The self-directed IRA is a widely popular option for real estate investing. Investors can enjoy high yields, while hedging themselves against stock market uncertainties. However, there are some pitfalls to avoid. Knowing these common pitfalls can help make managing your investments easier and more cost-efficient.

Common Pitfalls

Pitfall One: Prohibited Transactions

“Self-dealings” are defined by the IRS as any transaction that involves the self-directed IRA and a disqualified person. A disqualified person includes the IRA holder, but also anyone with significant authority over the account. This includes plan custodians. Family members are also disqualified. A good rule of thumb for defining “family” is to ask yourself if they are lineal descendants, spouses or forebears.

Family members include: Spouses, parents, grandparents, children and their spouses, and grandchildren.
Even if a prohibited transaction isn’t intentional, it can lead to tax penalties or even worst early distribution of your account. Here’s an example of a seemingly harmless transaction that is prohibited:

Sarah owns a real estate investments. She notices that the yard could use some work. Her son- in-law does some landscaping work, so she figures why not pay him to do repairs? Since Sarah’s son-in-law is a “disqualified person,” this transaction would be considered prohibited. In fact, if Sarah herself was a landscaper she would also be prohibited from doing the landscaping work herself. This is considered “sweat equity.” In both these cases, a disqualified person is benefiting from conducting the landscaping work on the IRA owned asset.

Pitfall Two: Unrealistic Expectations

The self-directed IRA owner usually has enough common sense to avoid any claims of “guaranteed returns” or “risk-free investments.” However, I’ve seen a few smart investors fall prey to unreal expectations, especially when it comes to the administrative work and costs required to maintain their investments. The IRA owner must review and sign off on transaction related documents. She must keep up with fees associated with these transactions and fulfill IRS required reporting requirements. While we can’t get rid of most of these requirements, we can make it easier. Our online platform gives investors “checkbook control” and allows transactions anywhere with an internet connection.

Pitfall 3: The Wrong Structure

Investors can reduce fees and gain more control over their IRA account by choosing the right self-directed IRA structure. Investors who who use a custodian managed account, sometimes deal with costly custodial fees and delays. Using an LLC self-directed IRA can reduce custodian involvement, however it can result in additional fees during tax time. We offer a self-directed IRA connected to an FDIC insured asset trust. The trust reduces tax fees while also giving investors “checkbook control” over their account.

Avoid Costly Mistakes

Using the wrong structure, having unreal expectations and participating in prohibited transactions are all common pitfalls self-directed IRA real estate investors face. We’ve helped several clients avoid these pitfalls, while enjoying the benefits of tax-deferred real estate gains. We’d love to help you do the same. Contact us today to address your personal concerns.

A business trust is an IRS-approved entity for handling IRA investment funds. With a business trust, the investor becomes the trustee and gains management rights over investment funds. We’ve seen investors gain checkbook control over their self-directed IRA using this method. Besides more control, investors can enjoy reduced cost and investor confidentiality. Let’s discuss these benefits and how we can help you get started with a business trust for a self-directed IRA today.

Investing Efficiency and Control

Using a business trust for a self-directed IRA allows for more efficient investing. We’ve seen investors wait up to three days for their investments to go through the typical custodial review process. The advantage of a business trust is that the IRA owner become trustee. As trustee, they gain management control over investment decisions, rather than giving up this control to a custodian. Once a business trust is established, the trustee can open a checking account for IRA funds to be held. Investing then becomes as easy as writing a check. With this ease, investors no longer have to worry about delays on investment opportunities or recurring fees.  Our technology uses a similar trust structure to cut out custodial involvement and the need for in-person or mail transactions.

Save Hundreds on Taxes

Business trust are exempt from state franchise taxes, which are taxes imposed on corporations, partnerships and LLCs for doing business within a state. These taxes are usually charged annually. In California, the minimum franchise tax is $800. However, a 2016 Chief Counsel Ruling decided that business trusts are not considered corporations and thus exempt (1). In contrast, self-directed IRA LLCs don’t enjoy this exemption.

Save on Redundant Fees

The self-directed IRA for real estate investing is popular for several reasons. However, choosing an LLC as the holding entity for a self-directed IRA can incur costly fees. This is especially true for out of state real estate investments. Investors must register and pay a fee to conduct business in a new state. They may have to hire an additional agent to comply with state by state licensing requirements. Like the franchise tax, these IRA management fees can be avoided by using a business trust for the self-directed IRA.

Avoid Filing Taxes

A business trust can avoid filing both federal and state income taxes by qualifying as a “disregarded entity.” According to Professor Carter G. Bishop: “Under a default rule, all business trusts are considered either disregarded entities (one beneficiary) or partnerships (two or more beneficiaries) (2).” When using a business trust for a self-directed IRA, the IRA becomes the sole beneficiary and thus qualifies the trust as a “disregarded entity.” In contrast, using an LLC that qualifies as a “disregarded entity” isn’t guaranteed both federal and state tax filing exemptions. In California, LLCs are required to file state taxes regardless of entity status. Using a business trust owned self-directed IRA can save on these costly and time consuming tax filing requirements.

Maintain Confidentiality

A business trust self-directed IRA allows investors more confidentiality. Unlike an LLC, where the agent’s name must be kept in public record, a business trust keeps the trustee name confidential. Some states also require the LLC agent’s address be included in its Articles of Organization. Unfortunately, in Nebraska, Arizona and New York LLCs are still required to give public notice in local publications. With a business trust, IRA owners can enjoy anonymity. Investors can establish their business trust and enjoy self-directed privated investing all in one online platform. No leaving home or filing public documents required.  

Forming Your Business Trust

Like an LLC, forming a business trust begins with drafting required legal documents. For a business trust, the starting point is the Declaration of Trust. This document is similar to an LLC’s articles of incorporation in that it defines the nature or purpose of the trust. The rights of the trust beneficiary and who is named trustee are all critical to obtaining the benefits mentioned above. We can help ensure accuracy and position investors like you for maximum cost savings and tax benefits. We also streamline the self-directed IRA setup process, including business trust formation.

