an “S” corporation.

Examples of investments or specialized assets allowed

To learn more about prohibited transactions, then have a look at our blog.

My broker and my accountant both said you can’t do it. Why?

They typically respond, either out of ignorance or self-interest, “you can’t do that,” or, “it’s illegal,” or, “we don’t handle those types of investments,” etc. In all fairness, some of these professionals have never been told that it is legal to buy real estate directly with your retirement account. They don’t know because the companies that employ them are not interested themselves. Brokers are compensated when they sell stocks, bonds and mutual funds.  In short they are trained salesman.

In addition, many professionals, including CPAs, real estate attorneys and financial planners, are not aware that buying alternative investments such as real estate with an IRA is perfectly legal. We consistently hear; ” I have a client who wants to pull there money from there IRA, I heard there is a way to set this up without being taxed and penalized, is this true? The word is getting out there.

Why haven’t the majority of financial companies publicized this option?

Traditional IRA providers control about 97% of industry. Their huge marketing budgets allow them to maintain a strong public presence, although recently the national media are now giving exposure to the self-directed service industry. The true self-directed industry has the remaining 3% – but rapidly growing. The recent publicity surrounding possibilities within the self-directed industry has begun to sweep across the U.S.

A recent national publication suggested that all Americans should have 25% of their retirement savings in real estate. That would represent a growth of 1,150% over the current level of 2% of the $3.7 trillion in retirement savings that is currently in 401k – IRA assets. It is also estimated that overall, assets will grow by as much as $2 trillion by 2006 due to the retirement of the baby boomers. The self-directed industry is on the rise.

How do I know in real estate within my retirement account is allowable?

This is a question we hear most often and it is probably the #1 question. The fact is that you have been able to buy real estate with an IRA since the first day IRAs were created.

Visit www.IRS.gov yourself, the Internal Revenue Service’s own website and search for Publication 590, which defines everything the IRS wants you to know about IRAs. On pages 40-41, you will see what you CAN’T do. You cannot purchase collectibles or life insurance contracts.

You will also notice that real estate, financial paper, private placements, etc… are NOT mentioned as one of the prohibited asset class. Buying real estate in an IRA is just like buying Dell stock. Investing in real estate is just a purchase of a different TYPE of investment.

What is the difference between a Traditional Self Directed IRA and a Truly Self Directed One?

Although traditional “Self-Directed” IRAs – expand the investment options from stock and mutual funds to also include real estate, tax liens, deeds of trust, and a host of other potentially higher-yielding alternative investments. Although self directing your retirement is a step in the right direction, owners of these accounts s soon discover what is in the fine print and learn there are some significant drawbacks to a run-of-the-mill plan:

  • Who’s The Boss? The custodian or you? – If you are not truly self directed the IRA custodian is in control of your IRA funds. Custodial “Approval” is required before you are allowed to make an investment, although you are quote unquote self directed. (Why should you need to get someone else’s approval to invest YOUR funds?)
  • Delays – Ready to invest your self directed retirement plan? GREAT! Now fill out the paperwork and WAIT up to a week or longer! (Say goodbye to time-sensitive investment opportunities with a truly self directed IRA!)
  • Interest on Uninvested Funds – Uninvested funds are held in an self directed account at the custodian that pays you little or no interest. (Shouldn’t you be the one making the interest on YOUR uninvested money?)
  • There are always fees to pay – Typical self directed IRA fees include a yearly “Maintenance” fee (usually based on a percentage of the market value of the assets in the plan), fees for buying AND selling assets, and fees for every little service from document safe-keeping to cashier’s checks and faxes. (Why should the custodian profit off of your investment success?) This is not the case if your IRA is truly self directed. Call us or email us now. We can save you thousands in Custodial fees over the life of your account and we do it for a lot less than companies who either offer a quote, unquote warranty that provides no protection or a facilitator who can charge as much as $5000.

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