"What most persons consider as virtue, after the age of 40 is simply a loss of energy."Voltaire
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With your retirement funds it is possible to invest in real estate, mortgages, private notes, structured settlements, factoring, hard money lending, franchise, natural gas investments, golf courses, joint ventures, RV parks, fisheries investments, bonds, mutual funds, commodities and futures, marinas, stocks and limited partnerships. These are IRS-permitted investments. They have to be made within a qualified retirement account. Once stablished the account holder asks the Custodian or Facilitator to roll current retirement funds into a self-directed IRA owned LLC. This type of business transaction is legal and is penalty-free.
If it's penalty free and legal, why are the vast majority of Americans and their financial advisors not aware of the use of these self-directed IRAs? The reason primarily is due to the lack of knowledge on the subject. There are, literally, only a handful of financial service firms in the nation willing to provide the required custodial and administrative services for such accounts... [and] undertake the challenging research, extensive paperwork, and IRS-reporting required to administer non-traditional assets within IRA accounts. The wonderful news is that they exist. These Custodians or Facilitators should not be interested in selling you a product. Their sole purpose is to be the third party as required by IRS rules and make sure that the IRA statement to the IRS at the end of the year (for tax purposes, even though taxes are not paid - reporting to the IRS is required) will simply reflect one asset (the LLC). They also help by identifying prohibited transactions (see below).
If you are unhappy with the returns or flexibility of your current retirement plan there is another option available to you: The self-directed IRA. Remember to enlist the help of an IRA custodian or facilitator to legally protect your hard earned retirement savings (this is required by IRS rules). Why do may experts say that self directed IRA spells trouble? The trouble is, accountants and tax-law experts say, many self-directed accounts are accidents waiting to happen. Perhaps the biggest risk is "self dealing." According to the federal government, an IRA is supposed to provide for your future retirement -- not your current needs or wishes. Therefore, you aren't supposed to benefit from the investment before you start making withdrawals in retirement. So, if a person uses IRA money to buy an asset that he currently uses (say, a vacation home, or an apartment for a child in college), it could be in violation of tax law. In those cases, the Internal Revenue Service could step in and simply disqualify the IRA, resulting in huge tax bills along with additional penalties for account holders who are younger than age 59½.
You can stay out of trouble by (advice from WSI Research): 1. Avoiding the pitfalls - when operating a self directed IRA, transfer only part of your existing retirement account into the new self directed account. That way if the investments in the self directed IRA fail or if you run into regulatory problems, you haven't put your entire nest egg at risk. 2. Get advance approval - for any transaction in your self directed IRA that might be considered self-dealing, you can get a "prohibited transaction ruling" form the US Labor Department and/or the IRS code (Tax on prohibited transactions Title 26, subtitle D, Chapter 43, Sec. 4975). 3. Brig in outside investors - if you use a self directed IRA to start and operate a small business, inviting in independent investors with a big stake this might make it possible for you to draw a salary or at least cut down on possible self-dealing problems. Good luck and happy investing!
About the author:
IRA-LLC specialists. If you have further questions contact us at our feedback form found at www.kit-for-self-directed-ira-llc.com
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