Stay Compliant

We’ve discussed some of the benefits of using a business trust for a self-directed IRA. These benefits all lead to time or money savings and increased confidentiality. However, structuring a business trust for a self-directed IRA is a detailed process. Several of the compliance requirements you’d find with an LLC and basic custodian managed self-directed IRAs still apply. We’ve developed a wealth of expertise when dealing with these compliance concerns. We can help you form your business trust owned self-directed IRA and provide further consultation on plan structuring and IRS regulations. Call us today at (425) 449-4554 for a consultation.
Sources:

1. California FTB Says RIC Business Trusts do not Owe Minimum Franchise Tax
2. Dealing with ‘Check-the-box' Regulations

When you have an individual retirement account (IRA), you may believe your investments are protected. After all, if you are not a doctor, corporate executive or professional in a litigation-prone field, you may feel there is little that could cause you to lose your assets when it comes to investing.

Are My Assets at Risk?

Unfortunately, there are a lot of ways in which your assets, IRA-related or personal, can be at risk. Filing for bankruptcy, divorces, and civil lawsuits are all possible ways to lose your assets. In fact, if your minor causes a car accident, you will likely be the one to pay the price. You are also considered at fault even for accidental injuries that occur on your property, like a slip and fall.

Protecting Your Investment Assets

Fortunately, there are state and federal laws that enable you to protect many of your assets from certain types of situations.

• IRA Protections: Whether you have a traditional or Roth IRA, you have certain inherent protections. In particular, the contributions and gains in your IRA are protected from bankruptcy proceedings through an inflation-adjusted cap. In other words, up to $1 million of your IRA funds can avoid bankruptcy judgements and remain in your account. If your contribution steps from the rollover of a qualified plan, like a 403(b) or 457(b), they are completely protected, regardless of amount.
• Qualified Employer-Sponsored Plans: Plans that are employer-sponsored, like SEP and SIMPLE IRAs, are exempt from bankruptcy garnishments as well. If your plan is also subject to the Employee Retirement Income Security Act (ERISA), it is protected from any case that may award your assets to another party.

Business Trusts: Protection that Goes Deeper

Additional asset protection is a smart way to further ensure your property and finances stay in your hands, regardless of the legal situations occurring in your life. To do this, most financial advisors recommend you create a legal entity, of which you are the manager or trustee, through which you invest your IRA funds. This IRS-approved strategy separates your personal assets from those owned by your trust.

Full Confidentiality

When you form a business trust, there is no legal requirement to publicly file. The trust agreement, also referred to as a Declaration of Trust, can remain private. There is also no automatic publication of the trustee’s name, ensuring your identity remains private as well. This is important because it allows you to prevent creditors and lawyers from easily identifying your full net-worth should a lawsuit be filed against you.

Disregarded Entity

For federal and state income tax purposes, a business trust is classified as a partnership. However, partnerships that have a sole owner are “disregarded as an entity separate from its owner.” Once this occurs, the entity becomes exempt from filing federal income taxes. As a business trust, vice a LLC, earnings are also exempt from filing state income taxes as well.

 

We’ve already went over the finer points of Bitcoin investing using a self-directed IRA. However, cryptocurrency is such a new retirement investment that even those with prior experience face questions. Today, we’re answering three major questions in this handy Q and A guide. Don’t let your questions stop you from this whole new digital world of investment potential.  

Question 1: Is Cryptocurrency Investing With a Self-Directed IRA Allowed?

The short answer is, yes. The only types of investments the IRS specifically forbids is collectibles and life insurance. However, the IRS doesn’t specifically list cryptocurrencies as an alternative investment. But this shouldn’t cause concern, as the IRS has been historically hesitant to endorse investments, as this can backfire later on.

Question 2: What Entities Are IRS Approved to Administer My IRA?

Just like real estate or other alternative investments, cryptocurrency must go through a custodian administered self-directed IRA. With this structure, you’re handing over a transaction fee and access to your cryptocurrency wallet PIN. This risks safety and increases administrative cost.
Another option is to invest using an LLC as an extension of the IRA. This gives you "checkbook control" over your investment funds, since you become the manager of the LLC. However, like an LLC for any other purpose, it requires legal work to establish. Plus, you have to establish a checking account to link with the LLC. Lastly, investor confidentiality isn't maintained since LLC agents must have their names filed with state records. We eliminate some of these pain points by establishing an IRA linked trust, where you as the trustee gain immediate access to Bitcoin and other cryptocurrency investments.

What Factors Influence Cryptocurrency Prices?

We can examine this question using Bitcoin as an example. According to Arthur Hayes, CEO of the BitMex cryptocurrency exchanges, Bitcoin prices can reach $50,000 in 2018. Here are some price factors to consider:

• Remember Bitcoin’s limited supply of 21 million units. When that limit approaches, prices are expected to soar as supply becomes limited.
• Understand Bitcoin’s unique features and how they can impact growth. As an open source program, expect rapid and sometimes unexpected changes. Also, Bitcoin relies on a huge community of Bitcoin miners. Their actions can positively or negatively impact prices.
• Expect Bitcoin’s adoption rate among merchants and rival cryptocurrencies to influence prices.
• Stay up-to-date on critical IRS decisions. The IRS already established that profits from IRA owned Bitcoin sales aren’t taxed at the time of those gains. Instead, they are taxed at the time of retirement. Further favorable regulations can spur Bitcoin demand and prices.
• Expect world-wide regulations to cause volatility. When Japan accepted Bitcoin as legal tender,  global prices rose by 160 % over the next few weeks. In contrast, when China banned initial coin offerings prices went down nearly 30 % over a day.

