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Are You Making These Mistakes With Your Self-Directed IRA?

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The flexibility of a self-directed IRA can be a great thing. It gives you the opportunity to make investments that you might not be able to make through other retirement plans. But the ability to go after a broader set of investments could also land you in trouble with the IRS if you aren’t careful and stay up to date on the rules. And the ramifications could be serious – if the IRS voids your account because of non-compliance, you would be forced to withdraw all funds and pay income tax on the entire balance (plus a potential 10 percent penalty if you are younger than 59 ½).

Here are some common mistakes self-directed IRA investors make. Are you headed toward any of these pitfalls?

1. Personally guaranteeing debts in the IRA

This rule can be tricky and you might not even know you are breaking it. For example, if you buy investment real estate for your account and take out a mortgage on the property, you are not allowed to guarantee the mortgage with your personal assets.

Another rule-breaking scenario would be if you invest through your IRA with a broker that requires investors to make up shortfalls in their investment accounts with their personal assets. (Some brokers require this). Signing this type of agreement would be a violation under self-directed IRA rules and the IRS could void your account.

2. Making deals with “disqualified persons”

The IRS has strict rules around who you can and cannot make business dealings with under your IRA. “Disqualified persons” in this case includes family members, friends and other people with whom you have a prior personal relationship.

This rule is in place to stop people from making the kind of sweetheart deals that could abuse the tax advantages under your IRA. For example, someone could use an IRA to buy a piece of real estate at a steep discount from their parents and later sell it for a huge gain while avoiding taxes.

It’s best to avoid personal deals altogether – even if you make a deal with a friend or family member that is completely fair and true to market conditions, the IRS could still void your account.

3. Investing in non-approved assets

While the self-directed IRA allows a large list of alternative investments, there are still some investments that are excluded. This includes most collectibles like antiques, stamps, gems, artwork, and rugs.

Other categories carry specific exemptions. Only certain types of precious metals are allowed on the self-directed IRA investment list. Most, but not all gold coins are acceptable. For example, if you want to buy gold coins, you can buy American Eagle and Canadian Maple Leaf gold coins, but not the South African Krugerrand.

If the IRS catches you investing in a non-approved asset, you will be forced take out the asset as a distribution and you will owe taxes on the amount of the withdrawal.

4. Mishandling improvement and repairs to real estate

There are specific rules about how you pay for repairs or improvements to a piece of real estate in your self-directed IRA. Paying for these repairs out-of-pocket or out of your personal assets is not allowed, and the IRS could force you to withdraw the real estate from the IRA. Instead, you must hire someone else to handle this work for you using funds from your self-directed IRA.

Too many investors run into trouble simply because they don’t understand the rules for self-directed IRAs.  Remember to do your research before making investments with your IRA.

Feeling Stuck In Your Retirement Plan? Diversify With A Self-Directed IRA

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ira-1Traditional retirement plans can leave you feeling limited within your investment options. Companies that manage these types of accounts typically only allow you to deal within a handful of basic assets like stocks, bonds, and mutual funds – a frustrating issue that can ultimately cost your retirement portfolio. But self-directed IRAs can open up a much wider range of investments and, if used wisely, new possibilities for your retirement strategy.

The Power of Diversification

Smart investors know that diversification is a fundamental strategy for successful long-term investing. Diversifying your assets comes back to that old adage: don’t put all your eggs in one basket. For example, if you invest solely in car companies, your portfolio could face a huge loss if the price of oil increases. But if you invest across a range of different companies and industries, those sudden, dramatic losses become much less likely.

A diversified portfolio should also ideally hold a range of different asset groups, as well as cover several industries, to help insulate against market shifts. For example, a portfolio with both stocks and bonds is safer than a solely stock-based portfolio because if the stock market turns negative, your bonds can help offset the loss. Market research has consistently shown that a well-diversified portfolio reduces risk and can potentially help investors achieve a better long-run return – both key aspects of a good retirement plan.

