Menu Close

Letting You in on the Self-Directed IRA Secret

Letting You in on the Self-Directed IRA Secret

The Self-Directed IRA Secret

It’s a little known fact that retirement accounts can invest in alternate assets, such as real estate and Bitcoin. Now, we’ll let you in on the Self-Directed IRA Secret!

Individual retirement accounts (IRA), exist in many forms. If you have income from working for yourself or someone else, you may set up and contribute to an IRA. The real advantage of using a traditional IRA is that contributions are tax-deductible. Whereas a Roth IRA offers tax-free income and gains. Furthermore, you can use IRA funds for any purpose, including investing in real estate, tax liens, stock, bonds, gold, and even cryptocurrencies.

Alternative investments, such as real estate, have always been permitted in IRAs. Yet few people seem to know this option exists. It wasn’t until the last several years that they become more knowledge on the self-directed IRA secret. Since then, Self-Directed IRAs (SDIRA’s) have grown steadily in popularity.

Popularity of the Self-Directed IRA

Large financial institutions have little incentive to recommend self-directed IRAs. Because of this, they always recommend stocks, bonds or mutual funds to IRA holders. What’s the reason behind this? Traditional investments bring in an extremely profitable commission and fees for them.

However, the Self-Directed IRA is the best vehicle for investors to use their IRA funds to buy alternative assets, like real estate. The number of Self-Directed IRA accounts are growing significantly. This can largely be due to the shaky performance of the stock market. Not to mention, the growth of the real estate market, the lack of liquidity in the small business loan market, and the increase in media coverage by the Wall Street Journal, CNBC, The New York Times and other major financial media companies.

Other Reasons it’s the Self-Directed IRA Secret

Self-Directed IRAs aren’t only a secret because financial institutions withhold this information. It’s also not uncommon for tax or financial advisors to know little to nothing about Self-Directed IRAs. This is partly because  traditional financial institutions have concealed the advantages of the SDIRA to focus on selling more profitable financial products (equities, bonds, and mutual funds).

In the past few years, the movement toward nontraditional investments has picked up steam. In 2017, the primary avenues for nontraditional investments were real estate and cryptocurrencies.

According to a McKinsey & Company report, The Mainstreaming of Alternative Investments, global alternatives reached record levels of $6.5 trillion by the end of 2011. This is a five-year rate of over seven times the growth of traditional asset classes.

Why Use a Self-Directed IRA to Make Alternative Investments?

The term alternative assets generally includes any non-traditional asset class. It covers investments that don’t trade publicly on an organized exchange. This includes any investment outside of public stocks, bonds, money markets or cash. Essentially, alternative investments are complex, illiquid, and more difficult to value than traditional assets. They typically offer the opportunity to earn investment returns in excess of those generally available in the traditional financial markets.

The Internal Revenue Code does not describe what a Self-Directed IRA can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibit Disqualified Persons from engaging in certain types of transactions. In general, as long as the Self-Directed IRA does not purchase life insurance, collectibles, or engage in a prohibited transaction outlined in IRC 4975, then you can make the investment. The advantage of using a Self-Directed IRA to make alternative asset investments is that it is perceived to provide a great way to diversify your retirement portfolio, get some protection from inflation, as well as have the ability to invest in what you know, understand, and love, such as real estate or cryptocurrencies.

The Self-Directed IRA LLC Solution

The Self-Directed IRA LLC structure was affirmed in the Tax Court case Swanson v. Commissioner, 106 T.C. 76 (1996), and further confirmed by the IRS in Field Service Advisory (FSA) 200128011 (April 6, 2001).

A Self-Directed IRA LLC allows you to use your retirement funds to make practically any type of investment. You no longer have to wait for the consent of a custodian, or pay the high custodian fees. Don’t spend hard-earned money investing in stocks or mutual funds. Make investments in what you know and understand. If you have an investment opportunity, such as real estate or a business investment that you want to make with your IRA funds, then the Self-Directed IRA LLC may be right for you.

Except for life insurance, collectibles and certain “prohibited transaction” investments outlined in Internal Revenue Code Section 4975, Self-Directed IRAs can invest in most commonly made investments. This is why you need to know about the Self-Directed IRA Secret.

The Self-Directed IRA LLC allows the IRA holder to:

  • Use the same Self-Directed IRA LLC to purchase domestic and foreign real estate, private mortgages, gold and stocks, bonds and mutual funds inside the same plan and generate profits tax-free
  • Purchase real estate foreclosures and tax liens on the spot, or make personal loans by simply writing a check and generate profits tax-free
  • Buy your retirement home or vacation property now at today’s prices, rent it out, and then move in at the age of 59 1/2!
  • Diversify your retirement portfolio and invest in almost any type of investment tax-free

How to use a Self-Directed IRA LLC to make investments

1. Establish Self-Directed IRA LLC with IRA Financial Trust.

2. Your IRA assets/cash can roll over to IRA Financial Trust tax-free.

3. A special purpose LLC will be established that will be wholly owned by the IRA. The IRA assets/cash will then go into the LLC tax-free in exchange for 100% interest in the LLC.

4. You, as manager of the LLC, will open a bank account for the LLC at any local bank. IRA Financial will draft the LLC Operating Agreement. This identifies you as manager of the LLC and the IRA as the sole member.

5. You, as manager of the LLC, will then have “Checkbook control” over all the assets/funds in the IRA LLC to make the alternative asset investment.

6. Since one IRA will own the LLC, it’s treated as a disregarded entity for federal income tax purposes. No federal income tax return needs to be filed. All income and gain from the real estate investments will flow back to the IRA without tax.

Advantages of the “Checkbook Control” Self-Directed IRA LLC

  • Invest in what you know and understand tax-free, such as real estate, hard money loans, private businesses, and much more.
  • Take control of your IRA assets and make investments from a local bank account.
  • Making an investment is fast and easy.
  • Save on custodian fees – no transaction or annual account balance fees.
  • Invest with limited liability protection.
  • Asset & creditor protection.

The IRA Financial Group will take care of the entire set-up of your Self-Directed IRA LLC “Checkbook Control” structure. We can handle the process by phone, email, fax, or mail. This typically takes between 7-21 days to complete. The timing largely depends on the state of formation and the custodian holding your retirement funds. At IRA Financial Group, our Self-Directed IRA experts and tax and ERISA professionals will reduce setup time and cost. More importantly, each client of the IRA Financial Group is receives a devoted retirement tax professional. He or she will help with the establishment of the Self-Directed IRA LLC “Checkbook Control” structure. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.  Don’t pass up on the Self-Directed IRA secret.

To learn more about the Self-Directed IRA secret, please contact us @ 800.472.0646.

Posted in Self-Directed IRA