Streamline Cryptocurrency Investing

We’ve answered some important questions regarding regulations, pricing factors and how to structure and administer your self-directed Bitcoin IRA. We can answer more of your questions and walk you through our online platform, which streamlines the entire setup and investing process. Contact us today if you have additional questions.

Rolling your IRA over into a self-directed IRA isn’t for everyone, but those who take the time and effort to oversee their investments can cash in on a number of benefits that others can only dream of. Here, we’ll review some of the pros and cons of using your self-directed IRA for investing.

Pro: Self-Directed IRAs Allow for Tax-Free and Tax-Deferred Status

Traditional IRAs typically allow for a few very safe, very low-yield options. But one of the major benefits of an IRA is that it allows you take advantage of a special tax status. Roth IRA’s, for instance, allow your investments to grow tax-free. Non-Roth IRAs are tax-deferred (for example, you only pay taxes once you begin cashing in on your IRA). With Roth IRAs, the taxes are paid beforehand on deposit.

Roth IRAs are an excellent opportunity to store lucrative investments for your retirement. In addition, with a Roth IRA, there is no set age at which you are absolutely required to begin taking withdrawals. Roth IRAs are thus a great place to store investments.

Con: Self-Directed IRAs are More Costly than Traditional IRAs

While this may be a con for some, the truth is that you can make a lot more money with a self-directed IRA than you can with a traditional IRA. The catch is that yearly fees are more expensive, and they cost more to set up.

Pro: IRAs are Generally Safe from Creditors

IRAs are some of the safest places in which to store assets. While individual laws will differ from state to state, IRAs are technically considered trusts making them very difficult to sue and even immune to bankruptcy.

Con: IRAs are Complicated and Subject to Regulations

The legalities of using an IRA as an investment bucket are subject to regulation. That is the price paid for having preferred tax status. Self-directed IRAs offer you a lot more options in terms of what you can invest in, but there are some restrictions. For instance, you can’t fund your own or your family’s business with your IRA account. You can, however, invest in businesses in which you don’t have any active involvement.

Pro: Self-Directed IRAs Give Your More Options and More Control

For obvious reasons, this is a bit of a mixed blessing. You can save more money for your retirement by investing in ventures with higher yields, but you also have to do your research and keep on top of how your investments are performing.

Just a few of the interesting things that you can invest in with a self-directed IRA that a traditional IRA would not allow for:

• Gold and silver
• Cryptocurrencies and ICOs
• Business equity
• Real estate
• Mortgage notes
• Commodities
• Hedge funds
• Natural resources
• Land

Basically, rolling over your IRA to a self-directed IRA allows you to invest in anything that is legal to invest in. It’s a great opportunity for those that want to take control of their future, and enjoy the tax benefits of their retirement account.

Real estate has been a popular investment over the last 50 years. Today, many investors are choosing the self-directed IRA as a vehicle for their real estate investments. There are a ton of resources on the tax benefits and compliance guidelines associated with this type of investment. However, some valuable information can get lost amidst those lengthy resources. I’ve highlighted some of this overlooked information in this handy do’s and don’ts guide.  

Self-Directed IRA “Do’s”

Use Trusted Self-Directed IRA Custodians and Services

This may seem like a no brainer, but the sheer amount of funds in IRAs make it a target for scammers. Also, the advantage of tax deferrals can turn out to be a curse. I’ve seen scammers use this as a lure to keep investment funds under their fraudulent activity for decades. A legit self-directed IRA custodian should be IRS approved and use safety protocols to secure your financial information. We set-up self-directed IRAs for real estate and other private investments, using an FDIC insured IRA trust. Our online platform uses Amazon’s trusted Web Services and our servers our audited regularly.

Compare Administrative Cost

The obvious costs to watch out for are recurring fees. For the typical self-directed IRA, these include a transaction fee on each asset sale or purchase. Transactions on real estate assets can incur even higher transaction fees. There are also some lesser known costs. The IRS requires real estate in a self-directed IRA to be valuated annually. Getting this valuation can be costly. A common pain point investors cite in IRA real estate investing is lack of transparency around costs. We provide a clear, cost-effective method of real estate investing with your self-directed IRA.

Self-Directed IRA “Don’ts”

Give Up Too Much Control

Self-directed IRA real estate investments can go through custodial delays. Mailing forms and transferring funds can take time and are subject to external factors. These extra layers of administration mean less control for the self-directed IRA owner. We provide real-time access to your funds, giving you more control over your real estate investments.

Limit Your Investment Options

Portfolio diversification is what attracts several investors to a self-directed IRA. Real estate, in particular, takes this advantage even further since there are so many different types of real estate. We’ve seen investors enjoy high yield returns on a variety of assets from raw land to condos. Mortgage notes and other lesser known real estate investments are often overlooked, but can also help with diversification.

Start Investing Today

A self-directed IRA for real estate is a good way to diversify your retirement portfolio. However, using a trusted and cost-effective service is important. Gaining checkbook control over your account and accessing a diverse variety of private investment options are equally important. Our online platform meets all these investor needs. We can help you set up a self-directed IRA for real estate and other high-yield investments. Contact us today at (425) 449-4554 for a consultation.

Self-directed IRA real estate is among the most popular alternative assets. However, it’s not for everyone. We’ve already given you a helpful overview of what a self-directed IRA for real estate investing is. Below is a closer look at the pros and cons of this type of investment. Read on to find out if this growing investment option is right for you.

Pros

Higher Returns

Real estate as a non-traditional asset can lead to higher returns. According to Investopedia: “Real estate has outperformed the stock market approximately two to one since 2000, earning 10.71% annually versus 5.43% for stocks (1).” This is not always the case. However it can explain why according to a 2014 Morgan Stanley Survey, real estate is the most popular alternative asset class among millionaires (2).