Advantage of a Self-directed IRA

Traditional retirement accounts like regular IRAs and 401k’s are controlled by the company that set up the account. This means that they decide which investments are available to their investors and, for cost and convenience, these companies typically only allow customers access to conventional assets.

By contrast, self-directed IRA accounts allow you to take more control of your financial future by accessing a much wider range of assets, while still retaining the tax benefits of retirement accounts. Self-directed IRAs are allowed to hold any asset approved by the IRS for retirement plans, including alternative investments like precious metals, real estate, hedge funds, limited liability companies, and promissory notes.

Investment Benefits

A highly diversified self-directed IRA can benefit your retirement plan in several ways. First, by having a wider range of assets than is typically available in traditional retirement plans, your portfolio is subject to lower risk, preventing losses. For example, precious metals and hedge funds are two investments that generally outperform traditional assets during market downturns. A self-directed IRA would allow you to have at least some of your savings in these more secure assets to balance out losses from other investments.

Many alternative investments, when managed properly, also have higher potential returns than traditional investments. And returns can increase further if they are connected to a field that interests you. Many investors appreciate being able to invest in real estate or own parts of a privately-held business through their retirement plans, and take great care in managing these assets, often yielding increased returns.

There’s no reason to restrict your investments in a traditional retirement account. To learn more about diversified investment strategies, alternative assets and self-directed IRA approaches, read our article on, 6 Myths About IRAs That Hurt Investors.

News & Ideas – July 2015

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GO PAPERLESS TODAY

Working, analyzing graphics with the tablet and having breakfastAs announced at the beginning of this year, we have begun charging a $5.00 per paper statement fee each quarter. To avoid this cost, you may elect to download your statements from our website. To elect to go paperless, visit our website www.iraservicestrust.com, log into your account, and change your delivery method under the Statement Section in the lower left corner of the display.

If you are not sure whether you have internet access or should you require any assistance, send an email to info@iraservices.com or call Customer Service at (800) 248-8447. If you currently don’t have an online account and wish to establish one, submit an Internet Access Request form that is available on our website www.iraservicestrust.com under the Forms & Fees tab.

CONSIDER THE BENEFITS OF A ROTH IRA

A Roth IRA is a tax-free retirement savings account that can be funded with after-tax dollars. Funds deposited continue to grow tax-free and can be withdrawn with no penalty. Establishing a Roth IRA now or converting some of your Traditional IRA may save you money in taxes, especially over longer periods, growing yourself a bigger nest egg.

QUALIFIED DISTRIBUTIONS ARE TAX-FREE

Funds in a Roth IRA that have been held for at least 5 years can be distributed tax free if you are over the age of 59 1⁄2. They can also remain in the Roth IRA indefinitely to grow even further until you need them.

Funds held in a Roth IRA, unlike the Traditional IRA, are not subject to mandatory withdrawals starting at age 70 1⁄2, so you are free to maintain the balance of funds in your Roth IRA even after the age 70 1⁄2 milestone at which Traditional IRAs must begin.

Converting moneys from Traditional IRA to Roth IRA will reduce the amount remaining in Traditional IRAs that are subject to the Required Minimum Distributions (RMD).

You can take physical possession of your ‘hard assets’ like real estate or precious metals, tax-free. This is possible when you make Qualified Distributions (over the age of 59 1⁄2, with 5 years in the Roth IRA). Now they are yours to hold and to use as you wish.

NO ELIGIBILITY AGE LIMIT FOR CONTRIBUTIONS

New contributions to your Roth IRA are still permitted after 701⁄2, as long as you have earned income. If your income (MAGI) exceeds $6,500 but is less than $116,000 (or $183,000 if filing jointly), you may be entitled up to the maximum contribution, including the catch-up provision of $6,500.

