In this week’s episode, IRA Financial’s Adam Bergman answers questions about the Checkbook IRA and the possibility of an IRS audit, rolling IRA funds to an IRA LLC, and if the SIMPLE IRA is a good option for small businesses.
Question 1 from Barry S in Worcester, MA: Does having a Checkbook IRA LLC trigger an IRS audit?
This is a tricky one since the IRS does not provide audit numbers for IRAs. They do it for 401(k) plans and other filings, just not for any types of IRA plans. I’d wager that more than 95% of them solely invest in traditional assets, such as stocks and mutual funds. In most cases, when the IRS steps in, it’s because a prohibited transaction or valuation has caught their eye.
A recent GAO report focused on unconventional IRA investments. The IRS suggests they need to better educate the investor about the rules for investing in alternative assets, such as real estate, in an IRA. So, to answer the question, no, simply having a Checkbook IRA will not trigger an audit. Of course, you should follow all IRS rules and regulations. The last thing you want is to face an audit where the IRS finds wrongdoing which may disqualify your plan.
Question 2 from Jeff Z in NM: If I roll money from another IRA to my checkbook control structure – can I roll it directly to the LLC?
Unfortunately, the answer is no, you cannot roll money from a retirement plan directly into your LLC. The funds must go from one custodian to another. If you do roll money into your LLC, you must adhere to the 60 day rollover rule. This means any funds taken from your IRA must be moved to another retirement account within 60 days. If not, it will be treated as a taxable distribution.
Therefore, if you have other retirement funds that you wish to move, you must ensure that it goes into another retirement plan. Either 401(k) to IRA, or IRA to IRA, etc. If you have a Checkbook Control IRA LLC, you may roll the funds into the Checkbook IRA, but not the LLC directly. Technically, you can, but you will get hit with taxes, which defeats the purpose of the IRA!
Question 3 from Jodi P in Colorado Springs, CO: You don’t talk about the SIMPLE IRA much – what do you think of it as a retirement plan option for a small business?
A SIMPLE IRA does not get a lot of press, but it is an underrated retirement plan option for small businesses. The two most popular plans for businesses are the 401(k) and the SEP IRA. However, you’re doing your company a disservice if you are not considering the SIMPLE plan. Here are a few benefits:
- Each employee has his or her own SIMPLE account, allowing for more individualized investment options.
- Self-Direct the account!If the business owner contributes at least 3% of each employees’ salary (or 2% non-elective), he or she can max out contributions without plan testing.
- No fiduciary concerns for the business owner with added flexibility and limited filings.
AdMail – Keep it Coming
We hope you enjoyed the latest episode of AdMail. Mr. Bergman will continue to respond to questions each week so long there is a demand for them! If you have any questions for him, email him at firstname.lastname@example.org.
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