Tax-deferred Gains

Real estate investment gains are tax deferred. When real estate is purchased outside of a self-directed IRA, gains are taxed at the federal and sometimes state tax level. In contrast, gains on self-directed IRA real estate are taxed when those funds are withdrawn. This can occur after decades of unhindered growth.

Control and Stability

Unlike traditional IRAs, a self-directed IRA real estate investment can be more familiar and manageable. Global conditions and political factors often increase the uncertainty of stocks. Real estate as a physical and often local asset offers a more manageable alternative. Plus, when combined with checkbook control through an LLC or business trust, transactions aren’t subject to administrative control from a faraway custodian.  Investing can be as easy as writing your own personal check.

Cons

You Must Do Your Own Due Diligence

A self-directed IRA doesn’t include a separate entity who will perform due diligence on each transaction. The custodian’s role is as a “passive custodian.” She may have real estate investing experience, but this doesn’t mean that your investments are vetted. We can help simplify self-directed IRA access to real estate and other private investments, so you can focus on performing your due diligence.  

You Must Learn Complex Rules and Regulations

A common mistake when dealing with this particular form of investment is “self-dealing.” This includes any transaction that unfairly benefits the owner of the IRA or any of her family members. Examples include renting out an IRA owned rental property to a child or paying yourself for rental property management. A mistake like this can lead to a taxable event or even worst jeopardize the status of your IRA.

A Streamlined Self-Directed IRA Approach

The self-directed IRA real estate investment can offer high returns, tax deferrals and an increased sense of control over investments. However, these benefits come with a responsibility to complete due diligence on all transactions and be aware of “self-dealing” rules. We’ve streamlined the self-directed IRA investing process so that you can focus on these responsibilities. Contact us today for more information.

If you’ve ever wondered how far your self-directed IRA can stretch, the answer is probably further than you think. The answer is also probably different than you’re expecting. IRAs can be passed from one generation to the next enjoying tax-deferred status and accruing value the entire time.
This strategy, known as an IRA stretch, allows generation after generation to accumulate capital using an IRA established by the previous generation.

What is a Stretch IRA?

A stretch IRA does not refer to any specific kind of IRA. Rather it’s a strategy that allows an IRA to enjoy its tax-deferred status longer than it normally would. By stretching out the life of the IRA, the funds attached to the account are given decades to accumulate wealth. By contrast, a traditional IRA requires that the holder of the account take the required minimum distribution (RMD) by the time they turn 70 ½.

The RMD is determined by dividing the total value of the account by the number of years left in the average person’s life expectancy. So if there is an account worth $100,000, and an individual’s anticipated life expectancy is 85, the RMD would be 100,000 ➗ 15 at 70 years old.

The IRS provides a “Uniform Lifetime Table” to come up with the life expectancy number. Those who inherit the IRA would be expected to do the same thing, although the rules differ depending on whether or not the heir is a spouse.

How Do You Implement a Stretch IRA?

There is a simple and brilliant solution to making the most out of an IRA. As we said before, the IRS comes up with a table to determine the yearly payout for an IRA based on the life expectancy of the beneficiary. The younger the beneficiary, the smaller the yearly payout. While this number is recalculated each year, it will remain considerably lower for a younger beneficiary. In many cases, the annual tax-deferred gains on the IRA will exceed the yearly benefit.

Stretch IRAs and Other Considerations

Not every IRA plan will allow the holder to stretch out the IRA in this manner. It’s best to check with a financial advisor before implementing the stretch. If you want this idea in your back pocket, you’ll need to set up an IRA that allows the stretch strategy. The best choice for some in this situation is a Roth IRA because distributions are themselves tax-free. Other IRA distributions are considered as ordinary income and thus subject to taxes.

Future legislation may pose a threat to stretch IRAs. There has already been legislation proposed that would do away with the “loophole” that allows IRAs to grow tax-deferred from generation to generation. On the same token, the Supreme Court ruled that inherited IRAs did not constitute “retirement funds”, but general income.
So whether or not the stretch strategy will be there in the coming years remains uncertain.

But for the time being, those that are in a good spot for their own retirement have the option of naming the youngest member of their family the beneficiary of their IRA to allow it to grow tax-deferred for another generation.

It’s hard to think of a lot of good reasons to tap into your retirement fund before it’s matured and you’ve hit the ripe old age of 59 ½. This is because you’ll incur a 10% penalty and that money will be immediately subject to taxes.
There are, however, certain instances in which an individual can withdraw money from their IRA without incurring the standard penalty.
The Taxpayer Relief Act of 1997 made it possible for folks to raid their IRAs under certain circumstances. Here, we’re going to discuss a couple of those circumstances. Money from your IRA can be used toward the purchase of a new house or even to pay off a mortgage on a house you already own. Under the right circumstances, that money can be withdrawn without penalty and retain tax-privileged status.

Incentives for First-Time Home Buyers

One good reason you might want to raid your retirement account is if you’re a first time home buyer. The IRS offers a number of incentives for first-time buyers, and one of them is a withdrawal of up to $10,000 without penalty. You’ll, of course, need to use that money to buy your first home, but so long as your paperwork is in order, the IRS won’t be beating down your door.
In order to be considered as a first time home buyer, you must (obviously) have not owned a home within the last 2 years. Nor can you have had, within the last 2 years, a financial interest in a home. So if you owned a home 3 years ago, it’s possible you can still qualify as a “first-time” homebuyer. In addition, your spouse is also allowed to withdraw $10,000 from their IRA.
Rules can differ depending on the kind of IRA you have. For those that have a Roth IRA, the money can be withdrawn tax-free because taxes have been paid on deposit. But you’re still on the hook for the 10% penalty for raiding the IRA early. That is, unless, you’re using the money for a first-time home purchase. If the Roth IRA is at least 5 years old then the withdrawn earnings themselves are also tax-free.