NO RMDS FOR SOLE SPOUSAL BENEFICIARIES

A spouse, who is the sole beneficiary of a Roth IRA that meets the criteria for qualified distributions, may make the Roth IRA their own, tax-free. Not only that, they can even make new Contributions to it going forward, as long as they have earned income. A non-spouse beneficiary (or a spouse who is not sole beneficiary) may elect to take distributions according to his or her own life expectancy. These too will be tax-free to the beneficiary (again, assuming the original Roth IRA owner had met the criteria for qualified distributions at the time of death).

NO INCOME LIMITS FOR CONVERTING TO ROTH IRA

Even if your earnings are too great to allow you to make new Contributions to a Roth IRA, you are allowed to make Conversions to a Roth IRA without limitations from your existing Traditional IRA. Yes, it will be taxable in the year you convert, but this could still pay off in the long run, as you may be able to keep the money working for you indefinitely before ultimately withdrawing it tax-free. However, you should consult with your tax advisor to determine what is best for you and your tax situation.

THINKING OF YOUR LEGACY (CHILDREN AND GRAND-CHILDREN)?

For a parent of a child who has earned income, a Custodial Roth IRA can be a great way to teach the value of saving and investing. Besides getting a head start on saving and investing, the child can learn and see how a small investment made today, especially when repeated periodically, can grow into a large pile of funds over time. Down the road, the child could tap into it for qualified higher education expenses, and similarly, they could use up to $10,000 towards their first home purchase, without tax or penalty, in either case.

PAPERLESS NOTIFICATIONS FOR PROPERTY TAX AND EXPENSE PAYMENTS

As of May, 2015, if you are holding real estate in your account, we are now emailing our Property Tax Payment Request form, along with any property tax bills that we receive. This form can simply be completed, then faxed or e-mailed back to us. You may instruct us to send the check with the original tax document or to send it directly to the tax authority. We ask that requests be submitted as promptly as possible to allow us to make timely processing of your payments.

In addition, we occasionally receive asset summaries, insurance policies, utility bills, and similar documents pertaining to assets held in your account. We will forward these promptly to the e-mail address indicated on your account. If a payment is required, we will also attach the Expense Payment Request form for your convenience. Once we receive your instructions indicated on that form, we will forward the payment to the authorized provider.

Also, we suggest clients consider arranging with their providers to have bills sent directly to them (at their residence or primary address), which will provide more time for receipt and processing of payment requests. Please note: if you require the original document to be sent to you, a $5.00 forwarding fee will apply, charged to your account.

Always remember, however, that all Distribution Requests for withdrawal of funds or Transfer Authorizations to bring funds from elsewhere should be sent directly to IRA Services Trust Company rather than the Investment entities or previous custodians. In the case of deposits such as Contributions or Rollovers, they should also be sent directly to us, using the Deposit Info form available on our website www.iraservicestrust.com under the Forms & Fees tab.

A NEW PRECIOUS METALS STORAGE FACILITY – ON THE WEST COAST

We have approved the use of a second precious metals storage facility. Located in San Diego, California, BlueVault provides segregated storage for gold and silver bullion only. For more information, visit their website at www.bluevaultsecure.com or call 619-342-8090.

As always, our original precious metals storage facility, Delaware Depository Services Company, continues to provide storage for all precious metals (gold, silver, platinum and palladium).

A WORD ABOUT RESPONSIBILITIES

As a self-directed IRA account holder, you have a number of responsibilities, which include:

  • Performing due diligence on your investment(s)
  • Understanding the risks related to your investment(s)
  • Understanding Prohibited Transaction rules and avoiding them
  • Ensuring that valuations are provided to us for all assets on at least an annual basis
  • Understanding our fees and minimum balance requirement.

Please read our Fee Schedule and Financial Disclosure.

IRA Services Trust Company does not assume responsibility for any investment decision. Therefore, it is advisable to consult suitable professionals (accountants, tax or financial advisors, or attorneys) before making your investment decisions.

