The Solo 401k Vs SEP IRA For Self-Employed Retirement Planning

Solo 401ks and SEP IRAs have both been around for awhile now. Previously, SEP IRAs were considered better only because they had lower administration cost and fees.

However, in recent years, competition among brokerages has made administration cost and fees much lower for Solo 401ks. Most brokerages no longer have fees, aside from for the initial setup.

This means that you, the self-employed business owner or real estate investor, are able to choose the retirement plan that's best for you based solely on the merits. Let's take a look at each.

What Is a Solo 401k Plan?

A Solo 401k plan is an IRS-approved retirement plan, which is suited for business owners who do not have any employees. These include consultants, freelancers, yoga instructors, Uber drivers ... and of course our favorite clients: real estate investors.

The Solo 401k, as its name implies, is a plan designed for one person who is a business owner. You can include your spouse on the plan if you have one. For example, a Solo 401k Plan allows you and your spouse to contribute a combined $60,000 annually.

Note: If you REALLY want to learn everything there is to know about the self-directed Solo 401(k), join our Tax, Legal, & Asset Protection Secrets For Real Estate Investors Facebook Group. Once you're in, go to "Units" and look for the Solo 401(k) Unit, where you'll find the "Know More Than Your Attorney" book by Scott Smith. It's 117 pages and nearly 40,000 words but designed to be skimmable so you can find exactly what you're looking for.

9 Reasons Why a Solo 401k is Better For Self-Employed Business Owners Than a SEP IRA

1. You can open a Solo 401k at any bank.

With a Solo 401k, the 401k bank account can be opened at any local bank or trust company. However, in the case of a Simplified Employee Pension (SEP) IRA, a custodian is required to hold the IRA funds, which will eat into your bottom line whether your investments gain or lose.

2. Roth features are available.

A Solo 401k plan contribution can be made in pre-tax or Roth (after-tax) format. In the case of an SEP IRA, contributions can only be made in pre-tax format.

3. No annual paperwork.

With a Solo 401k, there is no annual paperwork required if your plan has less than $250,000 in plan assets.

4. You can use non-recourse leverage tax free.

With a Solo 401k Plan, you can make a real estate investment using non-recourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax.

However, the non-recourse leverage exception is only applicable to 401k qualified retirement plans and does not apply to IRAs. In other words, using a SEP IRA to make a real estate investment involving non-recourse financing would trigger the UBTI tax.

5. You can reach your maximum contribution limit quicker.

A Solo 401k includes both an employee and profit sharing contribution option, whereas, a SEP IRA is purely a profit sharing plan. Business owners with a Solo 401k plan can contribute to their plan both as owners and employees in two ways:

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
- $18,000 in 2016 and 2017, or $24,000 in 2016 and 2017 if age 50 or over.
Employer non-elective contributions up to:
- 25% of compensation as defined by the plan.

Note: Total contributions cannot exceed $54,000 unless catch up contributions are used by those over age 50.

6. You don't need an LLC.

With a Solo 401k Plan, the plan itself can make real estate and other investments without the need for an LLC.
Since a 401k plan is a trust, you can be the trustee on behalf of the trust and can take title to a real estate asset without the need for an LLC.

7. Better creditor protection.

A Solo 401k Plan offers you greater creditor protection than a SEP IRA. The 2005 Bankruptcy Act protects all 401k Plan assets from creditor attack in a bankruptcy proceeding.

8. Tax free loan option.

With a Solo 401K Plan you can borrow up to $50,000 or 50% of your account value in the form of a loan for any purpose. If you tried to borrow money using a SEP IRA, it would be considered a prohibited transaction.

9. No catch up contributions.

Catch-up contributions allow you to make larger contributions than normal if you qualify. SEP IRA's do not allow for catch-up contributions.

With a Solo 401k Plan you can make a contribution of up to $54,000 to the plan each tax year ($60,000 if the participant is over the age of 50).

The Drawback of a Solo 401k

The only drawback to a Solo 401k is that there is slightly more paperwork required to initially set one up than a SEP IRA.

But investing requires more than just money, it also requires time. So what if a Solo 401k takes an extra hour or two to set up? That's time well spent.

What Self-Directed IRA Owners Need To Know About UBTI & UBIT Tax

Your friends at the IRS just love making new rules for us lawyers to learn. I decided to "share the love" and write this article for you. Don't panic--this is much more readable than the version I got.

While UBTI (Unrelated Business Taxable Income) and UBIT (Unrelated Business Income Tax) sound familiar, they apply in different investment scenarios and are certainly not the same tax rate.

Wait: Aren't IRAs Tax Exempt?

They are, most of the time.

When it comes to using your Self-Directed IRA, most of the investments you make are exempt from federal income tax. Some examples of exempt income include: dividends, royalties, most rentals from real estate and gains/losses from the sale of real estate.

But this doesn't mean you can't end up finding yourself in trouble with the IRS.

The UBTI/UBIT Income Rules.

The IRS enacted a set of rules in the 1950s in order to prevent IRAs from engaging in an active trade or business and having an unfair advantage because of their tax-exempt status.

These rules became known as the Unrelated Business Taxable Income rules or UBTI or UBIT. If the UBTI rules are broken, the income generated from your activities will be subject to a 40% tax for 2018.

Note: An IRA investing in an active trade or business using a C Corporation will not trigger the UBTI tax.

Where Does UBTI and UBIT Apply?

The UBTI/UBIT tax applies to the taxable income of “any unrelated trade or business…regularly carried on” by an organization subject to the tax. The regulations separately treat three aspects of the quoted words “trade or business” “regularly carried on” and “unrelated.”

Let's go over them.

What is "Trade or Business?"

The rules start with the concept of “trade or business” as used by Internal Revenue Code Section 162, which allows deductions for expenses paid or incurred “in carrying on any trade or business.”

Although Internal Revenue Code Section 162 is a natural starting point, the case law under that provision does little to clarify the issues. Expenses incurred by individuals in profit-driven activities not amounting to a trade or business are deductible under Internal Revenue Code Section 212. This means it is rarely necessary to decide whether an activity conducted for profit is a trade or business.

The few cases on the issue under Internal Revenue Code Section 162 generally limit the term “trade or business” to profit-oriented endeavors involving regular activity by the taxpayer.

What is "Regularly Carried On"?

Whether a trade or business is regularly carried on is determined based on intent. If the underlying objective is to reach activities competitive with taxable businesses, your business may meet this criterion.

The requirement is met by activities that “manifest a frequency and continuity, and are pursued in a manner generally similar to comparable commercial activities of nonexempt organizations.”

What About Short Term and Intermittent Activities?

Short-term activities are exempted if comparable commercial activities of private enterprises are usually conducted on a year-round basis. But a seasonal activity is considered regularly carried on if its commercial counterparts also operate seasonally.

Intermittent activities are similarly compared with their commercial rivals and are ordinarily exempt if conducted without the promotional efforts typical of commercial endeavors.

If an enterprise is conducted primarily for beneficiaries of an organization's exempt activities (e.g., a student bookstore), casual sales to outsiders are ordinarily not a “regular” trade or business.

What Type of Income Is Subject to UBTI or UBIT Tax?

The type of income usually subject a Self-Directed IRA to UBTI or UBIT is income generated from the following sources:

Income from the operations of an active trade or business. (A restaurant, laundry mat, car wash, etc.)
Business income generated via a pass-through entity, such as an LLC or partnership.
Using a nonrecourse loan to purchase a property.
Using margin on a stock purchase.

Internal Revenue Code Section 511 taxes “unrelated business taxable income” (UBTI) at the rates applicable to corporations or trusts, depending on the organization's legal characteristics.

What Are The Actual UBTI and UBIT Tax Rates?

A Self-Directed IRA subject to UBTI is taxed at the trust tax rate because an IRA is considered a trust. For 2020, a Solo 401k Plan or Self-Directed IRA is subject to UBTI is taxed at the following rates:

Up to $2,600: 10% of the amount over zero
$2,600 up to $9,450: $260 + 24% of the amount over $2,600
$9,450 up to $12,950: $1,904 + 35% of the amount over $9,450
$12,950 and over: $3,129 + 37% of the amount over $12,950

Meanwhile UBIT tax is levied based on corporate taxes.

I hope this article helped any answer questions you might have concerning your Self-Directed IRA and UBIT/UBTI tax. If you have any questions, feel free to ask in the comments below or contact us directly.

How To Save For Retirement When You're Self Employed: The Solo 401k

Have you ever heard of the Solo 401k plan? The Solo 401k is the most tax efficient way for small business owners, consultants and contractors to save money for their retirement.
The Solo 401k plan is an IRS approved retirement plan which is suited for business owners who do not have any employees, other than themselves or their spouse. Learn more about the Solo 401k and its benefits below.

Solo 401ks Are Designed Uniquely For Self-Employed Individuals.

If you're self employed, you know how crucial it is to maintain financial security for yourself and your family. The Solo 401k offers powerful and exclusive features not found in traditional 401k or IRA retirement plans.
Are you sick of being forced to invest in Wall Street stocks and mutual funds? Are you ready to invest in any and all opportunities as you see fit? If you answered yes, then a Solo 401k is just what you need!

What Are The Features That Make A Solo 401k So Useful?

In addition to the tremendous 401k benefits (tax free profits, high tax contribution deductions, asset protection and estate planning), the Solo 401k also allows you to invest tax free in virtually anything.
Popular Solo 401k investments include: real estate, private businesses, public stocks, private stocks, and even cryptocurrency. You can also borrow up to $50,000 or 50% of the account value for any purpose.
Besides letting you make high contributions (up to $60,000 for 2017) and borrow between $1,000 to $50,000 (tax free), the Solo 401k plan offers you the same investment opportunities as a Self-Directed IRA LLC. But without having to hire a custodian or create an LLC (both of which are costly ventures.)
Note: The money you borrow from a Solo 401k is lent to you at the current prime rate + 1%.

Some Disadvantages Of Solo 401k's

Of course, no retirement plan is perfect. As you read above, Solo 401k's have high contribution amounts. Naturally, this doesn't go unnoticed by the people who manage these 401k's. Which means they want a piece of your cake.
Most firms charge between $100 to $500 to set up a Solo 401k. After that, you can expect to pay annual fees of up to $500. So you don't want to get a Solo 401k unless you intend to contribute tens of thousands of dollars as soon as you open one.
And then there's the IRS you have to deal with. With Solo 401k's you don't have to file any paperwork annually unless you have $250,000 or more in your 401k (form 5500-EZ). When you take a distribution, you will have to file a form 1099-R with the IRS.
If you're thinking of establishing a 401k or need other advice on retirement options for self-employment, contact Royal Legal Solutions. Our experts are happy to help you asses your situation.