Using Your IRA for Mortgage Relief

Another good reason for tapping into your IRA early is medical hardship. For an individual who has gotten behind on their mortgage payments, the IRS makes a concession on a withdrawal so long as it can be shown that there is a serious medical condition that is preventing them from working.
In order to do that, an individual will have to meet very specific requirements. Namely, a physician must declare that you are unable to currently work due to either physical or mental disability.

The Bottom Line

For obvious reasons, the best-case scenario for any individual is not to raid their IRA simply because they need the money for a house or a mortgage. Nonetheless, it’s possible, under the right circumstances, to use that money without incurring the 10% penalty early withdrawal penalty.
Before doing this, however, you should contact an advisor and ensure that all of your ducks are in a row with the IRS.

Your individual retirement account (IRA) is a carefully crafted nest egg. If you have a self-directed IRA (SDIRA), you assume complete control over every aspect of your account. Each contribution, whether you made it pre- or post-taxes, is an investment you make in your future. Every buy or sale is a carefully crafted trade that took time, effort and money.

Although you may take risks related to your investments, did you know there were other dangers that may end up depleting your funds and impacting your future financial security? At Royal Legal Solutions, we understand how devastating it can be to lose your assets regardless of the reason. Below, we look at how setting up a business trust may be the best way for you to protect your investments.

Why Would My Assets Be At Risk if I Invest?

There are certain professions that are considered to be litigation-prone. Doctors, corporate executives and other such professions fall into this category. However, that is not the only way in which your assets, personal or IRA-related, can be put at risk. Claiming bankruptcy, going through a divorce, or being the defendant in a civil lawsuit can all result in the loss of your assets. As a parent, if your child causes another’s injury – you are liable. In the case of a car accident, injury on your property, or wound aboard your boat, the resulting lawsuit could financially ruin your net worth.

Asset Protection: Inherent Defenses

While your assets can be put at risk through any of the above, state and federal laws do exist that provide some level of protection. For IRAs, both contributions and gains up to $1 million are protected from bankruptcy proceedings. Qualified employer-sponsored plans, such as SEP and SIMPLE IRAs, are also protected from bankruptcy. For plans that are subject to the Employee Retirement Income Security Act (ERISA), your assets are protected from bankruptcy and all other forms of litigation.

Business Trust vs The LLC

Most experts, however, recommend you consider further protecting your assets through the establishment of a business trust or a limited-liability company (LLC). Creating a legal entity that acts on your behalf for investments is a protective trading strategy. (Yes, the Internal Revenue Service (IRS) allows for this type of strategy.)

There are many benefits related to using a business trust or LLC. Business trusts, however, go beyond the protections afforded by a LLC.

The Protection of Privacy

There is no legal requirement that forces you to publically file your business trust. Your Declaration of Trust, which is your trust agreement, is also private. Trustee names, addresses, and other personal information related to your business trust are all considered private and protected from automatic publications as well. This is not true for LLCs. In fact, when an LLC is formed, not only does the Articles of Organization have to be filed with the Secretary of State where you are located, but your name and address must be as well as the manager of the business itself.

The Reduction of Personal Liability

When you use a business trust to invest, all investments and gains acquired under that entity are legally separated from your personal assets. This is beneficial for two reasons. If you use your business trust to invest in a property and default on the loan, this separation will protect your personal assets from any sort of legal ramifications. On the other hand, if you file for personal bankruptcy, your business trust assets are protected from the proceedings. LLCs, on the other hand, have limited personal liability. Furthermore, these protections are only active for as long as your LLC remains in compliance with regulations. All annual filings, fees, and requirements must be made or you lose this protection and invalidate the separation of assets.

A Simple Establishment

A business trust is relatively simple to set up. They have no set up fees or annual feels related to their formation. Because they do not require public filing, they are not subjected to approvals, registrations or other things that can cause set up to take time. By comparison, setting up a LLC is a bit more complex. LLCs require name reservations, application approvals, and waiting periods. They also have somewhat costly government filing fees that are required during start up and annually (or biennially). LLCs are also required to file reports with the Secretary of State per their state’s statute. When all is said and done, an LLC can take one to three months to officially complete the approval process and become a legal entity you can use for investments.

Filing Taxes and a Disregarded Entity

Both business trusts and LLCs allow you to file taxes as a partnership or corporation. However, a business trust also allows you to file as a trust. A LLC will permit personal filing. When your business trust or LLC is filed as a partnership, they are required to file federal and state income tax returns. However, when a partnership consists of only one owner, they can be “disregarded as an entity separate from its owner.” When this occurs, the entity will not need to file certain income tax returns. For business trusts, being a “disregarded entity” means you will not have to file a federal nor a state tax return. For LLCs, however, most states will still require you to filed income tax returns.

Foreign Jurisdictions

One of the most common SDIRA strategies is to invest in real estate. For LLCs, if you invest in properties that are outside your state, you will need to file your company with that state and go through the establishment requirements before you can proceed. You will likely need to hire an agent in that state to act as the manager on their behalf as well. Business trust investments are exempt for this process and any related fees.

Make Business Trusts Work for You

Royal Legal Solutions knows every penny counts when it comes to your future. As experts who specialize in SDIRAs, we can help you with setting up a business trust that works for you. We know the regulations and how to make sure they foster your financial growth instead of taking from it.

Real estate is a hot investment for all the right reasons. Housing markets across the U.S. have caught fire in the past five years and while mortgage rates remain low, banks are much more cautious about who qualifies. With inventory low and demand high, real estate represents a great investment not only for homeowners but for those seeking to rent the properties as well. Indeed, some of the investment opportunities involve upscale apartment complexes that cater to young professionals.

But many are wondering how they can break into these investments. One possibility involves using your IRA.

Self-Directed IRAs

Most IRAs are set up around a handful of mutual funds. They’re very conservative investments that offer minimal returns but aren’t likely to lose value either. In other words, they're safe.

