Self-Directed IRA & Small Business Financing Blog
Well, Bob, do we have some great news for you!
You can actually do both!!
Although Bob may be an exception, it is amazing to think about how significant “self-directed IRAs” and “real estate IRAs” have become to this new generation of investors. As more and more account holders experience the uncertainty of the stock market, the more relevant self-directed retirement accounts become to every-day investors.
If you call in and ask any of our consultants or client coordinators what the biggest change has been in our callers during the last year, they will tell you that it’s the questions they ask.
One year ago, the most frequently asked question was “Is this legal?”
Today, the most frequently asked question is “How fast can you set this up?”
For those of you who aren’t sure of the answer to either one of these questions, they are “yes,” and “about 30 days.”
And, for those of you who read the MSNBC.com article about people who have withdrawn money from their IRA or 401(k) to make ends meet during this economic downturn, we would like to share another gem with you:
There are other options.
You can invest in alternative markets to potentially yield a higher return or you can even use the funds from your IRA or 401(k) to start or purchase a business without taking a taxable distribution.
There are alternatives. Call us to find out more.
Yes - Free!2. Step 2: Request more information on the selected investment directly through their site.
3. Step 3: After selecting an opportunity that works for them, simply close on the investment and receive a new checkbook self-directed IRA account (subject to program details).
- Up to $73,000 in government funding (almost 30 percent of the property value)
- A free self-directed IRA account with industry leader Guidant Financial Group (a $3,995 value) or $1,500 off the purchase price
- Special GO Zone tax benefits (not all qualify, but the developer will pay for you to consult with a MS tax advisor prior to closing to evaluate your situation)
AND ...
If you call now - A FREE SALAD SPINNNER!!!
Just kidding. But then it would be too good to be true, wouldn't it?
For more inforamtion, visit http://www.freeselfdirectedira.org/, or click here to register for a free Webinar hosted by the developers on Wednesday, November 19th at 9pm ET/6 pm PT.
Happy investing!
For those of you who are unfamilar with the GO Zone (Gulf Opportunity Zone), this is an area along the Gulf Cost that is offering defined development incentives to builders/investors in order to urge rebuilding after Hurricaine Katrina.
As NuWire Investor describes, "After the devastating 2005 hurricane season, the U.S. government passed the Gulf Opportunity Zone Act (GO Zone) to encourage economic growth and rebuilding in damaged areas. The Katrina GO Zone, which includes parts of Louisiana, Mississippi and southwestern Alabama, offers particularly intriguing investment opportunities." (See Investing in the GO Zone.)
So, why are we bringing this to your attention now?
Well, as it just so happens, time is running out for those who may want to take advantage of the GO Zone's Small Rental Program. Applications are Due December 15th.
One particular property we have learned of that offers investment opportunities as a part of the GO Zone Small Rental Program, Ocean Springs Trails, is offering a Webinar on Wednesday, November 19th starting at 9 pm ET/6 pm PT, to learn more about opportunities associated with this program.
To register for this informative presentation, click here.
For more information on the Small Rental Program, see NuWire's article, Applications for GO Zone Small Rental Program Due December 15.
Check it out! Go get SMART about the GO Zone!
Guidant’s senior consultants were recently asked to share some of the most common mistakes prospective clients propose to do with their retirement funds on our first consultation. Many of these are simple mistakes or misinterpretations of the law; others are an attempt to get around rules of which the prospective clients are well aware. Attempting to circumvent rules and guidelines of the IRA plan can put your retirement account at serious risk. A $1 mistake can jeopardize the entire IRA. With so many great ways to make a healthy profit, the risk involved with prohibited transactions is not worth any return.
Regardless of whom you entrust with your self-directed IRA business, please use these guidelines to help you on the road to phenomenal success.
Mistake 1: They inadvertently make personal guarantees.
