In 1997, Congress introduced the Roth IRA to be like a traditional IRA, but with a few attractive modifications. A Self Directed Roth IRA has many advantages. Primarily, if you qualify to make contributions, all distributions from the Roth IRA are tax-free. Even the investment returns – as long as the distributions meet certain requirements.
Additionally, unlike traditional IRAs, you may contribute to a Roth IRA as long as you have earned income. In the case of a traditional IRA, you can’t make contributions after you reach age 701/2.
NEW RULES FOR CONVERSIONS FROM IRA’S TO ROTH IRA’S
For tax years starting in 2011, the $100,000 modified adjusted gross income limit for conversations to Roth IRA is eliminated. Married taxpayers filing a separate return can now convert amounts to a Roth IRA.
Individual retirement accounts, or IRAs, exist in many forms. If you have an income from working for yourself or someone else, you may set up and contribute to an IRA. The major advantage of using a traditional IRA is that contributions are tax-deductible. However, a Roth IRA offers tax-free income and gains. Furthermore, you can use IRA funds for any purpose. This includes:
- Investing in real estate
- Tax liens
Alternative investments, such as real estate, are permitted in IRAs. Yet few people seem to know this option exists until the last several years. This is because large financial institutions have little incentive to recommend something other than stocks, bonds or mutual funds. The reason for this is, they bring in extremely profitable commission and fees.
Self-Directed IRAs for Alternative Assets
The Self-Directed IRA is the vehicle that is best known for allowing investors to use IRA funds to buy alternative assets, such as real estate. In the last several years, the number of Self-Directed IRA accounts has grown significantly. The significant increase in the number of Self-Directed IRAs forming can be largely attributed to:
- The shaky performance of the stock market
- The growth of the real estate market
- The lack of liquidity in the small business loan market
- The increase in media coverage by the Wall Street Journal, CNBC, The New York Times, Forbes, and some of the other major financial media companies
As a result, it is not entirely uncommon for a tax or financial advisor not to hear of Self-Directed IRAs, given that the traditional financial institutions have concealed their benefits due to their focus on selling more profitable financial products. These include equities, bonds, and mutual funds. Over the past few years, the movement toward nontraditional investments is picking up steam, specifically real estate and cryptocurrencies in 2017.
According to a McKinsey & Company report, The Mainstreaming of Alternative Investments, global alternatives has reached record levels of $6.5 trillion by the end of 2011. Thus, it has grown at a five-year rate of over seven times that of traditional asset classes. And according to a variety of respected researchers, including those from the Federal Reserve Board, the IRS, and the National Association of Government Defined Contribution Administrators, they expect to have 28 percent of their portfolios allocated to alternative investments by 2013. This is up 26 percent from 2010.
The numbers are even higher today.
Why Use a Self-Directed Roth IRA to Make Alternative Asset Investments?
The term alternative assets generally includes any non-traditional asset class. It covers investments that do not trade publicly on an organized exchange. This includes any investment outside of public stocks, bonds, money markets or cash. In general, alternative investments are typically 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. 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 the investment can be made.
As a result, this is a great advantage to using a Self-Directed IRA to make alternative asset investments. These alternative assets include real estate, notes, private businesses, hedge funds, precious metals, and cryptocurrencies. Financial experts believe that it will provide a great diversification to your retirement portfolio. Additionally, you receive some protection from inflation, and have the ability to invest in what you know, understand, and love, such as real estate or cryptocurrencies.
The Self-Directed Roth IRA LLC Solution
A Self-Directed Roth IRA LLC offers you the ability to use your retirement funds to make almost any type of investment without requiring the consent of a custodian or anyone else. Do you dislike the obligatory investments in stocks or mutual funds? Do you have an investment opportunity, such as real estate or a business investment that you want to actualize with your Roth IRA funds? Then the Self-Directed Roth IRA LLC is your solution.
In addition to the tremendous Roth IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), the Self-Directed Roth IRA LLC allows you to invest tax-free in investments that you know and understand. Aside from life insurance, collectibles and certain “prohibited transaction” investments, a Self-Directed IRA can invest in most commonly made investments. This includes real estate, private business entities, public stocks, private stocks, and commercial paper.
The self-directed Roth IRA LLC, similar to a Self-Directed IRA LLC, allows the IRA holder to:
- Use the same Self-Directed Roth 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 now at today’s prices, rent it out, and then move in tax-free at the age of 59 1/2!
- Purchase a vacation home now at today’s prices anywhere in the world, rent it out, and then use it tax-free at the age of 59 1/2
- Invest in an office building now at today’s prices, rent it out, and then move your business in tax-free at the age of 59 1/2.
How to use a Self-Directed Roth IRA LLC to Make Investments?
1. Establish Self-Directed Roth 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. Hence, the IRA assets/cash will transfer to 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 LLC Operating Agreement identifying 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. Because the LLC will be owned by one IRA, the LLC will be treated as a disregarded entity for federal income tax purposes and no federal income tax return will be required 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 Roth IRA LLC
- Invest in what you know and understand tax-free, such as real estate, precious metals, tax liens, 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 as easy as writing a check or executing a wire transfer
- 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 setup of your Self-Directed Roth IRA LLC “Checkbook Control” structure. The whole process can be handled by phone, email, fax, or mail and typically takes between 7-21 days to complete, the timing largely depending on the state of formation and the custodian holding your retirement funds. Our IRA experts and tax and ERISA professionals are onsite greatly reducing the setup time and cost. Most importantly, each client of the IRA Financial Group is assigned a retirement tax professional to help with the establishment of the Self-Directed Roth 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.
Did you know?
You can serve as manager of your Self-Directed Roth IRA LLC.