Another option that real estate investors love involves rolling over the traditional IRA into a self-directed IRA. Self-directed IRAs (SDIRAs) offer far more choices for investment, including real estate.

Not only can you use your SDIRA to invest in residential and commercial real estate in the United States, but you can also invest in foreign properties. There are plenty of reasons to invest in property, aside from the potential profits.

Using Real Estate to Fund Your IRA

One of the major upsides of this approach is that the income generated by real estate can be added to your IRA without being taxed. The one caveat there is neither you nor a loved one can directly profit from it.

Here, the use of non-recourse loans can be beneficial. A non-recourse loan is a loan that is not guaranteed by anyone. There are a number of reputable non-recourse lenders. These loans allow an investor to purchase a property with 35% of the money down. For the price of one property, an investor can purchase three and use the income from that property to pay off the remainder of the debt. While it takes a bit of a hands-on approach to accomplish this, the gains are usually superior to more conservative investments like mutual funds. This allows investors to buy up more properties using their IRAs than they would otherwise be able to.

Real Estate Investments for Those that Don’t Want to Deal with Tenants

So you don’t want to deal with tenants. Fair enough. There’s another option that is available that allows you to still cash in on the thriving real estate market. Essentially, you can pool your IRA money with other investors who furnish private loans to those who do. These individuals are responsible for vetting the property, making the necessary repairs and renting it out to tenants. This strategy allows you to earn a passive income while cashing in on a fantastic real estate market.

Your individual retirement account (IRA) is a great way to invest in your golden years. An IRA allows you to invest in stocks, bonds and mutual funds, often in a tax-deferred setting. If you decide to invest in your future through a self-directed IRA (SDIRA), you can diversify your portfolio even more. The professionals at Royal Legal Solutions have the experience to help you avoid legal mistake that could be costly. If you decide to invest in real estate through your SDIRA, below are a few tips you may want to consider or speak with your IRA manager about.

Understanding the SDIRA Hoops

While SDIRAs come with much higher potential gains, they do have several hoops you need to jump through first. The Internal Revenue Service (IRS) has several regulations in place to ensure your SDIRA gains are made fairly and legally. Because the IRS requires SDIRA owners to conduct their investments through a custodian or trustee, making sure you hire a professional, experienced and specialized firm is vital.

A Required Separation of Entities

The IRS mandates that your SDIRA real estate investment cannot, in any way, have your name on it. By creating a separation of entity, the IRS prevents owners from taking advantage of real estate-related tax breaks, such as “Like Kind” exchanges and depreciation exemptions.

The Use of Non-Recourse Loans

The IRS also dictates the types of loans you can use for your SDIRA real-estate investment. In fact, it outright limits you to the use of non-recourse loans only. Non-recourse loans are those that list only the investment property as collateral. While there is no way to recover the funds if you fail to pay on your loan repayment, a non-recourse loan protects you from the lender in the case of a default. Using a non-recourse loan means the lender cannot pursue other funds contained in your IRA or personal bank account to collect on the defaulted balance. (However, you will be unable to retain the property should you default; this makes the risks much higher if you are unable to afford the repayment sum.)

Avoid Disqualified Individuals

The IRS does not allow you to invest in property that you or other disqualified individuals own. Known as “self-dealing,” the IRS views this as a means of taking advantage of your real-estate investments. Disqualified individuals include your parents, siblings, and children. If you are married, it also extends to your spouse and their parents.

More on Non-Recourse Loans

Creating a separation of entities and avoiding disqualified individuals are typically actions that you and your custodian can handle upfront. However, the non-recourse loans require a bit more of an understanding. When you use your SDIRA to invest in real estate, taking out a non-recourse loan means you will not be held personally responsible for repaying it. It is your IRA that must make those payments directly as it is considered the borrower instead. Non-recourse loans typically have a much higher loan-to-value ratio (50% to 70%). In the case of a default, the higher interest rates associated with this will help to ensure they recover more of their investment.

Talk to a Professional Today

At Royal Legal Solutions, our experts have the professional experience to help you make legal decisions regarding your SDIRA. SDIRA real estate investments can be complex and involve more regulations than a typical IRA account. From avoiding accidental illegal activities to helping you find the best lender for a real estate loan, our custodians can help you make the most of these high-risk accounts.

For those that have taken the plunge and rolled their IRA over into a self-directed IRA, a number of investment options are now at your fingertips. The question then becomes: what should you invest in? While the answer is going to differ depending on your own personal interests and acuities, these are some of the most exciting options available.

#1. Real Estate

Real estate is hot right now and the market for the right kind of investor is fantastic. It’s going to take a willingness to get your hands dirty. There are a number of dilapidated or run-down properties that are not up to rental codes all across the country. But the property itself has never been more valuable. Anyone willing to restore the property to livable conditions can make a killing flipping it or renting it out.

IRA money can provide the starting capital to do this, especially when combined with a non-recourse loan. Non-recourse loans require that you only provide 35-50% of the money down. A savvy investor can use that to stretch their IRA capital across multiple properties.

#2. Business Equity

Investors looking to purchase equity in a business can make excellent returns to fatten their IRA. The one restriction is that the business must be a completely separate venture from yourself and certain family members. That also means that there are restrictions on your personal involvement in the business. You may also be required to pay UBIT (unrelated business income tax). You’ll want to make sure that a financial advisor or lawyer oversees the legalities, but a number of individuals are using their IRA to successfully invest in business equity.

#3. Private Lending for Real Estate Ventures

Any means of jumping on the real estate bandwagon right now is a smart move. This is largely because there is such a huge demand for housing and rental properties. It remains a huge need for many areas, so even those that aren’t willing to deal with restoring the properties themselves, overseeing the repairs, or dealing with tenants can still make a good amount of money simply lending to those who will.

