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CARES Act Distributions, the 1031 Exchange and more | Client Q&A

AdMail Podcast

In this week’s episode, IRA Financial’s Adam Bergman Esq. answers questions about holding gold in a safe deposit box, CARES Act distributions deadlines and the 1031 exchange with a Self-Directed IRA.

Question 1 from Kirk T in Greenville, SC: Can I hold gold in a safe deposit box at a bank?

Many smart investors diversify their portfolio by investing in alternative assets, such as gold and other precious metals. The most common way to do so with retirement funds, is via a Self-Directed IRA. Assuming your IRA custodian allows for gold investments, you can hold gold in your IRA to enjoy the tax benefits of the IRA plan. However, the IRS has strict rules where you can store the gold and other metal investments held in your retirement plan.

The Internal Revenue Code says the metals (no matter their form) should be held with a certified trustee, such as a bank, depository, or regulated trust company. You cannot personally hold gold in your possession. But what about a safe deposit box? They are usually at a bank, which is a trustee. However, one could argue that since you control the box and are allowed to open it whenever you want, it might not be allowed.

The best advice is to not hold your gold investments in a safe deposit box. It’s better to be safe than sorry when it comes to your retirement account assets. The last thing you want is the IRS to coming knocking on your door. Therefore, hold it with a trustee, where you do not have access to it.

Question 2 from Joey M in Fairfax, VA: What is the deadline for taking a CARES distribution from my IRA or 401(k) Plan?

You have until December 30, 2020 to take an IRA or 401(k) plan distribution courtesy of the CARES Act. The Act allows anyone that has been affected by the COVID-19 pandemic to have penalty-free use of their retirement account funds. Normally, you would need to be at least age 59 1/2 to take a penalty-free distribution (or suffer a hardship). Further, if you have a 401(k) plan at your job, you would normally need a triggering event to remove funds.

The CARES Act allows you to withdraw up to $100,000 in penalty-free funds. Taxes will be due, but they are payable over the next three years. In fact, if you re-contribute the funds to the plan within three years, any taxes paid will be refunded. If you need some financial relief from the coronavirus, look no further than your retirement plan. But act fast, as time is running out to take your distribution!

Question 3 from Theresa J in Cary, NC: Can I do a 1031 exchange with my Self-Directed IRA?

A 1031 Exchange is where you trade one piece of real estate investment for another. This is become popular for real estate investors since you don’t pay capital gains on the sale of the property. Instead, you take the money from that sale and purchase a property in a “like-kind” exchange. Basically, so long as it’s real estate, you can do a 1031 Exchange, whether it’s a rental house, raw land or commercial business.

Since Self-Directed IRAs inherently have tax advantages, there’s generally not a reason to do a 1031 Exchange. However, if the property was bought with nonrecourse financing, you are subject to the UBTI tax of 37%. The tax would be imposed on the sale of the property, based on the percentage of it that loan proceeds were used to purchase it. Therefore, if you use a 1031 Exchange, you do not have to pay that tax. Instead, you can use the funds of the sale from the property to purchase a new one. There are timing issues, since the purchase of the new property must be done in a timely matter. You can’t sell a house and wait six months to purchase another property!

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 [email protected].

As with his other podcasts, you can check out AdMail on SoundCloud. Be sure to subscribe to know when the next one pops up! Thanks for listening and have a great day, Self-Directed Nation!


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