News & Ideas – April 2015

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Important April DApril calendar deadlineseadlines

Take note of the following important April deadlines:

April 1: Deadline for investors who turned 701⁄2 in 2014 to take their Required Minimum Distribution (RMD).
April 10: Final deadline for the second installment of property tax payments. Payments received after this date are considered delinquent.
April 15: Deadline for 2012 contributions (must be post-marked by April 15), and deadline for filing your tax return (or requesting an extension).

If you have missed any of these deadlines, please contact your accountant to find out what the repercussions are and/or the penalties you may be subject to, if any.

Paperless Notifications for Property Tax and Expense Payments

For those of you who have opted to go paperless, we applaud your actions.

As part of our continuing efforts in this regard, if you hold real estate directly in your account, we will be e-mailing our Property Tax Payment Request form, along with any property tax bills we receive, beginning May 1, 2015. This form can simply be completed, then faxed or e-mailed back to us. You may instruct us either to send the check with the original tax document to you for filing or directly to the tax authority We ask that requests be submitted as promptly as possible to allow us to make timely processing of your payments.

In addition, we occasionally receive asset summaries, insurance policies, utility bills, and similar documents, pertaining to assets held in your account. We will forward these promptly to the e-mail address indicated on your account. If a payment is required, we will also attach the Expense Payment Request form for your convenience. Once we receive your instructions indicated on that form we will forward the payment to the authorized provider.

Also, we suggest clients consider arranging with their providers to have bills sent directly to them at their residence or primary address. This will provide more time for receipt and processing of payment requests. Please note: if you require the original document to be sent to you, a $5.00 forwarding fee will apply, charged to your account.

Consider the benefits of a Roth IRA

Roth IRAs are designed to leave more money in your hands down the road. Establishing a Roth IRA now or converting some of your Traditional IRA may save you money in taxes, especially over longer periods, growing yourself a bigger nest egg.

Qualified Distributions are tax-free

Once you are over the age of 59 1⁄2, having held a Roth IRA for at least 5 years’ time, the funds can be distributed tax-free. They can also remain in the Roth IRA indefinitely to grow even further until you need them.

Funds held in a Roth IRA, unlike the Traditional IRA, are not subject to mandatory withdrawals starting at age 70 1⁄2, so you are free to maintain the balance of funds in your Roth IRA even after the age 70 1⁄2 milestone at which Traditional IRAs must begin.
Converting money from Traditional IRA to Roth IRA will reduce the amount remaining in
Traditional IRAs that is subject to the Required Minimum Distributions.

You can take physical possession of your ‘hard assets’ like real estate or precious metals, tax-free. This is possible when you make Qualified Distributions (over the age of 59 1⁄2, with 5 years in the Roth IRA). Now they are yours to hold and to use as you wish.

No eligibility age limit for contributions

New contributions to your Roth IRA are still permitted after 701⁄2, as long as you have earned income. If your income (MAGI) exceeds $6,500 but is less than $116,000 (or $183,000 if filing jointly), you may be entitled up to the maximum contribution, including the catch-up provision of $6,500.

No RMDs for sole spousal beneficiaries

A spouse, who is the sole beneficiary of a Roth IRA that meets the criteria for qualified distributions, may make the Roth IRA their own, tax-free. Not only that, they can even make new Contributions to it going forward, as long as they have earned income. A non-spouse beneficiary (or a spouse who is not sole beneficiary) may elect to take distributions according to his or her own life expectancy. These too will be tax-free to the beneficiary (again, assuming the original Roth IRA owner had met the criteria for qualified distributions at the time of death).

No income limits for converting to Roth IRA

Even if your earnings are too great to allow you to make new Contributions to a Roth IRA, you are allowed to make Conversions to a Roth IRA without limitations from your existing Traditional IRA. Yes, it will be taxable in the year you convert, but this could still pay off handsomely in the long run, as you may be able to keep the money working for you indefinitely, before ultimately withdrawing it tax-free. However, you should consult with your tax advisor to determine what is best for you and your tax situation.