#4. Cryptocurrencies

Despite their reputation for volatility, many believe that cryptocurrencies are the wave of the future. The reason for this is that the distributed ledger technology on which they are based provides a decentralized approach to preventing counterfeiting. While most cryptocurrencies are tied to the relative success of Bitcoin, many others are attempting to fix the many serious problems that Bitcoin has. Investing in these ventures through ICO’s is a high-risk high-reward prospect that, if successful, will pay off major dividends.

#5. LLC Shares

Investing in shares of LLCs provides an excellent opportunity for passive income. Again, it’s a matter of doing the research and vetting the company, but for those that want to take a hands-on approach to their IRA, it also provides an excellent opportunity to see steady returns. You’ll want an attorney to take a look at the operating agreement so that it doesn’t conflict with federal restrictions on IRAs, but if set up properly, it will give you the opportunity to earn a solid passive income.

At Royal Legal Solutions, we stay on top of all investment trends. One of the fasted growing trends today related to cryptocurrencies. Let’s take a look at this often confusing topic.

What is Cryptocurrency?

Cryptocurrency, in particular Bitcoin, was invented in 2009 created by Satoshi Nakamoto. In its most simplistic form, cryptocurrency is considered to be a digital currency that is used in virtual exchanges. While there are many types of cryptocurrencies available today, the most common to be used is Bitcoin. Bitcoin uses cryptography as a means of securing and verifying transactions. Cryptography is also used to control the creation of Bitcoins, and other digital currencies, through virtual databases that permit changes only when very specific conditions have been fulfilled.

Does the IRS Allow for Cryptocurrency Investments?

Current laws do not prohibit the use of cryptocurrencies. In fact, tax regulations from the Internal Revenue Service (IRS) do not dictate what you investments you can make with your retirement accounts, within the scope of allowable categories. (For example, your individual retirement account allows for investments into anything that could be considered stocks, bonds or mutual funds. Other types of retirement accounts allow for further options as well.) They do however prohibit two very specific types of investment activities:

• Life Insurance
• Collectibles

Cryptocurrencies clearly do not fall into the life insurance category. With names like “Bitcoin”, there was some initial confusion regarding the collectibles classification. Because it is digital, and based on a 2014 notice from the IRS, rest assured that cryptocurrencies do not fall into the collectibles category either. Instead, the IRS identifies them as property, which is allowable under certain IRA plans.

Self-Directed IRAs and Cryptocurrencies

Cryptocurrency gains are well documented and come with potentially high-returns for your IRA. By turning a portion of your self-directed IRA (SDIRA) portfolio into a cryptocurrency investment is a modern way to further diversify your investments. (Please note, because cryptocurrency is still considered a fledgling investment, only a small percentage of your portfolio should be converted to help decrease risk and protect your net worth.) When it comes to taxation on your cryptocurrency investment, IRS property regulations apply. That means that investing in, through buys or sales, cryptocurrency will not prompt unrelated business income taxes or other similar taxes.

Find a Custodian

IRS regulations require the use of a custodian or trustee for a SDIRA. While you retain control of your SDIRA, the custodian can help you facilitate exchanges at your request and ensure you do not violate any tax codes while doing so. However, because of the complexities of such a new investment capital, not all firms will allow these kinds of investments. Finding a trusted and knowledgeable custodian will go a long way in simplifying your cryptocurrency conversion and investment process. The experienced professionals at Royal Legal Solutions can help. Not only have we worked with investors new to the cryptocurrency scene, but also we have extensive experience with SDIRA custodial services in general.

Cryptocurrency investments may not be for everyone. However, the experts at Royal Legal Solutions can help explain how they work as well as what options are available. Ultimately, the decision to invest is up to you as the account owner, but we are here to help you gain a better understanding of investment opportunities and the regulations you need to know before investing.

One hundred thousand dollars is a nice sum to have in your IRA, but let’s face it. It doesn’t go as far as it used to, and it’s likely to stretch even less by the time you’re ready to retire. Often the returns on conservative investments such as CD’s, money markets, and bonds barely outstrip the rate of inflation. Inflation provides a constant pressure on the value of your money, so it ends up being that if it’s not making a decent return, you’re actually losing money. For savvy investors, using their IRA creatively can result in huge returns.

Self-Direct Your IRA

Self-directed IRAs are becoming increasingly popular and for good reason. They provide IRA holders with numerous options and open up investment opportunities that traditional IRAs can’t. At the same time, they provide a unique advantage: IRAs are tax-deferred.

How can you turn your IRA into a serious investment vehicle?

There are a number of custodians that specialize in self-directed IRAs. It will cost more than a traditional IRA, but on the same token, it provides you with unlimited investment opportunities on which to cash in. In other words, it’s an expenditure that can show huge dividends.

So the first step is rolling your current IRA over into a self-directed IRA.

What Can You Do With More Control over Your IRA?

One of the best options available right now is real estate. In terms of houses, most folks know that it’s a seller’s market. But rental properties are appreciating in value as well. In fact, many housing markets are currently failing to meet the demands of renters. It’s a huge opportunity for developers, but it’s also a huge opportunity for individuals that are willing to renovate dilapidated properties.

This affords different kinds of investors different kinds of opportunities, and IRAs can provide the starting capital on which to make that journey.

One possibility that is often overlooked: non-recourse loans. These can be used to purchase a property with somewhere between 35%-50% of the money down. This allows those without $100,000 in their IRA to invest in a decent property or those with more to invest in several. Either can use the money generated by rent to pay off the remainder of the loan.
Alternatively, those that are looking for a passive way to earn can use the money to furnish real estate investors in the purchasing of property that can then be renovated and rented out.

Real estate is a hot market right now because the demand is higher than supply. Fixing up properties that have fallen into neglect is an opportunity to cash in on a market that has shown great performance over the past few years.