How To Transfer Your Roth IRA To A Self-Directed Roth IRA LLC

If you're ready to kick your Roth account up a notch, you're in the right place. Today we will discuss how to easily transfer your Roth IRA into a Self-Directed Roth IRA LLC, as well as why you may want to do this.

There are two things you should know first:

You can move the funds from a Roth IRA (as well as any other retirement funds you may have in other accounts) into a Roth IRA LLC.
The opposite isn't true. You can't move Roth funds into other types of retirement accounts. For instance, you won't be able to successfully roll over funds from a Roth into a Traditional 401k. This goes for any account with tax deferral.

Okay, with those basics down, let's move onto the nuts and bolts.

What is the Easiest Way to Add Money to a Self-Directed Roth IRA?

There are two types of transactions that let you re-arrange funds between multiple IRAs. These are known as transfers and rollovers. Remember, you have to stay in line with the rules we mentioned above. Roth accounts are, by definition, funded after taxes are paid. Therefore, you can't roll pre-tax funds into one. At least not without getting in trouble with Uncle Sam. We promise you don't want that.

What You Need To Know About Roth IRA Transfers To A Self-Directed Roth IRA.

As I told you above, direct transfers tend to be the most straightforward method. A transfer is defined by the fact that it takes place between two banks or custodians. Occasionally, you may encounter transfers within a financial group.

There are some clear advantages to using a transfer. When you do, the funds aren't taxed by, or even reported to, our friends at the IRS.

As the account holder, you control and direct any transfers. You won't, however, directly accept the cash or other assets involved. That honor goes to your financial institution. This is simply the way it must be. If you were to get directly involved, you could incur taxes and penalties unnecessarily.

So, keep your name off of any checks in this transaction. Make it clear that your payment is to the bank or other approved custodian. If you're having any doubts or reservations about that, call a professional. It's much cheaper to pay for help with this process beforehand than to learn the hard way about the penalties.

How Does The Roth IRA To Self-Directed Roth IRA Transfer Work?

Royal Legal Solutions is here to help you with any phase of this process. We begin by establishing a new Self-Directed Roth IRA account for you. After you grant permission, we can even execute the rollover or transfer on your behalf to fund your new account. We will ensure all steps are followed to current legal requirements, meaning you'll have a complete Roth IRA transfer free of taxes and penalties.

Once your Roth IRA funds are either transferred by wire or check to the new Roth IRA custodian, that institution can place the funds into your new Roth IRA LLC.

As soon as the transfer is complete, you have complete control over your retirement funds. Any investment that you see fit, with few exceptions, can now be held in your retirement account. Real estate investors especially love this solution, because the Roth IRA LLC can hold property and other nontraditional investments.

What’s The 60 Day Rollover Rule?

You generally have 60 days to complete the transaction. The clock starts ticking when you actually receive the funds from your original Roth IRA. There are very few exceptions to this rule, and you don't want to mess around with it. When you do get an exception, it's very limited. Typically, you'll be required to do the rollover on the following business day.

Note: You may elect to roll over all, or simply some of your funds. We don't advise that you withdraw funds from the Roth that you don't intend to rollover, because they could be subject to massive taxes. Half of the beauty of the Roth is in the tax breaks.

But don't worry, we're here to assist with technicalities like this.

Royal Legal Solutions Will Guide You Throughout The Entire Process.

When you come to Royal Legal Solutions, you will be assigned a dedicated retirement tax professional to help you establish your Self-Directed Roth IRA LLC. He or she will guarantee that your rollover goes smoothly, and that your new account is up, running, and ready for business.

How To Transfer Your SEP IRA To A Self-Directed IRA LLC Tax Free

Is your retirement account not working out for you the way you hoped? Or maybe you're just ready to kick it up a notch and have already heard about the amazing benefits of having a Self-Directed IRA LLC. The rumors are true: Self-Directed IRA LLCs let you take total control in your financial future and may give you the most investment flexibility and diversity of all the retirement options currently on the market.

Whatever your motivations, this article will tell you everything you need to know about SEP IRA transfers to a Self-Directed IRA LLC. We'll break the process down step by step, and also point out where you're going to want some help from the pros. Let's get moving.

SEP IRA Transfers to a Self-Directed IRA: The Basics

Usually a transfer from one IRA to another is actually performed between two separate banks or other institutions. But it is also possible to move funds back and forth from IRAs overseen by the same custodian or institution. Handled properly, you won't have to report this type of IRA transfer to the IRS. And even better, it can be absolutely tax-free.
In this scenario, you, as the IRA holder, will be directing the transfer. But you don’t actually receive the IRA assets. At least not into your hands personally. Instead, the transaction in completed by the sending and receiving financial institutions for you.

Of course, you want your transfer to be tax-free and penalty-free, so you'll want to follow a couple of simple guidelines to ensure that. The main thing is that you must ensure that you do not personally receive the IRA funds in a transfer. Instead, the your newer financial institution will be the recipient of the funds. Write your checks or direct your wire transfers accordingly.

This is the point where the average investor might want to call in their dream-team cavalry. If you're not 100% certain what you're doing, ask for help. A good retirement tax professional can virtually guarantee a tax-free and penalty-free transfer, which means more money in your pocket and therefore greater comfort and luxury in retirement.

How the SEP IRA to Self-Directed IRA Transfer Works

You may be wondering how this transfer will go down if you haven't created your Self-Directed IRA LLC. Well, it's actually fairly simple. You, along with the help of the professionals of your choosing, will establish a new Self-Directed IRA account with the reputable custodian of your choosing. After getting your permission, the new institution will request the transfer of your SEP IRA assets from your former IRA custodian. It is only with this method that you'll be able to avoid all taxes or penalties.

Once the IRA funds are transferred to your new IRA custodian, they can place the old IRA assets into your new IRA LLC. Which means you, as manager of the IRA LLC, will have complete control over your retirement funds so you can invest them in anything you want, from cryptocurrency to real estate to tangible goods and more. And you're doing it all tax- and penalty-free.

Be Aware of the 60-Day Rollover Rule

You will have exactly 60 days after you get your rollover from your original SEP IRA account to pool those funds into the new Self-Directed IRA LLC structure. This time period begins the day after the custodian gets the distribution.
This 60-day period is a rather strict rule. There are some rare flexibilities. Examples include if your expiration date falls on a federal holiday or weekend. In these cases, you will get one (and only one) additional business day.

If you’re receiving an eligible rollover distribution, you may opt to either rollover whatever you receive in part or in whole. It's up to you, but you'd be wise to get it taken care of well ahead of the 60 day cut-off point.

If you're under the age of 59.5, there's one final issue you definitely want to keep in mind for maximum savings. This is that any money eligible money that you choose not to rollover to the new IRA can count against you. It counts as part of your income for tax purposes, and if you choose to take it, you will likely get you hit with the 10% early distribution withdrawal penalty. You'll want to color inside the lines of the method outlined above to ensure this doesn't happen to you. You'll have plenty of ways to express your inner investing artist once your Self-Directed IRA LLC is funded, but stick to the script for the transfer to avoid unnecessary penalties like this.

Our experts are here to make your life easier and your accounts fatter. So use them. If you at any point feel like you're in over your head, that's what CPAs, tax professionals, and attorneys are for. It's okay not to know everything, especially about retirement accounts. You're in good company with most of the world.

Thanks for reading, and I hope you understand the SEP IRA to Self-Directed LLC transfer process better now. Please feel free to keep the conversation going with any comments or questions below.

Solo 401k Vs. SIMPLE IRA: Which is Better for You?

You've got lots of investment options. But not all of them are created equal. This is especially true when it comes to the SIMPLE IRA and the solo 401k.

The SIMPLE IRA plan is similar to a solo 401k plan. They are both funded by employee deferrals and additional employer contributions.

But there are a few differences you should be aware of. As you can see below.

The SIMPLE IRA

A SIMPLE IRA plan can be established at a bank, insurance company, or other qualified financial institution by any employer who has less than 100 employees, who will receive at least $5,000 in compensation from the employer in the preceding calendar year.

The SIMPLE IRA plan has a lower deferral limit than a solo 401k. But unlike a solo 401k plan, the SIMPLE IRA plan uses an IRA-style trust to hold SIMPLE IRA contributions for each employee, rather than the a single plan like a 401k Plan or other qualified retirement plan.

The Solo 401k

The solo 401k plan is an IRS-approved retirement plan, which is suited for business owners who do not have any employees, other than themselves and perhaps their spouse. There are a number of benefits that are specific to solo 401k plans that make them a far more attractive retirement option for a self-employed individual than a SIMPLE IRA.

8 Solo 401k Benefits

1. Higher Contributions.

A Solo 401k Plan includes both an employee and profit sharing contribution option, whereas, a SIMPLE IRA only offers minimal employee deferral opportunities.

For those below the age of 50:

Under the 2017 Solo 401k contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $54,000.

For those over the age of 50:

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. That amount can also be made in pre-tax or after-tax (Roth).
On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $60,000.

Compared to a SIMPLE IRA:

Whereas, a SIMPLE IRA has a lower deferral limit of $11,500 for 2017, plus a $2,500 catch-up contribution. In addition, the employer must provide either a dollar-for-dollar contribution of up to three percent of compensation to all who defer or a two percent non-elective contribution to all employees who are eligible to participate in the plan and who have earned $5,000 or more in compensation from the employer during the year. Hence, a participant in a SIMPLE IRA would be significantly limited in the amount of annual deferrals to be made to the retirement account in comparison to a Solo 401k Plan participant.

2. Reduced Catch-Up Contribution Amount.

With a Solo 401k Plan a plan participant who is over the age of 50 is able to make a catch-up contribution of up to $6,000. Whereas, with a SIMPLE IRA, the maximum annual contribution limit for is just $2,500.

3. No Roth Feature.

A Solo 401k Plan can be made in pre-tax or Roth (after-tax) format. Whereas, in the case of a SIMPLE IRA, contributions can only be made in pre-tax format. In addition, a contribution of $18,000 ($24,00, if the plan participant is over the age of 50) can be made to a Solo 401k Roth account.

4. Tax-Free Loan Option.

With a solo 401k plan you can borrow up to $50,000 or 50% of your account value, whichever is less. The loan can be used for any purpose. With a SIMPLE IRA, you can't even borrow $1.

5. Access to Tax-Free Nonrecourse Leverage.

With a solo 401k plan, you can make a real estate investment using non-recourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax. However, the non-recourse leverage exception is only applicable to 401k qualified retirement plans and does not apply to IRAs. In other words, using a Self-Directed SIMPLE IRA to make a real estate investment involving non-recourse financing would trigger the UBTI tax.

