Read articles about self directed IRAs, 401k plans and retirement investment. Learn how to buy real estate, notes and precious metals with your IRA and more.
Wealth Building Ideas: Option Strategies for Your IRA
Many people would like to buy real estate in their IRAs but have a mistaken belief that they do not have enough money to do so. Nothing could be further from the truth! You may invest in real estate with your IRA without a lot of money in several ways, including partnering with other IRAs or non-IRA money, buying property with debt, or by using one of the most powerful and under utilized tools in real estate investing today – the option. First, what is an option? Once consideration for the option is paid, it is the owner’s irrevocable offer to sell the property to a buyer under the terms of the option for a certain period of time. The buyer has the right but not the obligation to buy. You might wonder why an owner would agree to tie up his property with an option. Advantages to a property owner include: 1) the owner may be able to time his income for tax purposes, since option fees are generally taxable when the option is either exercised or expires (always check with your tax advisor); 2) if the owner needs money, an option may be a way to get money ...
“What the Swanson Case Did Not Do For Us”
By Catherine Wynne BACKGROUND The Swanson Decision has been lauded as a “landmark decision” for the “checkbook control IRA”. An entire industry has been built around this decision and the internet has become the platform for launching products designed to give “checkbook control” and “reduction of custodial oversight” to the IRA holder based solely on this case. Briefly stated, checkbook control is accomplished by setting up a single member LLC which is purchased 100% by the IRA. The IRA holder is subsequently appointed the LLC manager after funding the LLC share purchase. The IRA holder has complete control over all monies of the LLC and therefore the IRAʼs monies. Companies promoting the checkbook control concept have three things in common: 1. They rely entirely on the Swanson Case to justify the legality of the IRA/LLC arrangement 2. They capitalize on the IRA ownersʼ desire for complete control of IRA funds and disenchantment with the securities industry. 3. They promise “checkbook control” of these funds without the “interference” of an IRA custodian. WHAT DID SWANSON DO? Mr. Swanson caused a corporation called “Worldwide” to be created and his IRA purchased 100% of the outstanding shares of that corporation. After funding the IRA share purchase, Mr. Swanson was appointed president ...
Buying Real Estate in Your IRA
1. Who is H. Quincy Long and why do I care? H. Quincy Long, who holds the designation of CISP (Certified IRA Services Professional), is CEO/President of Quest IRA, Inc., a self-directed IRA third party administrator with offices in Houston and Dallas,Texas. Mr. Long has been a licensedTexasattorney since 1991 who specializes in real estate, and has been a fee attorney for American Title Company. He has sat on the board of directors of the Realty Investment Club of Houston (RICH), the second largest real estate club in the country. Mr. Long received his Doctor of Jurisprudence law degree in 1990 from theUniversityofHouston. He received his Master of Laws, also from the University of Houston, in 1997. Mr. Long is also the author of numerous articles on self-directed IRAs and other real estate related topics, and is editor and co-author of the book Real Estate Investment Using Self-Directed IRAs and Other Retirement Plans by Dyches Boddiford and George Yeiter, CPA. Mr. Long knows real estate and real estate investing. This can be critical to you when choosing a self-directed IRA custodian or administrator, especially if you want to buy real estate or real estate related products in your IRA. 2. What does Quest IRA, Inc. do? Quest ...
Checkbook Control IRA-Owned Entities Under Attack
By: H. Quincy Long A very popular idea in the self-directed IRA industry is to have what some have termed a “checkbook control” IRA. Basically this involves the following steps: 1) an IRA is formed with a self-directed IRA provider; 2) a brand new LLC or other entity is formed with the IRA owner as the manager or a director and officer; and 3) the IRA custodian is directed to invest the IRA funds in the newly formed entity. Voila! The IRA owner has checkbook control over his or her IRA funds and can do deals quickly without anyone looking over their shoulder to see that the rules are being followed. Admittedly, this sounds like a wonderful idea from the IRA owner’s perspective, but it is fraught with danger and traps for the unwary, as some taxpayers are now discovering. The IRS has been attacking this type of setup, especially when they involve Roth IRAs. The genesis for the idea is largely attributable to the case of Swanson v. Commissioner, a Tax Court case which was decided in 1996. In that case, Mr. Swanson set up a self-directed IRA at a bank and formed a corporation ...