Investing in an Individual Retirement Account (IRA) is a great way to start saving for your golden years. Whether you are interested in a Self-Directed IRA (SDIRA), 401(K), or other IRA plan, investment professionals at Royal Legal Solutions can help. Below is a list of the most frequently asked questions we receive from people looking to learn more about investing in their future.

General SDIRA Questions

While SDIRAs have been around for decades, they are not the most well-known means of saving for your retirement. As a firm that specializes in SDIRAs, Royal Legal Solutions is here to help you understand how these types of investment accounts work.

How is a SDIRA different from other retirement plan options?

IRAs, 401(K)s, and SDIRAs are all used to earmark funds you intend to use during your retirement. At their core, each is a vehicle that is used to promote savings and investments that become available to your upon retirement. The majority of these accounts allow for unhindered growth as the invested funds and their earnings are generally tax-deferred. Each allows for investments in publicly traded securities and derivations of them, including stocks, bonds and mutual funds. However, that is where a SDIRA distinguishes itself. SDIRAs allow you to invest in much more than that. These alternative assets, like real-estate, precious metals, and renewable energy, allow for you to have a much more diverse portfolio. IRAs and 401(K)s are typically held at banks, insurance companies, or general investment firms and managed primarily by investment professionals.

Investment firms that offer custodial management of your SDIRA, on the other hand, tend to specialize specifically in these types of accounts. Also unlike IRA and 401(K) accounts, you control every aspect of your SDIRA. The investment professionals who retain custodial-only access are simply there to ensure you do not unintentionally break rules set out by the IRS.

What is the typical timeline to open a SDIRA or 401(K)?

At Royal Legal Solutions, opening a new SDIRA or 401(K) is easy. On average, the account process can take between two days and three weeks. The main drivers that dictate this timeline are how you plan to fund your account and, if you have a current retirement plan, who the custodian is. Our investment professionals strive to make this process as easy and quick as possible. We know every day it takes to set up your account is another missed opportunity to grow your finances.

Does having a SDIRA make me more likely to be audited by the IRS?

Currently, the IRS cannot legally target taxpayers for audits based on the type of investment accounts they have. In 2015, the IRS began asking for additional information on IRA reports in the form of Form 5498. However, because not all investors digitally submit their reports and the IRS cannot presently support manual submissions, targeting SDIRA owners would be considered a discriminatory practice. While this may change in the future, a SDIRA will not trigger an audit.

My current CPA believes there is an incurred 39% tax if I switch to a SDIRA and has warned against doing so. Is this true?

Your CPA is likely not as familiar with the SDIRA process as a specialized firm would be. They may also be under the assumption that you are attempting to take an early distribution from your current IRA in order to fund your SDIRA. This is untrue. Opening a SDIRA is typically considered a custodian-to-custodian transfer of your current IRA. Because of this, the startup process and investments are non-reportable and non-taxable.

Funding My IRA

IRAs, the tax regulations that govern them and investment complexities can give anyone a headache. Our professionals are here to help make sure your IRA experience runs smoothly.

Can I claim all of my IRA contributions?

You can contribute to your IRA account. However, if you have an IRA account through your employer, you may not be able to deduct the total of your traditional IRA contributions due to IRS threshold constraints. The investment professionals at Royal Legal Solutions can work with you to help determine the best way to save you money while investing in your future.

How can I transfer funds into my new account?

There are two ways to roll funding between your accounts. For a non-taxable and non-reportable option, you can elect to make a direct custodian-to-custodian transfer from your old account to your new one. You may also opt for a distribution-and-rollover transfer. These events are reportable, but are not taxable when the old funds are rolled into a new account within 60 days of distribution from the previous custodian.

How long does a transfer take?

For the custodian-to-custodian option, a transfer may take between seven and twenty days. If you are considering a distribution-and-rollover method, it only takes a couple business days for your bank to transfer the distribution to your new IRA.

How do 401(K) rollovers works?

We will provide you with the necessary information you need to initiate a 401(K) rollover. As the plan owner, you must provide this information to your plan administrator to start the rollover process.

What is the difference between an indirect and direct rollover?

Indirect rollovers occur when the funds from your current plan are distributed directly to you. A 20% tax withholding fee will be taken from your total by your administrator. Once you deposit your distribution, you have up to 60 days to invest any percentage of those funds into your new IRA or 401(K) without an additional penalty tax. Direct rollovers bypass these taxes. With these, your current administrator issues your funds directly to your new plan.

Managing My IRA

Whether you are new to investing or just want expert assistance, Royal Legal Solutions keep our costs affordable to ensure your investment funds go where they are supposed to: towards your future.

What rules apply to an LLC I invest in?

If your investments include owning a percentage of an LLC, all transaction must meet IRA guidelines. When LLC returns are distributed to investors, including you,  they need to be issued at the same time and pro-rata.

How much can I contribute annually to my IRA?

Contributions to your IRA and 401(K) are subjected to annual limits as dictated by the IRS. For IRAs, if you are under the age of 50, your annual maximum contribution is $5,500. If you are 50 or older, your annual contribution is capped at $6,500. Simplified Employee Pension IRAs are different and have an annual limit of $54,000. The 2018 solo 401(K) contribution limit is $55,000.

What is a RMD?

RMD, or Required Minimum Distribution, is the lowest amount of money you are obligatory to withdraw from your retirement account once you reach the age of 70.5. (Roth IRAs differ. They do not require any withdrawals until after the owner has died.) Your RMD is calculated by the IRS-published life expectancy factor and your balance as of 31 December of the previous year. RMDs are calculated on an annual basis with the first one starting on 01 April once you turn 70.5. You are required to withdraw your annual RMD amount by 31 December every year.

Do I pay taxes on RMDs?

Yes, the account owner is taxed at their income tax rate when they withdrawal their RMD.

What if I fail to withdraw my RMD that year?

Regardless of whether the IRA is yours or you inherited it, failure to withdraw the designated RMD by 31 December will result in a 50% penalty fee.