6. You Can Open Your Account at any Local Bank.

With a Solo 401k plan, your 401k bank account can be opened at any local bank or trust company. In the case of a SIMPLE IRA or a Self-Directed IRA, a special IRA custodian is required to hold the IRA funds.

7. No Need for the Cost of an LLC.

With a Solo 401k, the plan itself can make real estate and other investments without the need for an LLC. (Depending on the state you're in, forming an LLC could prove costly.) Since a 401k Plan is a trust, the trustee on behalf of the trust can take title to a real estate asset without the need for an LLC.

8. Greater Creditor Protection.

A Solo 401k offers greater creditor protection than a SIMPLE IRA. The 2005 Bankruptcy Act generally protects all 401k assets from creditor attack in a bankruptcy proceeding. In addition, most states offer greater creditor protection to a solo 401k qualified retirement plan than a SIMPLE IRA outside of bankruptcy.

The 5 Most Common IRA Contribution Questions

What's up with the individual retirement account (IRA)? I seem to always be answering random questions. Like why this Roth guy gets talked about all the time? Or what's the maximum IRA contribution level? Or whether it's possible to get a tax deduction, pretty please! Don't worry folks, I've got you covered.

Question #1: Is my IRA contribution tax deductible?

The answer is: it depends. Your eligibility depends on your income, marital status, employment benefits and more. Depending on those variables, you'll be placed into one of three categories.

No Tax Deduction

Contributions to a Roth IRA aren’t deductible. Not ever.

That said, contributing to your Roth account is still a solid plan. Just make sure your modified adjusted gross income (MAGI) isn’t higher than the Roth contribution limit.

Also, if you're looking for tax deductions, then consider maximizing out your 401(k) or 403(k). These plans accomplish much the same thing as traditional IRAs in terms of taxation.

Limited Deduction

There are two scenarios where your contributions may be limited.

If you or your spouse are covered by a retirement plan at work
If you or your spouse fall outside the allowed income range

Remember, the IRS frequently updates income ranges, so double check the date before assuming you're good to go. Better yet, consult an attorney.

Full Tax Deduction

You can deduct the full contribution amount from your taxes if both of the following things are true.

Neither you nor your spouse have an individual retirement account through your employer.
Your income(s) falls under the IRS cutoff point.

See above for information on income ranges.

Question #2: Can I contribute to an IRA if my retirement plan is covered through work?

Yes! You can still contribute if your employer sponsors your retirement plan. This holds true even if the plan is a SEP or SIMPLE IRA. However, be aware that there is a maximum contribution limit. Also, whether or not you can deduct the full contribution amount depends on a variety of factors which were covered in the first question.

What about if you aren't covered by an employer retirement plan? You can still contribute to an IRA. Plus your contributions are fully deductible as long as your MAGI doesn’t exceed $60,000.

Question #3: Can I establish a self-directed IRA if only my spouse has earned income for the year?

Yes. If you file a joint return, you and your spouse can each contribute, even if only one of you has taxable compensation, regardless of which of you earned the compensation.

The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return and cannot exceed the maximum IRA contributions for the year ($5500 in 2017 or $6500 if over the age of 50).

Question #4: How can I contribute to my Roth IRA account if I earned too much money in 2017?

The IRS has set the contribution cutoff at $181,000 for the year 2017.

If your modified adjusted gross income is below the cutoff point and you file a joint return, you can make a Roth IRA contribution. However, if you earned more than that during the year, you will see your maximum Roth IRA contributions reduced or completely eliminated.

One way to "get around" the Roth income threshold rules is to make an after-tax contribution and then convert it into a Roth IRA. Since the traditional contribution was made after-tax there would be no tax on the Roth IRA conversion.

Fun fact: This tactic was made possible when the IRS removed the income level restrictions for making Roth conversions in 2010.

Question #5: Can I contribute to my Individual Retirement Account after I turn 70½?

It depends on which type of IRA you’re using.

You won’t be able to make regular contributions to a traditional IRA in whichever year you turn 70½. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA. This is always true, regardless of your age.

Using Your Self-Directed IRA LLC For Hard Money & Peer To Peer Lending

A Self-Directed IRA LLC is a great way for hard money and peer to peer lenders to generate tax deferred & tax free returns.
Most financial institutions continue to require good credit history. They also take a couple weeks to review financial statements, tax returns and business plans, which can be a problem in the real estate business. (Think of deadlines, etc.)
Because of this there is a growing need for quick financing for many individuals, small business and investors. Real estate developers and builders for their real estate projects are a massive piece of this growing population.

What is Hard Money Lending?

A hard money loan is where a lender allows a borrower to receive funds secured by real property. Hard money loans are often used in the real estate business. Interest rates vary, but are often higher than normal business loans.
Due to the limited amount of financing available to most individuals and small businesses, many hard money lenders are eager to use their IRA or 401k funds to make loans and generate tax-deferred income or gains.

What is Peer to Peer Lending?

Peer to peer lending is a method of debt financing that enables individuals (such as yourself) to borrow and lend money without the use of a financial institution as an intermediary.
Peer to peer lending removes the middleman (banks, etc.) from the process. But it also involves more time and risk than using a bank. However, the advantages include more money for investors and more control.
The average American is looking to have more control over the loan process without the high transaction fees. As a result, a growing number of peer-to-peer lenders are eager to use their IRA or 401k funds to make loans and generate tax deferred income or gains.

How To Use Your Retirement Funds To Lend

A Self-Directed IRA LLC offers you the ability to use your retirement funds to make almost any type of investment on your own without requiring the consent of any custodian or person. (Not to mention, tax benefits!)
The most notable advantage to using your Self Directed IRA LLC to make loans, whether peer to peer or hard money, is that you can make the loan by simply writing a check.
Also, all income and gains associated with a Self-Directed IRA loan would grow tax-deferred. Learn more details from our previous article on investing with your Self-Directed IRA LLC.

The Self-Directed IRA LLC Lending Advantages

With a Self-Directed IRA your funds can be used to make secured or unsecured private loans to small business owners or home builders.
Then there's also the LLC advantage, which mind you is extremely helpful, but there are a few cost associated with setting one up.
The Self-Directed IRA LLC involves the establishment of a limited liability company (LLC) which is owned by your IRA and managed by you or any third party you choose. If you want a third party to manage it, you can.
As manager of the IRA LLC, you will have total control over your IRA assets to make traditional as well as non-traditional investments, such as hard money and peer to peer loans.
If lending or making other nontraditional investments with your retirement dollars appeals to you, schedule your personal Self-Directed IRA LLC consultation today.

Your Self-Directed IRA: Asset & Creditor Protection

Your retirement account is probably one of the most valuable assets you own, as it is for tens of millions of other Americans. But what will happen if someone sues you? Will you be protected or will you find yourself being circled by the sharks? You may know these sharks by the technical name for their species: creditors.

Protecting Your Retirement Assets

In general, the asset and creditor protection strategies available to you depend on a few things, such as:

The type of retirement account you have.
What state you live in.
Whether the assets are yours or have been inherited.

Using a Self-Directed IRA LLC will offer you the ability to make a wide range of investments, such as real estate, in addition to offering you strong asset and creditor protection.
By using an LLC owned by your IRA, you will also gain another layer of limited liability protection. Using a Self-Directed IRA LLC to make investments offers you far greater asset and creditor protection versus making the investment personally.
For this reason, growing and investing your retirement funds through a Self-Directed IRA LLC is a great tool to protect your retirement assets from creditors, inside or outside of bankruptcy.

Federal Bankruptcy Protection for Your IRA

Traditional and Roth IRAs created and funded by a debtor are subject to an exemption limitation of $1 million. Which means that nobody can ever touch that $1 million except with your consent and creditors can't take it. That's hard to beat!

Protection From Other Creditors

Your protections extend beyond the bankruptcy setting. In general, ERISA pension plans, such as 401k qualified plans, are afforded extensive anti-alienation creditor protection both inside and outside of bankruptcy.

However, these extensive anti-alienation protections do not extend to an IRA, including a Self-Directed IRA. Since an individually established and funded Traditional or Roth IRA is not an ERISA pension plan, IRAs are not preempted under ERISA.

Which means for anything short of bankruptcy, state law determines whether IRAs (including Roth IRAs) are shielded from creditors’ claims.

Note: Inherited IRAs do not enjoy the protections of "normal" IRAs in bankruptcy proceedings.

Royal Legal Solutions Helps You Protect Your Assets From Creditors

Before you wade into shark-infested waters, get yourself a life vest. If you're interested in learning more about how you can better protect your assets using a Self-Directed IRA LLC, call Royal Legal Solutions today at (512) 757–3994 to schedule your retirement plan consultation.

Your IRA Custodian's Management Fees May Now Be Tax Deductible!

Have you ever thought about deducting your custodian/trustee fees from your taxes? That'd be fun, considering you'd most likely have to talk to your custodian/trustee about it.

Many retirement account holders don't know their payment IRA custodian/trustee fees may in fact be tax-deductible. The irony is not lost on us.

Example of an IRA Custodian Tax Deduction For Investors

According to the IRS rules, in place of the standard deduction, you can deduct certain expenses as miscellaneous itemized deductions on Schedule A.

But you can only claim the amount of expenses that are more than 2% of your adjusted gross income.
For example, Alexander is a single taxpayer who has an adjusted gross income of $50,000. He may deduct her miscellaneous itemized deductions only to the extent that they exceed 2% of $50,000, or $1,000.

Facts About IRA Tax Deductions

Some of the more popular itemized deductions are for: charity contributions, mortgage interest, tax preparation fees (ironically), medical, and dental expenses.

So if you're using Schedule A to itemize deductions in place of taking the standard deduction, your IRA custodian/management fees can be deducted.

There are over 50 million IRAs.
The majority of all IRA accounts are subject to small annual administration fees, which generally cover basic paperwork and maintenance of the account.

These annual IRA management fees may be tax-deductible, according to the itemized deduction rules. As long as the fees are separately billed and paid for using IRA funds.

In other words, IRA management fees paid by personal cash or check that are not deducted from the IRA may be deducted as investment expenses, subject to the itemized deduction limits.

IRA Custodian fees are also not considered part of the total IRA contribution for the year.

On the other hand, IRS rules state that if your IRA administrative/management expenses are paid directly from the IRA, such payment will not be considered a distribution from the IRA.

For example, if you contribute the maximum for a person under age 50 ($5,500 as of 2018), and your trustee deducts $200 from the account for advisory or custodian fees, the fee paid would not be considered a distribution.

Note: You cannot increase your IRA contribution to compensate for that amount.