You, as the individual holding the account are considered a “disqualified person” and cannot provide a personal guarantee of IRA debt. In order to obtain checkbook control of retirement monies, Guidant (and some other IRA providers) allow the retirement account to invest into a newly formed LLC. Let’s say you go into the bank to set up that LLC checking account and, in the process, the teller asks, “Would you like a credit card for this account?” You may think, “Well, I’m surprised they’re offering a credit card, since the LLC is an entity that was just formed yesterday, but if they’re offering a credit card, sure--why not?” So the teller establishes a card and gets you to sign the application, and the bank authorizes a new card based on your credit history. Bad move: You just stepped into Mistake #1. The problem is that you’ve just personally guaranteed the LLC’s debt and repayment of it. The mere execution of that personal guarantee constitutes an “extension of credit” and, hence, is an automatic prohibited transaction even if the guarantee is never exercised.
Mistake 2: The IRA owner attempts to make a contribution to the IRA by depositing it directly into the IRA/LLC checking account instead of going through the IRA custodian.
In essence, if you make an annual contribution directly rather than through the IRA custodian, you are personally interacting with your IRA/LLC. That is considered a prohibited transaction.
Mistake 3: The IRA owner personally enters into a contract on real property they intend to purchase with their IRA funds.
Many investors wait until they find a property in order to engage the services of an IRA custodian or facilitator. Unfortunately, in doing so, they often suffer from” opportunity loss” because 1) a self-directed IRA typically takes 30 days to establish, and 2) they are not allowed under the prohibited transactions code to use personal assets for the benefit of the IRA. For example, let’s say you find a great piece of rental real estate you’d like to buy as an IRA investment. If you have not already established a self-directed IRA account, you may lose out on the deal because you don’t have immediate access to your IRA funds and you cannot personally deposit your own earnest money or enter into a purchase agreement. Remember, the IRA needs to buy the property, not you.
Mistake 4: They assume no UBTI applies to passive investments into an operating business.
Unrelated Business Taxable Income (UBTI) is generated when an IRA engages in “business activity.” If generated, the IRA has to pay Unrelated Business Income Tax, or UBIT. Oftentimes an IRA owner wishes to passively invest in a business entity, but the business activity itself is not passive. Should that investment be made in a pass-through entity, such as an LLC, the IRA could generate UBTI on any profit derived by the business' activity.
Mistake 5: Self-directed IRA clients use personally-owned assets for the benefit of the IRA.
For example, the use of a personally-owned bulldozer and construction equipment to develop IRA-owned property would constitute a prohibited transaction. There are multiple layers of problems with this scenario: There’s using the personally-owned assets as well as contributing “sweat equity.” These constitute a de facto contribution that would bust the contribution limits. Another great example of this is a self-directed IRA investor who buys a rental property to use as corporate housing and furnishes it with their own furniture. This is a prohibited transaction.
Mistake 6: They believe that transactions with a non-disqualified party cannot be prohibited transactions.
This is a common belief that simply is not true. You, as the IRA holder, have a fiduciary responsibility to do what is in the exclusive benefit of your IRA. For example, an IRA holder could purchase rental real estate and allow a brother and their family to occupy the property. That would not necessarily be a prohibited transaction, but it does stage the potential to violate the exclusive benefit rule if the rent was not set at fair market value and the terms of the property agreement were not enforced. If the IRA owner has a tenant who is not paying rent, the IRA owner has a fiduciary responsibility to act as a prudent investor would and begin the eviction process. This could be problematic if you have family occupying the property – it creates a conflict of interest for an IRA owner. Not acting in the best interest of the plan could result in a prohibited transaction.
Mistake 7: The attempt by the self-directed IRA holder to take a real estate commission on property purchased/sold by the IRA.
If the IRA owner is a real estate agent, they cannot receive a commission on the buying or selling of their IRA property. You cannot take personal compensation from any self-directed IRA investment.
Mistake 8: The self-directed IRA enters into a de facto partnership in which it loans money to a developer, and instead of making a loan attached with interest and payments, it takes a share of the profits.
Although this is allowed, it’s a de facto partnership that will generate Unrelated Business Taxable Income (UBTI). This wouldn’t be an issue if the IRA lent the money for an interest rate (what the market bears) and created a monthly payment schedule. But in this profit-sharing scenario, it’s simply disguised equity that is dressed up to look like a loan.