Thinking of your legacy (children and grand-children)?

For a parent of a child who has earned income, a Custodial Roth IRA can be a great way to teach the value of saving and investing. Besides getting a head start on saving and investing, the child can learn and see how a small investment made today (especially when repeated periodically) can grow into a large pile of funds over time. Down the road, the child could tap into it for qualified higher education expenses, and similarly, they could use up to $10,000 towards their first home purchase – without tax or penalty, in either case.

While we’re on the subject of legacy (children and grand-children), be sure to consider an ESA (Education Savings Account, formerly known as a Coverdell account). An ESA allows you to make an annual non-deductible contribution of up to $2000 to a specially designated investment trust account, which will grow free of federal income taxes. Withdrawals from the account will generally be tax-free as well, when used for qualified K-12 or college expenses.

Your Responsibilities

As a self-directed IRA account holder, it is important for you to know and understand your responsibilities:

  • Choosing your investment(s)
  • Performing due diligence on your investment(s)
  • Understanding the risks related to your investment(s)
  • Monitoring your investment(s)’ performance
  • Knowing whether your investment is liquid and how to liquidate
  • Understanding Prohibited Transaction rules and avoiding them
  • Ensuring that valuations are provided to us for all assets on at least an annual basis
  • Understanding our fees and minimum balance requirement

Please read our Fee Schedule and Financial Disclosure.

You are solely responsible for the success of your investments. IRA Services Trust Company does not assume responsibility for any investment decision. Therefore, it is important that you choose suitable professionals (accountants, tax advisors, attorneys and financial advisors) to assist you with your investment decisions.

News & Ideas – January 2015

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2014 Annual Statement & Tax Documents

 

Statements for the period ending 12/31/14 will be available by January 31st. This statement is an annual consolidated statement that includes a full-year summary. If you have online access to your account, please take note that your quarterly statements for the first, second, and third quarters will be replaced by the annual statement.

The annual statement will serve as your substitute Form 5498. The information that will appear on your substitute Form 5498 (contributions, rollovers, account valuation) will be furnished to the Internal Revenue Service.

If you took a distribution, did a Roth conversion, or had any other taxable transaction, you will receive a Form 1099R which will be issued by January 31st.

Required Minimum Distributions (RMDs)

If you are over 70 1⁄2 or will turn 70 1⁄2 this year, you will receive notification letters and reminders indicating the amount of your required minimum distribution. For investors who turned 70 1⁄2 in 2014, the deadline to receive your RMD is April 1st 2015. If you are turning 701⁄2 this year, your deadline is April 1st 2016. Please note that if you have an IRA at another financial institution, you may take your RMD from that IRA account should you wish to do so.

If you choose to take your RMD from your IRA Services account, please send in your request so that your distribution is issued to you prior to the deadline. If your request entails a liquidation and/or an in-kind distribution, please send your request now (preferably by February 1st) to allow enough time to process the liquidation and/or re-registration by April 1st.

For investors who were over the age of 70 1⁄2 prior to December 31, 2013, the deadline to receive your RMD is December 31, 2015. Please send us your request as soon as possible, but no later than December 15. 2015. Failure to provide your request to us in a timely manner may result in your distribution not being issued by the deadline. As a result, you may face penalties from the IRS.

For more information on requesting a distribution, please call us at 1-800-248-8447 or send an email to info@iraservices.com.

Valuations

For investors who hold Real Estate and/or IRA LLCs in their account, the deadline to submit your valuation so that it appears on your 2014 year-end statement was January 12, 2015.

If you submitted your valuation after January 12, your new fair market value will be reflected on your first quarter statement for 2015.

For investors who hold other asset types, please contact your investment provider to ensure that they have provided us with the fair market value of your asset(s).