How To Pay IRA Fees To Get A Tax Deduction Properly

You have to pay IRA management/custodian fees with the money in a retirement account (which is subtracted directly from the account without tax consequences) or pay the fee with outside/personal dollars instead. Only then can you claim the itemized deduction.

The same applies to a retirement account where you are subject to investment management fees associated with the retirement account.
The IRS recently confirmed that “wrap fee” style arrangements like ongoing assets under management and investment advisory fees can be paid with outside taxable dollars and still deducted as Section 212 expenses, subject to the itemized deduction limits.

The determination of whether the IRA administration/management fee is deductible is dependent on how it is billed. For example, if the money simply comes out of any cash balance in the IRA, then you can't deduct it.

Instead, for tax purposes, the fee is offset against earnings in the account when you begin withdrawing the retirement account funds.
But if the IRA administrator/trustee bills or invoices the individual separately and allows you to pay from another source, then the fee may be deductible for the year in which it was paid.

However, because of the “prohibited transaction” rules, a transaction can be subject to tax and penalties.

Note: Make sure personal expenses are NOT paid using retirement funds or vice versa. This will help you avoid costly penalties.

Given that IRA custodian and related investment advisory fees can be paid from retirement accounts, as long as the fee is attributable only to the retirement account.

Close readers and smart investors (we're pretty sure that's all of you) may still have one question.

Given the Choice, Should You Pay IRA Fees with Retirement or Personal Funds?

The answer is generally dependent on a variety of factors, specifically, on how much of the IRA fee would have been deductible if it was simply paid with outside/personal dollars instead based on the itemized deduction rules.

The benefit to paying the IRA custodian/management fee from a retirement account is the ability to pay it with pre-tax dollars.

If the fee would have been fully deductible if paid with personal/outside dollars, then it’s best to simply pay with outside dollars, and allow the IRA to maximize its ongoing tax-deferred growth.

Although, in reality, IRA custodian/management fees are often not fully deductible due to the 2%-of-AGI floor on miscellaneous itemized deductions and due to the reach of the alternative minimum tax (“AMT”).

In any event, it will generally always be preferable to use personal funds to pay the IRA custodian/investment management fee for a Roth IRA, even if the fee is not deductible.

Get Professional Help Managing Your IRA Retirement Account

The ability to deduct IRA custodian/trustee fees can be a nice tax benefit to many IRA account holders itemizing their tax deductions. However, the process can be time-consuming, so it's not advised unless you have a lot to gain from doing so.

If you want to learn more about deducting your IRA management fees, take our Tax Discovery Quiz below.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation. TAKE THE TAX DISCOVERY QUIZ

Our 3 Most Popular Self-Directed IRA Investments

The self-directed IRA, also known as a SDIRA or solo IRA, allows you to use your retirement funds to make almost any type of investment on your own without requiring the consent of a custodian.

Using a self-directed IRA to make investments means you get tax-free gains on investments you know and understand. With a traditional IRA, you're most likely investing in stocks and mutuals fund run by someone you don't know, paying lots of fees and dealing with rules that are hard to understand.

Here are the 3 most popular types of investments for our Self-Directed IRA clients. Reach out and we can help you decide whether or not they have a place in your portfolio.

SDIRA Investment #1: Cryptocurrency

Surprised? Cryptocurrency is all the rage now. Speculations about an imminent crash have been going on for years, but it hasn't come yet.

Even though Bitcoin is called cryptocurrency, in the eyes of the IRS, Bitcoins and other cryptocurrency are not considered currency. Which means you have more than a few excellent & barely taxed investment opportunities as far as Bitcoins go.

The most popular cryptocurrencies with our clients are Bitcoin (BTC, 1 bitcoin = $17,876.20 in Nov. 2020) and Ethereum (ETH, 1 Ethereum = $475.11 in Nov. 2020). Other popular cryptos include:

Binance Coin (BNB)
Bitcoin SV (BSV)
EOS (EOS)
Monero (XMR)
Libra (LIBRA)
Bitcoin Cash (BCH)
Tether (USDT)
Litecoin (LTC)
Ripple (XRP)

Cryptocurrency investments, such as Bitcoin, are risky and highly volatile. Any investor interested in learning more about Bitcoin should do their diligence and proceed with caution. You may want to brush up on your history to learn what happens to people who invest in things like Bitcoin.

SDIRA Investment #2: Real Estate

You don't have to invest in bank CDs, the stock market, or mutual funds. Few investors realize that the IRS has always permitted real estate to be held inside IRAs. Probably because the people on Wall Street wouldn't want to lose your business.

The IRS lets you make almost any type of real estate investment, aside from any investment involving a "disqualified person". These include children, parents or businesses you own.

Using a Self-Directed IRA LLC to purchase real estate allows you to earn tax-free income/gains and pay taxes at a future date (in the case of a Roth IRA the income/gains are always tax-free), rather than in the year the investment produces income.

The following 5 real estate investments are popular with our self-directed IRA clients:

Residential homes (sales & flips)
Vacation rentals. (Now's the perfect time to buy one in Florida!)
Raw land. (Can't go wrong with land can you?)
Joint venture investments involving commercial properties
Mortgage notes

SDIRA Investment #3: Hard Money Lending

A Royal Legal Solutions Self-Directed IRA with traditional IRA or Roth IRA funds can be used to make secured or unsecured loans to anyone who is not a disqualified person (children, parents, etc.). Since most banks require good credit scores and take too long reviewing financial statements, tax returns and business plans, there is a growing need for quick & easy financing for many individuals. These individuals include: small business, investors, and real estate developers and builders for their real estate projects.

The following hard money lending investments have been popular with our Self-Directed IRA clients:

Secured loans to individuals
Short non-secured loans to real estate developers
Hard money lending investment funds
Loans to individuals recovering from hurricanes

With a Self-Directed IRA LLC you have virtually unlimited opportunities to make traditional as well as alternative investments, such as real estate, in a tax efficient manner.

Solo 401k Vs Self-Directed IRA: Which is Better for You?

The choice between a solo 401k and a self-directed IRA LLC really depends on you—there is no one-size-fits-all solution. However, as we will see, a solo 401k is usually the best option for self-employed people.

What is a Self-Directed IRA?

A self-directed individual retirement account (SDIRA) is a type of individual retirement account (IRA) that can hold alternative investments normally prohibited from regular IRAs. The account is administered by a custodian or trustee, but managed by the account holder. This is why it's called "self-directed."

The benefits of the self-directed IRA include having the ability to use your retirement funds to make almost any type of investment (including real estate).

What is a Solo 401k?

A solo 401k is an IRS-approved retirement plan, which is suited for business owners who do not have any employees other than themselves and perhaps their spouse. The solo 401k is not a new type of plan. It is a traditional 401k plan covering only one employee. It lets you contribute up to $60,000 each year.

9 Reasons Why A Solo 401k Is Better for Self-Employed People

There are a number of options that are specific to solo 401k plans that make the Solo 401k plan a far more attractive retirement option for a self employed individual than a Traditional IRA.
Here are nine of the best reasons we've found.

Reach your Max Contribution Amount Quicker.

A solo 401k includes both an employee and profit sharing contribution option. Compare this to a traditional IRA, which has a low annual contribution limit.

Under the 2017 solo 401k contribution rules, if you're under the age of 50, you can make a maximum employee deferral contribution in the amount of $18,000. On the profit sharing side, your business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including your employee deferral, of $54,000.

If you're over the age of 50, you can make a maximum employee deferral contribution in the amount of $24,000. Up to a combined maximum of $60,000.

Roth Feature Options.

A solo 401k plan contribution can be made in pre-tax or Roth (after-tax) format. Whereas, in the case of a Self Directed IRA, contributions can only be made in pre-tax format.

Tax-Free Loan Options.

With a Solo 401K Plan you can borrow up to $50,000 or 50% of your account value in the form of a loan for any purpose. With a Traditional Self-Directed IRA, you can't even borrow $1 dollar from the IRA without triggering a prohibited transaction.

You Can Use Non-recourse Leverage & Pay No Tax.

With a solo 401k, you can make a real estate investment using non-recourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax.
However, the non-recourse leverage exception is only applicable to 401k qualified retirement plans and does not apply to IRAs. In other words, using a Self-Directed IRA to make a real estate investment involving non-recourse financing would trigger the UBTI tax.

Open the Account at Any Local Bank.

With a Solo 401k Plan, the 401k bank account can be opened at any local bank or trust company. However, in the case of a Traditional Self Directed IRA, a special IRA custodian is required to hold the IRA funds.

No Need for the Cost of an LLC.

With a solo 401k plan, the plan itself can make real estate and other investments without the need for an LLC, which depending on the state of formation can be expensive.
Since a 401k plan is a trust, you can be the trustee on behalf of the trust and can take title to a real estate asset without the need for an LLC.

Better Creditor Protection.

A Solo 401k Plan offers you greater creditor protection than a Traditional IRA. The 2005 Bankruptcy Act protects all 401k Plan assets from creditor attack in a bankruptcy proceeding.
Note: Most states also offer greater creditor protection to a Solo 401k than a Self-Directed IRA outside of bankruptcy.

Easy Administration.

With a Solo 401k Plan there is no paperwork required if your plan has less than $250,000 in plan assets.
Note: In the case of a Solo 401k Plan with greater than $250,000, a simple 2 page IRS Form 5500-EZ is required to be filed. Royal Legal Solutions can help you with that.

Flexible Structure.

Royal Legal Solutions' Solo 401k Plan is a flexible, self-directed plan that will allow you to make traditional as well as non-traditional investments, such as real estate, by simply writing a check.

Bottom Line: Most Self-Employed People Benefit from the Solo 401k

The solo 401k plan was designed with owner-operated businesses in mind. If you're self employed, there aren't too many other plans out there that offer more benefits than the solo 401k. Of course, this is a generalized statement and your unique circumstances may be different.

We recognize that not all self-employed people are the same. That's why we recommend talking over your retirement plans with a professional. You may also be interested to read Solo 401k Vs. SIMPLE IRA: Which is Better for You?

Fun Facts About Self-Directed IRA LLCs & Prohibited Transactions

As you may already know, Individual Retirement Accounts (IRAs) exist in many forms. If you have income from working for yourself or someone else, you may set up and contribute to an IRA.
What you may not know is that there is a type of IRA that real estate investors especially have grown fond of, known as a Self-Directed IRA LLC.
The major advantages of using a Self-Directed IRA LLC are tax deductible contributions and the ability to invest in real estate, tax liens, stock and anything else you can think of. (Except collectibles, such as art.)

Fun Facts About Self-Directed IRA LLCs

There are over 3 million Self-Directed IRAaccounts in the United States. They're not just some "fad".
The Self-Directed IRA LLC structure was first approved in the case of Swanson v. Commissioner in 1996.
Alternative investments such as real estate have always been permitted in IRAs, but the general public is just now becoming aware of this fact.