Mistake 9: Two self-directed IRA holders engage in a quid pro quo partnership to utilize their own retirement funds.
For example, say each person has $100,000 in a self-directed IRA. Each then makes a loan to the other for $100,000 to pursue personal investments. These loans are dependent on the other lending the money and could be viewed as using one’s own retirement funds for personal benefit.
Mistake 10:Self-directed IRA holders attempt to “disguise” active investments that can generate UBTI.
Some self-directed account holders will place an ad in the newspaper to supposedly show their intent to rent an IRA investment property, but they “conveniently” can’t find the right tenants, so they use this as an excuse to sell it. They think this will avoid UBTI because the intention was to rent the property as a passive investment. Besides being ethically questionable, this scheme will not change the result at all. Even if it were true that the IRA holder originally intended to rent the property rather than turn around and sell it, the case law says that the most dominant factor is the purpose at the time of the sale, not at the time of the initial purchase. So you can have a perfectly passive non-business purpose going in, but if you change that purpose such that at the time of sale it is a business-type transaction, you will face UBTI.
Self-directed IRA investing can be exciting, secure and profitable. There are a vast number of allowable investments available to self-directed IRA holders that offer both profitability and security. Call a Guidant Financial Group consultant today to discuss how you can safely invest your retirement funds into potentially more secure and more lucrative investments today!
Actually? We don’t know.
According to the New York Times, Treasury Secretary Henry M. Paulson said that the money would, in fact, not be used (as originally intended) to buy up mortgage-backed securities, but “would instead be used in a broader campaign to bolster the financial markets and, in turn, make loans more accessible for creditworthy borrowers seeking car loans, student loans and other kinds of borrowing.” (See Paulson Says Treasury is Shifting Focus of Bailout.)
That’s great! But, wasn’t that the intent of the bailout in the first place? To free up capital for borrowers?
As the NYT article doesn’t get into details on exactly how the Treasury Department is going to “make loans more accessible,” (as, clearly, the whole mortgage-backed securities thing isn’t going to work) we aren’t really sure what the plan is for the cash.
SO! Since we don’t know, and it appears that the Treasury Department doesn’t really know, why don’t you tell them what they should do?
What would you do with $700 billion dollars?
Let’s hear it – we’re curious.
We think Wall Street was feeling that during the last few days and, unfortunately, today the light went on.
Oh, yeah. The economy.
While the election hoopla had thankfully given Wall Street and Main Street a brief respite from their constant fingernail nibbling, we suppose it was inevitable that they would eventually remember to start worrying again.
But does it really have to be that way? Do we really have to return to the ambiguous, dark outlook on the future?
No – not really.
The fact of the matter is: Change is coming. Now, we are not being political here (and yes, we are well aware that the word “change” will now forever be associated with the 44th president’s campaign to the White House), we’re talking about real change – no quotation marks.
Kiplinger succinctly addressed the top 10 priorities of our new president-elect, Barack Obama, and the tasks addressed are not quite as simple as the pithy list they reside on. Among Obama’s priorities will be calming of the economic markets, clear plans of action in Iraq and Afghanistan and environmental regulation (see Obama’s 10 Big Challenges).
But here’s a secret: If everyone else is running around, confused about what to do with an ambivalent future, that means that you can give yourself an advantage. You can choose to be sure.
Yup. That’s right. You have a choice.
Just as Obama has a choice as to how he will handle the challenges that lay ahead, you have a choice about how you wish to pursue your economic goals. Seth Godin recognized this unique opportunity in a recent blog posting (see Looking for a Reason to Hide). He believes that this uncertainty leaves room for immeasurable opportunity. “If I wasn't already running my own business, today is the day I'd start one,” he writes.
So, when you see the Dow drop 500 points after election day and you hear about more companies being “prudent” or “conservative,” remember that poem you read in high school:
Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth.
Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same.
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference.
-- Robert Frost
(1916)
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