Six Widely Held Untruths About Self Directed IRAs
By H. Quincy Long for Self-Directed Source Blog There is a lot of confusion over self-directed IRAs and what is and is not possible. In this article we will discuss six of the biggest self-directed IRA myths. 1) Purchasing anything other than CDs, stocks, mutual funds or annuities is illegal in an IRA. FALSE! According to the Internal Revenue Code for IRAs, the only disallowed investments are life insurance contracts and in “collectibles”, which are defined by the IRS to include any work of art, any rug or antique, any metal or gem (with certain exceptions for gold, silver, platinum or palladium bullion), any stamp or coin (with certain exceptions for gold, silver, or platinum coins issued by the U.S. or under the laws of any State), any alcoholic beverage, or any other tangible personal property specified by the Secretary of the Treasury (no other property has been specified as of this date). With so few restrictions contained in the law, almost anything else which can be documented can be purchased in your IRA. A “self-directed” IRA allows any investment not expressly prohibited by law. Common non-traditional investment choices include real estate, both domestic and foreign, options, secured and unsecured notes, including first and ...
Frequently Asked Questions About Buying Debt Financed Real Estate in an IRA
Good news! You can buy real estate in your traditional, Roth, SEP, or SIMPLE IRA, your 401(k), your Coverdell Education Savings Account for the kids, and even in your Health Savings Account. Even better, your IRA can borrow the money for the purchase or even take over a property subject to existing financing. What could be better than building your retirement wealth using OPM (Other People’s Money)? However, there are some restrictions which you must be aware of when using your IRA to purchase debt financed real estate. Below I answer a series of frequently asked questions regarding the purchase of debt financed real estate in an IRA. Q. Is it really legal to buy real estate in an IRA? A. Yes. Even the IRS agrees that real estate is a permitted investment. In its answer to the question “Are there any restrictions on the things I can invest my IRA in?” the Internal Revenue Service states “IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.” Q. Can my IRA buy real estate with a loan or take over a property subject to an existing loan? A. Yes. An IRA may borrow ...
Checkbook IRA LLC Pros and Cons with Quincy Long Hosted by Cash Flow Depot (Teleconference)
A very popular idea in the self-directed IRA industry is to have what some have termed a “checkbook control” IRA. These have been under attack by the IRS. Click the link below to listen to Quest IRA President H. Quincy Long talk about the dangers of Checkbook Control IRA LLCs Click Here To Listen
Do Roth IRA Conversions Make sense?
How to Analyze the 2010 Roth Conversion Opportunity By: H. Quincy Long How would you like to have tax free income when you retire? Would you like to have the ability to leave a legacy of tax free income to your heirs when you die? The great news is that there is a way to achieve these goals – it is through a Roth IRA. Historically, because of income limits for contributions to a Roth IRA and for converting a Traditional IRA into a Roth IRA, high income earners have not been able to utilize this incredible wealth building tool. Fortunately, the conversion rules are changing so that almost anyone, regardless of their income level, can have a Roth IRA. But is it really worth converting your Traditional IRA into a Roth IRA and paying taxes on the amount of your conversion if you are in a high tax bracket? For me, the answer is a resounding yes. I firmly believe it is worth the pain of conversion for the tremendous benefits of a large Roth IRA, especially given the flexibility of investing through a self-directed IRA. For Traditional to Roth IRA conversions in tax year 2009, the Modified Adjusted Gross Income (MAGI) ...