Financial institutions have no reason to recommend that you get a Self-Directed IRA LLC. They don't want you to invest your money in something other than stocks, bonds or mutual funds. Why you ask?
As a thought experiment, think about that question from the perspective of bank executive.
Investors with Self-Directed IRA LLCs would not generate any profit for these financial institutions. These investors aren't bound to the products offered by the financial institution alone. It's no wonder they don't tell you about alternative investments!

You Can Invest In Virtually Anything With A Self-Directed IRA LLC.

A Self-Directed IRA LLC offers you the ability to make any type of investment with your retirement dollars. Even better, you can do it all on your own without having to pay a custodian or ask for permission.
You truly can invest in anything, aside from life insurance, collectibles and certain "prohibited transaction" investments outlined in Internal Revenue Code Section 4975.
Popular Self-Directed IRA investments include real estate, private businesses, public and private stocks, cryptocurrencies, and tax liens.

Beware of Prohibited Transactions.

The one thing you have to watch out for with Self-Directed IRAs are "prohibited transactions." Prohibited transactions occur when you invest in a business owned by your parents, family members, or certain business partners. These individuals are called disqualified persons.
In general, the easiest way to avoid engaging in a prohibited transaction is to avoid investing in a business you may have a "conflicting interest" in. Such as your own business, etc.
That doesn't mean you can't invest in a business you personally favor, it just means you can't invest in a business you, your parents or your children, have a stake in.

An Example of a Major Prohibited Transaction Case

The Cherwenka case involved a Georgia statutory bankruptcy estate exemption for IRAs. The case involved a Self-Directed IRA held by Michael Cherwenka, who was in the house flipping business.
Michael Cherwenka used a Self-Directed IRA to buy real estate.
In this case, Cherwekna was not compensated for any property research he performed. He also wasn't compensated for any recommendations, management or consulting services he provided relating to how the IRA properties were improved before resale.
Cherwekna explained his role in buying and selling of these properties as being limited to identifying the asset for purchase and later selling the asset.
Cherwenka engaged contractors to decide or oversee the scope of work which improved properties. Cherwenka testified that he “read and approved” the expense forms prior to the IRA custodian paying funds to reimburse the submitted expenses.
Contractors were paid by the job, which accounted for labor costs, but no management fee or additional cost was included in the expenses submitted to the IRA custodian.
Cherwenka stated he would inspect or confirm that work was completed through site visits or communication with his “team” before he would approve expenses to be paid by his IRA custodian.
Most Self-Directed IRA real estate investors tend to perform the same sort of tasks that Cherwenka performed. Such as:

Locating the property.
Reviewing transaction documents.
Engaging contractors to perform property improvements.
Inspection of improvements.
Approval of expenses.
Communicating with the IRA custodian regarding the real estate.

This case provides a clear legal foundation for the type of activities a Self-Directed IRA LLC investor can and cannot engage in without triggering a prohibited transaction.
You can learn more about Self-Directed IRA LLCs from many of our previous articles, which cover everything from how these entities work to how to fund businesses with them. Check out our piece on how to invest in real estate with your Self-Directed IRA LLC to learn more. If you're ready to take control of your retirement dollars, schedule your consultation with Royal Legal Solutions today.

How to Convert Your Retirement Plan To A Self-Directed Roth IRA

Do you want to control what you invest in, have a greater variety of investment choices, and have more money to spend during your retirement? If so, then you may just want to convert your retirement plan to a Self-Directed Roth IRA.

If you're considering making a big leap forward towards gaining more control over your retirement account, it's a good idea to carefully read the information below. Not everything will pertain to you, but you'll leave with a greater understanding of how these accounts work.

IRA Rollovers to the Self-Directed Roth IRA

Most of the time Roth IRA conversions and retirement plan rollovers to a Roth IRA are taxed. This is offset by the fact that you won't have to pay tax on your future distributions.

A conversion is a taxable movement of cash, real estate or other assets from a Traditional IRA, SEP IRA, or a Savings Incentive Match PLan for Employees (SIMPLE IRA) to a Roth IRA.

Note: A SIMPLE IRA can only be converted to a Roth IRA after a two-year period, which begins on the date your first SIMPLE IRA contribution was deposited.

Are There Any Eligibility Requirements to Do a Roth IRA Conversion?

There are no eligibility requirements for making a Roth IRA conversion. If you earn too much to make a Roth IRA contribution, you can contribute to a Traditional IRA instead and then do a Roth IRA conversion.

Roth IRA Conversion Taxes & Penalties

If you decide to convert your Roth account to a Self-Directed Roth IRA LLC structure, you will have to pay tax on the Roth IRA conversion on a "pro rata basis". This means the portion representing pretax assets is taxable in the year of the conversion, and the portion representing after-tax assets is not taxable.

Also, you will need to file Form 8606 to determine the taxable portion of the conversion. You will need to list all the pre-tax IRA assets to determine the taxable and nontaxable assets.

How To Convert Into a Self-Directed Roth IRA

A Roth IRA conversion can be completed either via a direct or indirect rollover. So what's the difference between the two?

A conversion in which the check is made payable to the receiving financial institution for the benefit of your Roth IRA is a direct conversion.

An indirect conversion occurs when you request and receive a distribution from your pre-tax IRA custodian and deposit the amount into a Roth IRA account within 60 days.

Note: With an indirect Roth IRA conversion, the one rollover per 12-month restriction does not apply.

Reporting a Roth IRA Conversion on Your Taxes

Since most conversions are generally subject to taxation, your financial organization distributing the pre-tax IRA assets will probably apply withholding rules to the account.

However, an exception applies to IRA funds being converted to a Roth IRA.

Note: A Roth IRA conversion is a reportable transaction regardless of whether it was handled directly or indirectly.

Direct Rollover to a Self-Directed Roth IRA

When you directly roll over your employer sponsored retirement plan distribution to a Self-Directed Roth IRA (excluding a designated Roth account rollover to a Roth IRA), your financial institution transferring the retirement funds must report the tax-free direct rollover distribution.

Note: The receiving Self-Directed Roth IRA custodian must report the amount as a rollover contribution in Box 2 of IRS Form 5498.

Indirect Rollover to a Self-Directed Roth IRA

If you're eligible and take a distribution from your employer sponsored retirement plan (401k Plan) the financial institution sending your distribution should make the check payable to you.

If your distribution is eligible for a rollover, your financial institution will apply withholding. You would then be required to deposit your money into a Traditional IRA account within 60 days. Once your funds have been deposited in a Traditional IRA account, your IRA funds can be converted into a Roth IRA.

Note: The new Self-Directed Roth IRA custodian receiving the rollover assets must report the amounts on IRS Form 5498 as a rollover contribution in Box 2.

How To Buy Real Estate With A Self-Directed IRA LLC

Remembering these tips will not only help you make more money, but they'll also keep your friends at the IRS happy!
So I realize you might be wondering...

Why buy real estate investments with a Self-Directed IRA LLC?

A self-directed IRA LLC offers you the ability to use your retirement funds to make almost any type of investment. The IRS permits using this legal entity to purchase real estate or raw land. Making a real estate investment is as simple as writing a check from your Self-Directed IRA bank account.

The advantage of purchasing real estate with your self-directed IRA LLC is that all gains are tax-deferred until a distribution is taken (pre-tax 401k distributions are not required until you turn 70 1/2). In the case of a Roth Self-Directed IRA, all gains are tax-free.

For example, if you purchased real estate with your self-directed IRA LLC for $500,000 and you later sold the property for $800,000, the $300,000 of gain appreciation would generally be tax-deferred.

If you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income tax and probably state income tax as well. (Which obviously sucks.)

Tips For Self-Directed IRA LLC Investing

Be aware of the IRS prohibited transaction rules. (This is first on the list for a reason!) The foundation of the prohibited transaction rules is based on the premise that investments involving IRA and related parties are handled in a way that benefits the retirement account and not the IRA owner.
The rules prohibit transactions between the IRA and certain individuals known as “disqualified persons." The outline for these rules can be found here in Internal Revenue Code Section 4975.
Use self-directed IRA LLC funds or funds from a non-disqualified third party to pay the deposit and purchase price for the real estate property.
No personal funds or funds from any “disqualified person” should be used.
All expenses, repairs and taxes incurred in connection with the Self-Directed IRA real estate investment should be paid using retirement funds. No personal funds should be used.
If financing is needed for a real estate transaction, only non-recourse financing should be used. A nonrecourse loan is a loan that is not personally guaranteed and whereby the lender’s only recourse is against the property and not against the borrower.
With a Self-Directed IRA the use of a non-recourse loan would be subject to tax pursuant to Internal Revenue Code Section 514. The tax rate could reach 39%.
No services should be performed by the IRA holder or “disqualified person” in connection with the real estate investment.
Keep good records of income and expenses generated by the real estate investment
All income, gains or losses from the real estate investment should be allocated to the IRA.
Make sure you're not engaging in any self-dealing real estate transactions, which would involve buying or selling real estate that will personally benefit you or a “disqualified person.”

If you have any questions about investing in real estate with a self-directed IRA LLC, Royal Legal Solutions is here to help you.

How To Use a Loan With Your Self-Directed IRA To Make Investments

Hey, you may or may not know this already. But your Self-Directed IRA is the ultimate retirement solution. A whole world of profitable investment opportunities is just waiting for you.

Think of your Self-Directed IRA as a "retirement investment vehicle" that allows you to invest your retirement funds in almost anything, even real estate. The best part? This is all tax free, and you don't need a custodian. That means you don't have to pay those costly custodian fees.

Why Would You Need a Loan in the First Place?

Most investors using retirement funds to make an investment will use cash to make their investment. Whether the investment is in the form of stocks or real estate, most investors will not borrow any funds to make an investment.

One significant reason why retirement account investors will generally not borrow money (also called debt or leverage) as part of an investment of real estate acquisition is the IRS. (Surprised?)

Internal Revenue Code Section 4975 prohibits the IRA holder (you) from personally guaranteeing a loan made to your IRA.

What about self-directed ira real estate loans? So in the case of a Self-Directed IRA, you could not use a standard loan or mortgage loan as part of an IRA transaction since this would trigger a prohibited transaction pursuant to Code Section 4975. (Which is bad.)

What it comes down to is this.:You can't get a "normal'" loan with Self-Directed IRA. This leaves you, the empowered Self-Directed IRA investor, with only one financing option...a non-recourse loan.

What Is a Non-Recourse Loan?

A non-recourse loan is a loan that is not guaranteed by anyone. Sounds crazy right? Basically the lender is securing the loan by the underlying asset or property that the loan will be used for.