Reminders About Statements and Fees

Go Paperless today

Beginning with your March 2015 statement, a $5.00 per paper statement fee will be charged each quarter. To avoid this cost, you may elect to download your statements from our website. To elect to go paperless, visit our websitewww.iraservices.com, log into your account, and change your delivery method under the Statement Section in the lower left corner of the display. If you don’t have an online account and wish to establish one, submit an Internet Access Request form available on our website www.iraservices.com under the Forms & Fees tab. Should you require any assistance, send an email to info@iraservices.com or call Customer Service at 800-248-8447.

Remember, if you wish to pay account fees due in 2014, you must do so by January 31, 2015. Funds received after this date may be returned to you. To pay your account fees, please send a check made payable to “IRA Services Trust Company” indicating the total amount of fees to be paid. You may only pay 2014 fees which have not already been paid by you.

Consider the benefits of a Roth IRA

Roth IRAs are designed to leave more money in your hands down the road. Establishing a Roth IRA now, or converting some of your Traditional IRA, may save you money in taxes, especially over longer periods, growing yourself a bigger nest egg.

Qualified Distributions are tax-free

Once you are over the age of 59 1⁄2, if you have held a
Roth IRA for at least 5 years, those funds can be distributed tax-free. Funds held in a Roth IRA, unlike the Traditional IRA, are not subject to mandatory withdrawals starting at age 70 1⁄2, so you are free to maintain the balance of funds in your Roth IRA after the age 70 1⁄2 milestone.

Converting money from Traditional IRA to Roth IRA will reduce the amount remaining in Traditional IRAs that is subject to Required Minimum Distributions.

No eligibility age limit for contributions

New contributions to your Roth IRA are still permitted after 701⁄2, as long as you have earned income. If your income exceeds $6,500 but is less than $116,000, you may be entitled to make up to the maximum contribution, including the catch-up provision of $6,500.

No RMDs for sole spousal beneficiaries

A spouse, who is the sole beneficiary of a qualified Roth IRA, may make the Roth IRA their own. Distributions from the Roth IRA would be tax free. In addition they can make new Contributions, as long as they have earned income.

A non-spouse beneficiary (or a spouse who is not the sole beneficiary) may elect to take distributions according to their own life expectancy. These too will be tax-free to the beneficiary, again assuming the original Roth IRA owner had met the criteria for qualified distributions at the time of death.

No income limits for converting to Roth IRA

Even if your earnings are too great to allow you to make new Contributions to a Roth IRA, you are allowed to make Conversions from your existing Traditional IRA to a Roth IRA without limitations. It will be taxable in the year you convert, but this could still pay off handsomely in the long run, as you may be able to keep the money working for you indefinitely, before ultimately withdrawing it tax-free. Ask your accountant or tax advisor for advice on the best option for you.

Thinking of your legacy? (Children and Grand-children)

For a parent of a child who has earned income, a Custodial Roth IRA can be a great way to teach the value of saving and investing. Besides getting a head start on saving and investing, the child can learn and see how a small investment made today, especially when repeated periodically, can grow into a significant amount over time. Later, the funds can be used for qualified higher education expenses, and up to $10,000 towards their first home purchase without tax or penalty.

While we are on the subject of legacy (children and grand-children), be sure to consider an Education Savings Account. An ESA allows you to make an annual non-deductible contribution of up to $2000 to a specially designated investment trust account, which will grow free of federal income taxes. Withdrawals from the account will generally be tax-free as well when used for qualified K-12 or college expenses.

Don’t let April 15 sneak up on you

If you missed out on, or were unable to Contribute to your IRA or Roth IRA in 2014, you are not out of luck. You can still make a Contribution for last year (2014) if we receive it or it is postmarked and dated prior to April 15, 2015. With sufficient earned income, you can still Contribute up to $5,500 (or $6,500 if 50 years of age or above) for 2014. Your account benefits from this provision, allowing you a final chance to ‘catch-up’ on 2014.

Contact Us

IRA Services
PO Box 7080
San Carlos, CA 94070-7080

(800) 248-8447
(605) 385-0050
info@IRAServices.com