Health Savings Account: The Best of Both Worlds by Nathan Long
By now most people have heard of using self-directed IRAs to make purchases other than stocks, bonds, and mutual funds. Companies like Quest IRA Inc., operating out of Houston and Dallas, Texas as well as Mason, Michigan, have been doing a good job, through a series of free education seminars, of teaching people about using self-directed IRAs to buy real estate, foreclosures, foreign property, invest in notes, deeds of trust, private stock, limited partnerships, LLCs, and other non-traditional assets. In examining some of the other government sponsored savings vehicles available for investing in non-traditional assets I discovered the highly under-utilized Health Savings Account (HSA). Before my recent employment with Quest IRA I did not know that you could purchase non-traditional assets with a Health Savings Account (HSA). A Health Savings Account is a powerful investing tool that many people overlook. Because it is the only account where contributions are tax deductible and qualified distributions are tax free, it is the best of both worlds. Furthermore, the definition of “qualified medical expenses” is fairly broad. IRS Publication 502 has an available list of qualified medical expenses. These include a broad range of medical, dental and vision expenses, but generally do not include the cost of ...
The Dangers of Checkbook Control IRAs
A very popular idea in the self-directed IRA industry is to have what some have termed a “checkbook control” IRA. These have been under attack by the IRS. Click the link below to listen to Quest IRA President H. Quincy Long talk about the dangers of Checkbook Control IRA LLCs. Click Here To Listen
Top 10 Things You Need to Know About Self-Directed IRAs
There is a lot of confusion over self-directed IRAs and what is and is not possible. In this article I will discuss some of the most important things you need to know about self-directed IRAs. 1) IRAs Can Purchase Almost Anything. A common misconception about IRAs is that purchasing anything other than CDs, stocks, mutual funds or annuities is illegal in an IRA. This is false. The only prohibitions contained in the Internal Revenue Code for IRAs are investments in life insurance contracts and in “collectibles.” Since there are so few restrictions contained in the law, almost anything else which can be documented can be purchased in your IRA. A “selfdirected” IRA allows any investment not expressly prohibited by law. Common investment choices include real estate, both domestic and foreign, options, secured and unsecured notes, including first and second liens against real estate, C corporation stock, limited liability companies, limited partnerships, trusts and a whole lot more. 2) Seven Types of Accounts Can Be Self-Directed, Not Just Roth IRAs. There are seven different types of accounts which can be self-directed. They are the 1) Roth IRA, 2) the Traditional IRA, 3) the SEP IRA, 4) the SIMPLE IRA, 5) the Individual 401(k), ...
Health Savings Account: Building Wealth Through Health
By now you have probably heard of the Health Savings Account (HSA). What you may not know is just how amazing this type of account actually is, in terms of premium savings, tax savings, and, most importantly, what you can invest in with your HSA. Qualification Requirements. In order to have a Health Savings Account, you must be an “eligible individual.” To be an eligible individual, you must 1) have a High Deductible Health Plan (HDHP); 2) have no other health coverage, with certain exceptions; 3) not be enrolled in Medicare; and 4) not be claimed as a dependent on another person’s tax return. More complete information of the requirements may be found in IRS Publication 969, which is freely available at www.irs.gov. While a full description of a HDHP is beyond the scope of this article, its key features are a higher deductible than many insurance policies and a maximum limit on the out-of-pocket expenses (including the deductible and co-payments, but excluding the premium payments). For 2011, the minimum deductible is $1,200 for self-only coverage and $2,400 for family coverage, and the maximum out-of-pocket expense is $5,950 for self-only coverage and $11,900 for family coverage. All major insurance companies offer HSA ...