So if you, the borrower, are unable to repay the loan, the lender’s only recourse is against the underlying asset (i.e. the real estate) not you. Hence the term "non-recourse".

Non-recourse loans are more difficult to secure than a traditional loan or mortgage. There are a number of reputable non-recourse lenders. However, the rate on a non-recourse loan is less slightly higher than a traditional loan.

What Are The IRS's Rules For Non-Recourse Loans?

The IRS allows IRA and 401k plans to use non-recourse loans for financing only. The rules covering the use of non-recourse financing by an IRA can be found in Internal Revenue Code Section 514.

Section 514 requires debt-financed income to be included in unrelated business taxable income (UBTI or UBIT), which generally triggers close to a 40% tax for 2017.

If non-recourse debt financing is used, the portion of the income or gains generated by the debt-financed asset will be subject to the UBTI tax, which is generally 40% for 2017.

For example, if an individual invests 70% IRA funds and borrows 30% on a non-recourse basis, 30% of the income or gains generated by the debt financed investment would be subject to the UBTI tax.

Which means if a Self-Directed IRA investor such as yourself invests $70,000 and borrows $30,000 on a non-recourse basis and the IRA investment generates $1,000 of income annually, 30% of the income or $300 would be subject to the UBTI tax.

Note: There are ways to reduce the $300 base tax.

How to "Escape" UBTI/UBIT Tax

Here's another great reason why the Solo 401k Plan is such an attractive investment vehicle.

If you use non-recourse financing to invest in real estate through your Solo 401k Plan, you will "escape" UBTI/UBIT tax due to an exception. This exception can be found in the Unrelated Debt Financed Income (UDFI) rules found under IRC 514(c)(9).

Buy Tax Liens With Your Self-Directed IRA LLC Or Solo 401k

Did you know tax liens can be purchased with retirement account funds? Yes, it's true!
By Self-Directing your IRA LLC or Solo 401k Plan investments into tax liens, your profits are tax-deferred back into your retirement account. More importantly, purchases can be made on the spot as fast as you can write a check.
But hold on a minute! What are "tax liens"?
A tax lien is Uncle Sam's (most likely the city or county's) claim on your property. They are usually placed when a taxpayer, such as a business or individual, fails to pay taxes owed.
You probably don't know much about tax liens right now. However, by the end of this article you will know how they can multiply your earnings in a tax-deferred IRA LLC or 401k, making them one of the soundest investments in your retirement account.
The purchase of tax lien certificates is a surprisingly safe investment. The transaction is fast for those using a Self-Directed IRA LLC or Solo 401k. The use of a Self-Directed IRA LLC is actually one of the most tax efficient ways to finance your tax lien purchase.
But this doesn't mean the Solo 401k isn't great for buying tax liens. On the contrary, the Solo 401k Plan offers a loan feature allowing for the purchase of tax liens.
Under the Solo 401k Plan, you can borrow up to either $50,000 or 50% of your account value at the prime interest rate + 1%.
What You Should Know About Tax Liens
Real estate has long been considered one of the greatest investment opportunities for both the large and small investors.
Ask yourself, how do real estate investors make money in a post recession climate? By purchasing properties for a fraction of their value!
The question is how? The answer is: Tax Lien Sales.
Where Do Lien Sales Originate?
When a property owner falls behind on their taxes, failing to pay for one or more years, the local taxing authority has the legal right to place a lien/repossess the property and sell it at auction to get the lost tax revenue.
How long local authorities wait to seize individual properties, and how much they allow to be owed on it before one of these events is up to the lien laws in their particular area.
Properties are often shockingly acquired for a few thousand dollars, regardless of how much they're actually worth! Similarly, paying off the lien on other properties may cost more than the house or land is worth.
The key to investing in tax liens is to take your time to research each property carefully before sale/auction day.
When & Where Do Tax Lien Sales Take Place?
Tax lien sales usually take place at public auctions. How often depends on the area in where it is located, and how many properties the government may seize annually for back taxes.
For example, larger urban areas may hold monthly auctions, while smaller rural ones might only have one auction a year.
2 Types of Tax Liens
There are two types of tax lien sales through auction: the tax lien certificate and the tax lien deed. So what exactly are these liens?
Tax Lien Certificate
The Tax Lien Certificate offers a delinquent homeowner who has fallen behind on their taxes one last chance to retain ownership of their property.
The certificate gives them a chance to use third-party investment money to pay off the taxes and a bit more time to collect the money needed to pay their debt without the risk of losing their home.
When you bid on a tax lien certificate, you are agreeing to loan the homeowner the money needed to pay all taxes due. The homeowner in turn agrees to pay you, the tax lien certificate holder, back with interest by a specified date.
If the homeowner fails to pay the debt on time, the deed to the property is transferred to you for the amount paid on the taxes.
Either way you make a profit. Whether your profit is on the interest you earn on the loan or by obtaining the property for a fraction of its value through the tax lien sale and then reselling it.
Tax Lien Deed
Tax Lien Deed sales are handled a bit differently, since you are actually buying/bidding for the property at the time of auction, with no responsibility to give the homeowner more time to pay his/her tax debt.
Once the selling price is approved, the deed is automatically transferred to you. Which gives you free reign as to what to do with the property next. You could renovate it, sell it as is or build a new home.
Properties in this type of tax lien sale tend to cost more, which may lower your profit margins compared to the acquisition of tax lien certificate properties. But the advantage to this lien is that you don't have to worry about homeowners.
Either way, investing in tax liens can be a profitable and easy way to enter the real estate market.
3 Ways You Can Make Money With Tax Liens.

Supercharge Your IRA.

You can buy tax lien certificates with your Self-Directed IRA LLC or Solo 401k. For example, let's say you buy a tax lien certificate which earns 16% of your initial investment annually.
When you buy tax lien investments you receive the amount invested plus interest within 12 months. If you continue to reinvest in tax liens year after year at 16%, you can double your money in about 4 years.
Note: Only a Self-Directed IRA LLC can preserve this 16% return, as traditional IRAs can't invest in tax liens.

Grow Your Retirement Money Tax Free.

By buying tax liens with a Self-Directed IRA LLC or Solo 401k, you can avoid all taxes until the money invested is withdrawn from your IRA or 401k, which is usually around age 59 1/2. (Unless you like giving the IRS free money.)
The money can be invested once, twice or a thousand times and continue to grow tax-free, so long as it is not withdrawn for personal use.

Flexibility.

With a Self-Directed IRA LLC, you can serve as the trustee. This means that all assets of the 401k trust are under your sole authority. This gives you the freedom to fund any investment anytime.
As trustee, you can buy tax liens with the stroke of the pen, without a custodian trying to charge you fees or slow you down.
Tax liens are backed and leveraged by the property being "liened" and are guaranteed by the taxing authority.
In most states, they are a first lien on real estate, and when foreclosed, they wipe out all junior liens (such as mortgages). Which means you can snag a valuable piece of real estate for next to nothing!
Tax Liens Are A Great Investment Opportunity.
Real estate has been the cornerstone of wealth since the beginning of civilization. Even cave men had caves!
Although many people have left the real estate market because of the housing bust, many real estate investors are still enjoying huge profits by investing in tax liens.
To learn more about buying tax liens with a Self-Directed IRA LLC, call Royal Legal Solutions today at (512) 757–3994 to schedule your free consultation!

Top 10 Features Of The Solo 401k Plan: Empower Your Business

Are you an independent contractor or the only employee of a business you own? If so, you may want to learn about the Solo 401k.

A Solo 401k is a dream come true for small businesses, independent contractors and sole proprietors, such as consultants or freelance writers. A Solo 401k Plan can be adopted by any business with no employees other than the owner(s).

The business can be a sole proprietorship, LLC, corporation, or partnership. The Solo 401k is a tax efficient and cost effective plan offering all the benefits of a Self-Directed IRA, plus additional features.

Solo 401k Features and Benefits

1. Easy to maintain.

There is no annual filing requirement unless your solo 401k plan exceeds $250,000 in assets. If it does you will need to file a short information return with the IRS (Form 5500-EZ).

2. Freedom of choice and tax-free investing.

With a Solo 401K Plan, you will be able to invest in almost any type of investment opportunity, including:

Real estate
Private businesses
Precious metals
Hard money & peer to peer lending
Stock and mutual funds

Your only limit is your imagination.
Note: The income and gains from these investments will flow back into your Solo 401K Plan tax-free.

3.You can get a loan.

The Solo 401k allows you to borrow up to $50,000 or 50% of your account value, whichever is less. The interest rate will be the current prime rate. You can use the money for anything you want.

4. No Custodian fees.

A Solo 401k plan allows you to eliminate the expense and delays that come with an IRA custodian. This enables you to act quickly when the right investment opportunity presents itself.

Also, because you can open a Solo 401k at any local bank or credit union you won't have to pay custodian fees for the account as you would in the case of an IRA.

Another benefit of the Solo 401k plan is that it doesn't require you to hire a bank or trust company to serve as trustee. This flexibility allows you to serve in the trustee role. This means all assets of the 401k trust are under your direct control.

5. High contribution limits.

While an IRA only allows a $5,500 contribution limit (with a $1,000 additional “catch up” contribution for those over age 50), the solo 401(k) contribution limits are $54,000. (With an additional $6,000 catch up contribution if you're over age 50.)

Under the 2017 Solo 401k contribution rules, if you're under the age of 50 you can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after tax. The after-tax method is known as the Roth account.

On the profit sharing side, your business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including your employee deferral, of $54,000.

If you're over the age of 50, you can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre tax or after tax (Roth). (Up to a combined maximum of $60,000.)

6. Contribution options.

You always have the option to contribute as much as legally possible, as well as the option of reducing or even suspending plan contributions if necessary.

7. Roth contributions.

The Solo 401k plan contains a built-in Roth sub-account you can contribute to without any income restrictions. With a Roth sub-account, you can make Roth type contributions while having the ability to make significantly greater contributions than with an IRA.

8. Tax deductions can offset the cost of your plan.

By paying for your Solo 401k with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees.

9. Exemption from UDFI tax.

When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (UDFI). This means you're going to be paying a lot of money in taxes!

How much is a lot you ask? The UBTI tax is approximately 40% for 2017-2018! Learn more details about this whopping tax penalty from our previous UBTI breakdown.

But, with a Solo 401k plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Solo 401k Plan over an IRA for real estate purchases.

10. Rollover options.

A Solo 401k plan can accept rollovers of funds from another retirement savings vehicle, such as an IRA, a SEP, or a previous employer's 401k plan. Which means you can directly rollover your IRA or qualified plan funds to your new 401k Plan for investment or loan purposes.
Note: Roth IRA funds can't be rolled into a Solo 401k Plan.

Still Using an IRA?

While the IRA is nice and all, it just can't compete. With a solo 401k plan, your business will pay less in tax, and you won't have to deal with the typical IRA restrictions.

Are you interested in learning more about Solo 401ks? Call Royal Legal Solutions at (512) 757–3994 to schedule your retirement consultation today.

The Solo 401k: Who Is It For? What Are The Advantages?

The solo 401k is a unique plan because it only covers the 401k owner and his or her spouse. Those who take advantage of a solo 401k can receive all the benefits of traditional 401ks without having to worry about the Employee Retirement Income Security Act (ERISA).

History of the Solo 401k

Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) took effect in 2002, there was no incentive for an owner-only business to establish a 401k plan. After all, why bother to when you could receive the same benefits by adopting a profit sharing plan or SEP IRA?

However, EGTRRA changed everything. After EGTRRA, solo 401ks became the most popular retirement plan for the self employed. This is because EGTRRA makes it possible for an owner-only business to defer more money into a retirement plan cost effectively than a profit sharing plan.

One of the key changes brought about by EGTRRA was that it added the employee deferral feature found in a traditional 401k plan to the solo 401k plan. This feature turned the solo 401k into a plan that continues to provide the highest contribution benefits to the self employed.

Who Is The Solo 401k Best For?

A solo 401k plan is perfect for many sole proprietors, consultants, or independent contractors. A solo 401k plan offers the same abilities as a Self-Directed IRA LLC, but without having to hire a custodian or create an LLC.

The solo 401k plan allows you to:

Roll over your existing IRA or 401k plan funds tax-free into a new solo 401k plan and use those funds to make tax-deferred investments, such as real estate.
Borrow up to $50,000 as well as make annual plan contributions up to $60,000. (More than 9 times the amount of an IRA contribution.)

Benefits of The Solo 401k

There are a number of benefits that are unique to solo 401k plans (also known as individual 401ks), which make them a far more attractive retirement option for a self-employed than a traditional IRA. In fact, it offers perks that other options don't come close to. Let's take a look at eight of the greatest advantages of the solo 401k.

Simple Administration

With a solo 401k plan there is no annual tax filing for any plan that has less than $250,000 in plan assets.
Note: If your plan has more than $250,000, a simple 2 page IRS Form 5500-EZ is required to be filed.

Roth After-Tax Benefit

A solo 401k plan can be made in pre-tax or Roth (after-tax) format. Whereas, in the case of a Traditional IRA, contributions can only be made in pre-tax format.

Borrow up to $50,000 Tax-Free

With a solo 401k plan you can borrow up to $50,000 or 50% of your account value, whichever is less. The loan can be used for any purpose. Traditional IRA holders cannot borrow money from their IRA, unless they want to trigger a prohibited transaction.

Buy Real Estate With Leverage Tax-Free

With a solo 401k plan, you can make a real estate investment using non-recourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax. If you were to use an IRA to make a real estate investment (Self Directed Real Estate IRA) involving non-recourse financing would trigger the UBTI tax.

No Need to Establish an LLC

With a solo 401k plan, the plan itself can make real estate and other investments without the need for an LLC. Since a 401k plan is a trust, the trustee on behalf of the trust can take title to a real estate asset without the need for an LLC. (You would be the trustee.)

Protection From Creditors

A solo 401k plan offers greater creditor protection than a Traditional IRA. The 2005 Bankruptcy Act generally protects all 401k Plan assets from creditor attack in a bankruptcy proceeding. Also, most state laws offer greater creditor protection to a solo 401k qualified retirement plan than a traditional IRA outside of bankruptcy.

More Options to Maximize Your Investments

A solo 401k plan includes both an employee and profit sharing contribution option. Whereas a Traditional IRA has a very low annual contribution limit. Under the 2017 solo 401k contribution rules, if you're under the age of 50 you can make a maximum employee deferral contribution in the amount of $18,000.
On the profit sharing side, your business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including your employee deferral, of $54,000.
If you're over the age of 50, you can make a maximum employee deferral contribution in the amount of $24,000. Up to a combined maximum of $60,000.
Note: If your plan has more than $250,000, a simple 2 page IRS Form 5500-EZ is required to be filed.

Freedom Of Choice

A solo 401k will allow you to make traditional as well as non-traditional investments. As trustee of the solo 401k plan, you will have "checkbook control" over your retirement assets and make the investments you want when you want.

Quick List of Reasons to Choose the Solo 401k

Bottom line, when you choose the solo 401k, you:

Don't need to pay a custodian.
Have the ability to make maximum contributions 9 times higher than the traditional IRA holder.
For 2017, you can contribute up to $54,000 per year or $60,000 if you are over age 50. If your spouse is involved in the business, they can contribute an additional $54,000 (or $60,000 if they are over the age of 50) per year.
Can make investments without having to wait for someone else.
Can invest in real estate, private companies, precious metals, and virtually anything else.
You can borrow up to $50,000 from your solo 401k plan for any purpose.
Gain control of your retirement funds.
Can diversify your retirement portfolio.
Serve as trustee of your solo 401k plan.
Make Roth contributions to your solo 401k plan.
Use non-recourse leverage to purchase real estate without penalty or tax.
Maintain a qualified retirement plan and help save for the future.
Access your retirement funds to make the investments you want when you want tax free.
Grow your retirement funds tax free.

Did You Know There Are 3 Different Kinds Of Self-Directed IRAs?

Investors who want more options for their retirement investments LOVE the Self-Directed IRA.

This type of retirement investment account allows you to have more control over how your funds are managed. You may already know about the SDIRA, but you may not know they are not created equally.

Traditional IRA accounts can hold traditional investments, such as bonds or managed funds. The IRS also allows you to use IRA funds to invest in real estate, gold, private business and more. And the good news is, these investments can be tax-free.

The Self-Directed IRA LLC offers greater freedom than its traditional counterpart. How it works is fairly simple. An LLC is established, owned by your IRA account and managed by you. You can easily keep your Self-Directed IRA LLC funds with a passive custodian, such as a bank. That means you don’t have to pay fees or ask anyone for permission to invest in real estate, precious metals, cryptocurrency and other nontraditional assets.

Let's take a look at the ...

three most common types of Self-Directed IRA accounts

#1 Self-Directed IRA from a Financial Institution

With this type of Self-Directed IRA, you can only make IRA investments offered by the financial institution. Which usually include stocks, bonds, and some less common options. However, you're still fairly restricted. Even though they are technically Self-Directed, you are limited in terms of investment options. When you use a Self-Directed IRA from a financial institution, that institution typically does not allow you to make any non-traditional investments, such as real estate.

A financial institution can’t make any extra money or collect fees for items it doesn't offer. If an investor were to want to pull funds from their IRA for nontraditional investments, the group loses out on the opportunity to profit off of that investor. It's pretty cynical, but it's true.

#2 Self-Directed IRA from a Custodian

This option gives you greater freedom of investment than the first. "Custodian-controlled" simply means that an IRS-approved IRA administrator will facilitate any transactions involving the IRA. All legitimate IRA custodians are FDIC insured. Unlike a financial group, custodians earn their profits through fees from creating or managing IRA accounts. They don't offer investment products, and therefore don't have the incentive to limit your investment options as harshly as financial institutions. When you use this type of account, the custodian holds the IRA funds until, at your direction, will then invest the IRA money on your behalf.

Not as “self-directed” as it claims to be.

Any time you want to make an investment or contribution you have to use a custodian, which involves annual fees, time delays, and transaction fees. In other words, you’re not in control. You can’t even pay an IRA transaction expense without having to pay a custodian to do it for you.
So to summarize the above, if you’re really trying to get control over your investing without having to pay lots of fees, you don’t want a custodian-controlled self-directed IRA.

#3 The Self-Directed IRA LLC

No one knows how long the Self-Directed IRA LLC has been in use, but it wasn't until 1996 during the case of Swanson vs. Commissioner that they became widely known. Wider general use is an even more recent phenomenon.

In 1996 the tax court set a precedent which would forever permit a new type of self-directed IRA structure known now as the Self-Directed IRA LLC, which is much simpler (and cheaper!) than investing through a regular custodial controlled self-directed IRA account.

The Self-Directed IRA LLC vs. A Custodian-Controlled Self-Directed IRA: 6 Aspects Compared.

#1 Access

The Self-Directed IRA LLC allows you to sit in the pilot's seat of your investment portfolio. You don't need anyone's permission to make the types of investments you want to make. The funds will be overseen by a passive custodian, such as a local bank, instead of at a custodian you have never worked with before.

#2 Time

With no custodian to wait around for, you' are able to act decisively when the right investment opportunity presents itself.

#3 Lower Fees, Higher Profits

When you use a Self-Directed IRA LLC, you'll be free of the costly fees you'd ordinarily pay a custodian. You won’t be paying transaction fees, annual fees, or any other fees other IRA holders pay.

#4 Asset Protection and Limited Liability Protection

By using a Self-Directed IRA LLC, you receive an additional layer of liability protection, just as if the investments were held in a Traditional LLC. IRA real estate investments are also more protected from lawsuits. State laws can leave IRA-funded property vulnerable, but the LLC structure will secure your properties against directly-related lawsuits.

#5 Creditor Protection

Self-Directed IRAs also protect you from creditors, to the tune of $1 million. Also, most states will protect a Self-Directed IRA from creditors’ claims against you outside of bankruptcy.

#6 Privacy Protection

With a Self-Directed IRA LLC, your investments will be made in the name of the LLC. But with a custodian controlled SDIRA, your name is available to anyone seeking to locate you.

Did You Know There Are 3 Different Kinds Of Self-Directed IRAs?

Investors who are successful and want more options for retirement investments are wise to take advantage of the Self-Directed IRA. This type of account allows you to have more control over your retirement funds. You may already be somewhat familiar with this option. But what you may not know is that not all Self-Directed IRAs are created equally.

Most people are aware of the fact that Traditional IRA accounts can hold traditional investments, such as bonds or managed funds. What’s not as well-known is that the IRS also allows you to use IRA funds to invest in real estate, gold, private business and more tax free.

Many traditional IRA custodians claim to offer a Self-Directed IRA. They probably do. But what that means is you will need to pay transaction fees and get their approval to make other types of investments.
The Self-Directed IRA LLC offers greater freedom than its traditional counterpart. How it works is fairly simple. An LLC is established which is owned by your IRA account and managed by you. You can easily keep your Self-Directed IRA LLC funds with a passive custodian, such as a bank. Which means you don’t have to pay fees or ask anyone for permission. Let's take a look at the three most common types of Self-Directed IRA Accounts.