Want to buy a foreclosed home with your self-directed IRA? Learn more
Do you want to buy a foreclosed home with your self-directed IRA? While many local real estate markets have improved significantly over the past several years, there are still many opportunities for investors who want to buy a foreclosed home or bank-owned property. As you might expect, the process for buying foreclosed properties is slightly different than that for buying properties from the open market. In addition, the process for buying any type of property with your self-directed IRA is also different. Here’s an overview of what you can expect if you’ve answered yes to the question: should I buy a foreclosed home with my self-directed IRA. 1. Set Up a Self-Directed IRA and Fund Your Account. The first step to buy a foreclosed home with your self-directed IRA is, of course, to set up and fund a self-directed IRA. Choose a custodian such as Quest IRA, which can provide comprehensive custodial services for a self-directed account, and for which you fully understand the fee structure. 2. Identify Your Real Estate Investment Goals. In order to buy a foreclosed home with your self-directed IRA, you need to identify the types of foreclosed home investments you are interested in. What are your goals when ...
Using Self-Directed IRAs and 401(k)s to Make More Money Now and to Build Your Retirement Wealth for the Future
By H. Quincy Long Self-directed IRAs and 401(k) plans have been around for more than 25 years, but many people are just now becoming aware of how powerful this idea can be. There are currently trillions of dollars in retirement plans. Do you know how to unlock your own retirement funds as well as the retirement funds of those within your circle of influence for real estate related and other non-traditional investments? Your knowledge of self-directed retirement plans can help make you money now as well as ensuring that you retire in style. Plans available for self-direction. A lot of retirement wealth is in traditional IRAs and employer sponsored plans. If you leave an employer, the funds in the employer plan can be moved into a self-directed traditional IRA. This includes money rolled over from 401(k) plans, 403(b) plans, 457 deferred compensation plans, and the federal thrift savings plan. Self-employed people may have their own Individual 401(k) plan, which may even include the new Roth 401(k), no matter what their income level. Other employer sponsored plans which can be self-directed are SEP IRAs and SIMPLE IRAs. The king of all IRAs when it comes to building tax free wealth is ...
What’s in a Name? – Why It’s Important to Name a Beneficiary for Your IRA
Many people probably don’t think too much about how important it is to name a beneficiary for their IRAs. However, as my family recently found out, ignoring this important detail when setting up your IRA can be costly from a tax perspective. I recently received a distribution check from an IRA of my father, who passed away last year. My father was a very careful planner, so I was quite shocked at his lack of tax planning with his IRA. When setting up his IRA he named his estate as the beneficiary of the IRA (this is equivalent to not naming a beneficiary at all). This meant that when he passed away the estate had to be probated, even though the IRAs were the only assets requiring probate in his estate. IRAs that have named beneficiaries are generally non-probate assets, meaning that they pass directly to the beneficiaries instead of passing through a will. That was the first problem. The larger problem came because of the lack of choices he left us by naming his estate as beneficiary. In a Traditional IRA, required minimum distributions must begin no later than April 1 of the year after the IRA owner turns age 70 ...
How Can My Minor Child Have a Roth IRA?
“How can my minor child have a Roth IRA?” If I only had a million dollars for every time I have been asked this question, I would be a very rich person! When entrepreneurial people learn of the myriad of possibilities for non-traditional investments within a self-directed IRA, they usually immediately see the benefit of starting on their child’s retirement now in addition to utilizing their own IRAs. In this article I will discuss the benefits of starting an IRA early, how a minor can qualify for a Roth IRA, the tax filing requirements for a minor with earned income, and what can be done with the IRA once the money is deposited in the account. First, let me briefly discuss the benefits of starting early on retirement savings. Assume your 15 year old daughter starts off her Roth IRA with $1,000 from her earnings and adds $1,000 per year until she retires at age 67. If she can earn an average return of just 10% per year, her tax free Roth IRA will be worth $1,552,472 at retirement – not bad for only investing a total of $52,000 over 52 years. Contrast this with an individual who starts saving at ...
Why Your IRA May Owe Taxes: To Pay or Not to Pay? – That is the Question
By: H. Quincy Long A. Introduction Many people are surprised to learn that, as discussed below, there are 2 ways in which an IRA or 401(k) investment in an entity may cause the retirement plan to owe tax on its income or profits from that investment. This does not necessarily mean that you should not make an investment which subjects your retirement plan to taxation. It does mean that you must evaluate the return on the investment in light of the tax implications. B. Unrelated Business Income (UBI) The first situation in which a retirement plan might owe tax on its investment is if the entity invested in is non-taxable, such as a limited partnership or an LLC treated as a partnership for tax purposes, and the entity operates a business. Although investment in an entity which is formed for the purpose of capital investment, such as the purchase and holding of real estate, should not generate taxable income for the retirement plan (unless there is debt financing, as discussed below), any income from business operations would be considered Unrelated Business Income (UBI) for the plan. UBI is the income from a trade or business that is regularly carried on by an ...
How to Stretch a Roth IRA to Last More Than 150 Years
I have a philosophy, which is that if you can create win-win situations you should always do so. My daughter, Briana, is 12 years old and has been invited to travel to Europe next summer to be a Student Ambassador through the People to People program (www.studentambassadors.org). One of the requirements I am making for Briana to go is that she must raise one-half of the finds for the trip. Since Briana needs funds for her trip, and my company, Quest IRA, Inc. needed help stuffing envelopes to send out our quarterly statements, Briana came to work for us to help stuff envelopes. This earned her money for her trip and at the same time reduced my taxable income – a definite win-win scenario. You may be asking, “What does this have to do with IRAs?” As her father and as a professional in the area of self-directed IRAs, of course it immediately struck me that Briana now has earned income and is therefore eligible for a Roth IRA, even at age 12. This got me thinking about how long a Roth IRA could last under a certain set of circumstances. The original owner of a Roth IRA never has ...
The Truth About Self-Directed IRAs and Other Accounts
There is a lot of confusion over self-directed IRAs and what is and is not possible. In this article we will disprove some of the more common self-directed IRA myths. Myth #1 – Purchasing anything other than CDs, stocks, mutual funds or annuities is illegal in an IRA. Truth: The only prohibitions contained in the Internal Revenue Code for IRAs are investments in life insurance contracts and in “collectibles”, which are defined to include any work of art, any rug or antique, any metal or gem (with certain exceptions for gold, silver, platinum or palladium bullion), any stamp or coin (with certain exceptions for gold, silver, or platinum coins issued by the United States or under the laws of any State), any alcoholic beverage, or any other tangible personal property specified by the Secretary of the Treasury (no other property has been specified as of this date). Since there are so few restrictions contained in the law, almost anything else which can be documented can be purchased in your IRA. A “self-directed” IRA allows any investment not expressly prohibited by law. Common investment choices include real estate, both domestic and foreign, options, secured and unsecured notes, including first and second liens against ...
Entity Investments in Your IRA – Swanson v. Commissioner and the “Checkbook Control” IRA-Owned LLC
One of the most popular ideas in the self-directed IRA industry today is the “checkbook control” IRA. You may have wondered what exactly it means to have “checkbook control” over your IRA’s funds. In this article we will examine the celebrated case of Swanson v. Commissioner, on which the idea of “checkbook control” is based. The entire text of the Swanson case is available on our website at www.QuestIRA.com. The essential facts of Swanson are as follows: 1) Mr. Swanson was the sole shareholder of H & S Swansons’ Tool Company (Swansons’ Tool). 2) Mr. Swanson arranged for the organization of Swansons’ Worldwide, Inc. (Worldwide). Mr. Swanson was named as president and director of Worldwide. Mr. Swanson also arranged for the formation of an individual retirement account (IRA #1). 3) Mr. Swanson directed the custodian of his IRA to execute a subscription agreement for 2,500 shares of Worldwide original issue stock. The shares were subsequently issued to IRA #1, which became the sole shareholder of Worldwide. 4) Swansons’ Tool paid commissions to Worldwide with respect to the sale by Swansons’ Tool of export property. Mr. Swanson, who had been named president of Worldwide, directed, with the IRA custodian’s consent, that Worldwide pay dividends to IRA ...