1. Self-Directed IRA from a Financial Institution

These types of accounts are easily the most popular type of Self-Directed IRA. Accessibility is a major reason for this type being the most common. It’s offered by most major financial institutions.
With this type of Self-Directed IRA, you can only make IRA investments offered by the financial institution. Which usually include stocks, bonds, and some less common options. However, you're still fairly restricted. Even though they are technically Self-Directed, you are limited in terms of investment options. When you use a Self-Directed IRA from a financial institution, that institution typically does not allow you to make any non-traditional investments, such as real estate.

Which makes you wonder why the bank or other institution places such restrictions in the first place. The plain and simple truth is that they just aren't required to. Simply because they offer the Self-Directed version of an IRA doesn't mean they're forced to give you total freedom of investment. Many financial institutions limit the types of investments account-holders can make beyond even what the IRS permits.

You won't, for instance, be able to hold real estate with this option. In fact, most banks and other financial groups are inclined to limit the IRA account's investments to only the products it offers itself.

So now, the reason might be obvious to you.
A financial institution can’t make any extra money or collect fees for items it doesn't offer. If an investor were to want to pull funds from their IRA for nontraditional investments, the group loses out on the opportunity to profit off of that investor. It's pretty cynical, but it's true.

2. Self-Directed IRA from a Custodian

Not as “self-directed” as it claims to be.

So to summarize the above, if you’re really trying to get control over your investing without having to pay lots of fees, you don’t want a custodian-controlled self-directed IRA.

3. The Self-Directed IRA LLC

The Self-Directed IRA LLC vs. A Custodian Controlled Self-Directed IRA: 6 Aspects Compared.

Access.

Time.

When you find an investment that strikes your fancy, you can make the payment immediately and directly. Since custodians make you obtain permission or approvals, these processes take up time. This won't be a concern with a Self-Directed IRA LLC.
With no custodian to wait around for, you' are able to act decisively when the right investment opportunity presents itself.

Lower Fees, Higher Profits.

When you use a Self-Directed IRA LLC, you'll be free of the costly fees you'd ordinarily pay a custodian. You won’t be paying transaction fees, annual fees, or any other fees other IRA holders pay.

Asset Protection and Limited Liability Protection.

Creditor Protection.

Self-Directed IRAs also protect you from creditors, to the tune of $1 million. Also, most states will protect a Self-Directed IRA from creditors’ claims against you outside of bankruptcy.

Privacy Protection.

With a Self-Directed IRA LLC, your investments will be made in the name of the LLC. But with a custodian controlled Self-Directed IRA, your name is available to anyone seeking to locate you.

To learn more about a Self-Directed IRA LLC, call Royal Legal Solutions today at (512) 757–3994, or use our web tool to set up your Self-Directed IRA LLC consultation.

Do You Know About The Plan Asset Rules?

The Plan Asset Rules, designed by our buddies at the Department of Labor, were made to limit you from using retirement funds to transact with your own investment fund or assets. They exist for ethical reasons. Of course, we know you're not unethical, but if they didn't exist, people could do all sorts of crooked things.
The Plan Asset Rules list the circumstances under which entity-owned assets can be considered to be owned by a 401k or IRA. There are, of course, exemptions.
This is important to know because otherwise innocent business between Plan Assets and disqualified persons quickly becomes a prohibited transaction. This is naturally something you want to avoid. Unless you like giving the IRS money. For everyone else, here are the basics of the plan asset rules, how they affect your retirement investments, and how to avoid triggering them.

Plan Asset Rules: The Basics

The DOL’s Plan Asset Rules define when assets are considered ‘Plan” assets. IRAs are usually treated similarly to pension plans under the law. When a plan (or even a combination of plans) earns a certain percentage of a construct like an LLC, the whole she-bang can be treated as if it's entirely owned by the plan. This includes not only the assets, but different types of gains like interest.
The most important practical aspect of the Plan Asset Rules for most investors is the fact that these rules determine prohibited transactions. Plan assets play by different rules than other types of assets you may own. If you engage in a prohibited transaction, you will absolutely pay the price. Typically, this is in the form of a massive and unavoidable penalty.

Here are the circumstances where Plan Asset Rules can be triggered:

When all of an operating company is owned by IRAs, 401ks, disqualified persons, or any combination thereof.
When 1/4 of an investment company is owned by IRAs, 401ks, disqualified persons, or any combination thereof. To determine if the 25% threshold is met, all plan owners are taken into account. It doesn't matter if they are unrelated (or not disqualified persons).

How Do The Plan Asset Rules Impact My IRA/401k Investments?

The Plan Asset Rules are often only triggered if your IRA/401k assets will own greater than 25% of an investment company (such as a mutual fund or other form of passive investment) or will own ALL of an operating company (gas station).
Most investments involving IRA/401k assets should not become a prohibited transaction. Making a typical loan, buying a condo for yourself, or even purchasing nontraditional assets for your IRA entity should not bring Plan Asset Rules into play. If they were triggered for some reason, you aren't necessarily doomed to pay the prohibited transaction penalty. Of course, this is only true if you aren't engaging in business with a disqualified individual.

Why You Want To Avoid Triggering Plan Asset Rules

If your retirement plan involves an investment in one of the following:

An “operating company” that is entirely owned by your IRA.
An investment company in which 25% of more of the “investment company” is owned by IRAs/401ks and disqualified persons.

Then all assets of these types of companies are owned by the plan itself, meaning your IRA or 401k. Any exchange between the company types mentioned above, including assets owned by such companies, and a disqualified person is a prohibited transaction. Be aware that there are other types of prohibited transactions, but the Plan Asset Rules describe the most common type.

This may all seem abstract, particularly if you're new to retirement accounts in general or these rules in particular. Let's take a look at a couple of examples involving common situations that illustrate what the Plan Asset Rules look like in real life.

Plan Asset Rule Examples

Scenario One:

Your Self Directed IRA LLC invests in JP Morgan, which will purchase a gas station, an “operating company”. You pay yourself $70,000 per year for your role as the station's manager, because that’s hard work after all.
The payment of the salary would be a prohibited transaction.
Note: Any income generated by the gas business would probably be subject to UBIT Tax if it becomes part of your IRA LLC.

Scenario Two:

Barney the Dinosaur's Self-Directed IRA LLC owns 10% of I Love You, LLC. Mr. Rogers’ IRA owns 20% of I Love You, LLC. Barney and Mr. Rogers are business partners not related by blood or marriage. In this case, their plans own a combined total of 30% of the company. 25% is the maximum allowed before Plan Asset Rules kick in. Since this is an "investment company," I Love You LLC's assets are owned by Mr. Rogers' and Barney's respective IRAs.
So if I Love You, LLC makes a loan to Barney’s father, the loan would be a prohibited transaction. This isn't because of dinosaur-related discrimination. It's because Barney's dad would be disqualified from any transaction with his IRA. If I Love You, LLC is deemed a Plan Asset, the same rules apply.
Royal Legal Solutions is happy to assist you with forming, running, or investing with a retirement account. It's never too early or too late to start planning for the future. Call (512) 757–3994 or use our web tool to schedule your personal retirement consultation.

What Is a Solo 401k Plan?

9 Reasons Why a Solo 401k is Better For Self-Employed Business Owners Than a SEP IRA

2. Roth features are available.

3. No annual paperwork.

4. You can use non-recourse leverage tax free.

5. You can reach your maximum contribution limit quicker.

6. You don't need an LLC.

7. Better creditor protection.

8. Tax free loan option.

9. No catch up contributions.

The Drawback of a Solo 401k

Wait: Aren't IRAs Tax Exempt?

The UBTI/UBIT Income Rules.

Where Does UBTI and UBIT Apply?

What is "Trade or Business?"

What is "Regularly Carried On"?

What About Short Term and Intermittent Activities?

What Type of Income Is Subject to UBTI or UBIT Tax?

What Are The Actual UBTI and UBIT Tax Rates?

Solo 401ks Are Designed Uniquely For Self-Employed Individuals.

What Are The Features That Make A Solo 401k So Useful?

Some Disadvantages Of Solo 401k's

What is the Easiest Way to Add Money to a Self-Directed Roth IRA?

What You Need To Know About Roth IRA Transfers To A Self-Directed Roth IRA.

How Does The Roth IRA To Self-Directed Roth IRA Transfer Work?

What’s The 60 Day Rollover Rule?

Royal Legal Solutions Will Guide You Throughout The Entire Process.

SEP IRA Transfers to a Self-Directed IRA: The Basics

How the SEP IRA to Self-Directed IRA Transfer Works

Be Aware of the 60-Day Rollover Rule

The SIMPLE IRA

The Solo 401k

8 Solo 401k Benefits

1. Higher Contributions.

For those below the age of 50:

For those over the age of 50:

Compared to a SIMPLE IRA:

2. Reduced Catch-Up Contribution Amount.

3. No Roth Feature.

4. Tax-Free Loan Option.

5. Access to Tax-Free Nonrecourse Leverage.

6. You Can Open Your Account at any Local Bank.

7. No Need for the Cost of an LLC.

8. Greater Creditor Protection.

Question #1: Is my IRA contribution tax deductible?

No Tax Deduction

Limited Deduction

Full Tax Deduction

Question #2: Can I contribute to an IRA if my retirement plan is covered through work?

Question #3: Can I establish a self-directed IRA if only my spouse has earned income for the year?

Question #4: How can I contribute to my Roth IRA account if I earned too much money in 2017?

Question #5: Can I contribute to my Individual Retirement Account after I turn 70½?

What is Hard Money Lending?

What is Peer to Peer Lending?

How To Use Your Retirement Funds To Lend

The Self-Directed IRA LLC Lending Advantages

Protecting Your Retirement Assets

Federal Bankruptcy Protection for Your IRA

Protection From Other Creditors

Royal Legal Solutions Helps You Protect Your Assets From Creditors

Example of an IRA Custodian Tax Deduction For Investors

Facts About IRA Tax Deductions

How To Pay IRA Fees To Get A Tax Deduction Properly

Given the Choice, Should You Pay IRA Fees with Retirement or Personal Funds?

Get Professional Help Managing Your IRA Retirement Account

Keep more of your money with a Royal Tax Review

SDIRA Investment #2: Real Estate

SDIRA Investment #3: Hard Money Lending

What is a Self-Directed IRA?

What is a Solo 401k?

9 Reasons Why A Solo 401k Is Better for Self-Employed People

Reach your Max Contribution Amount Quicker.

Roth Feature Options.

Tax-Free Loan Options.

You Can Use Non-recourse Leverage & Pay No Tax.

Open the Account at Any Local Bank.

No Need for the Cost of an LLC.

Better Creditor Protection.

Easy Administration.

Flexible Structure.