Top 10 Things You Need To Know About Distributions From Your Retirement Account

To whoever is reading this: Congratulations! You've probably either lived long enough to retire or you're almost there. But before you "cash out" and get your money via distributions, you may want to check out this article first.
And whether you're getting ready to retire or you have a long way to go until you can, the information below can benefit everyone. Let's start with distributions from traditional IRAs and 401ks. The first five questions will relate to these traditional accounts. If you have either a Roth account (IRA or 401k), you can skip to number 6 on the list below.

Traditional IRA and 401k Accounts

1. Early Withdrawal Penalty.

A distribution from your traditional IRA or 401k before you reach the age of 59 1/2 will cause a 10% early withdrawal penalty on the money distributed. And yes, you're paying taxes too, so you're losing a big chunk of money if you withdrawal early.
Let's say you take a $5,000 distribution from your traditional IRA at age 50. You will be subject to a $500 penalty and you will also receive a 1099-R from your IRA custodian. You will then need to report $5000 of income on your tax returns.
Long story short: Don't withdraw early unless you really need the money.

2. Required Minimum Distributions (RMD).

But whether you need the money or not, at age 70 1/2, your friends at the IRS will force you to begin taking distributions from your retirement account. Unless you're still employed.
Your distributions will be subject to tax and you will also receive a 1099-R of the amount of money distributed which will be included on your tax return. The amount of your distribution is based on your age and your account’s value.
For example, if you have a $150k IRA & you've just hit the age of 70 1/2, your first RMD would be $5,685 (3.79% of $150k).

3. Don't Take Large Distributions In One Year.

Unfortunately, money from your traditional retirement account is subject to tax at the time of distribution. With this in mind, it would be wise of you to be careful about how much money you take out in one year. Why? Because a large distribution can push your distribution income and your other income into a higher tax bracket.
Let's say you have  employment or rental/investment income of $100,000 yearly. That would mean you're in a joint income tax bracket of 15% on additional income.
However, if you take $100,000 as a lump sum that year this will push your annual income to $150K and you will be in a 28% income tax bracket.
If you chose to instead break up that $100K over two years, then you could stay in the 15% to 25% tax bracket. This way, you reduce your overall tax liability.
Long story short: When it comes time for you to start enjoying retirement, don't take out too much money or the IRS will be enjoying it instead.

4. Distribution Withholding.

Most distributions from an employer 401k or pension plan will be subject to a 20% withholding, unless you're at the age of 59 1/2. This withholding will be sent to your friends at the IRS in anticipation of tax and penalty that will be owed.
In the case of an early distribution from your IRA, a 10% withholding for the penalty amount can be made.

5. If You Ever Have Tax Losses Consider Converting to a Roth IRA.

Roth IRAs are popular for a reason. When you have tax losses on your tax return, you may want to consider using those losses to offset income that would arise when you convert a traditional IRA or 401k to a Roth account.
Whene you convert a traditional account to a Roth account, you pay tax on the amount of the conversion. This is usually worth it, because you’ll have a Roth account that grows entirely tax free which you won't pay taxes on when you distribute the money.
Interesting fact: Some tax savvy people use tax losses so that they end up paying less in taxes later on.

Tips For Roth IRAs and Roth 401ks

6. Roth IRAs Are Exempt from RMD.

It's amazing right? While traditional IRA owners must take required minimum distributions (RMD) when they reach the age of 70 1/2, Roth IRAs are exempt from RMD rules. This allows you to keep your money invested for as long as you wish.

7. "Designated" Roth 401ks Must Take RMD.

Yea, tax code can be confusing. "Designated" Roth 401k accounts are subject to RMD. These kinds of Roth accounts are part of a 401k/employer plan, which is where the word "designated" comes from.
Anyway, so how do you avoid this you may ask? By rolling your Roth 401k funds over to a Roth IRA when you reach the age of 70 1/2.

8. Distributions of Contributions Are Always Tax Free (Unless The Government Changes That)

Unless the government makes major changes, distributions of contributions to a Roth IRA are always tax-free. No matter your age, you can always take a distribution of your Roth IRA contributions without penalty or tax.

9. Tax Free Distributions of Roth IRA Earnings.

However, in order to take a tax free distribution from your Roth IRA, you must be age 59 1/2 or older and you must have had your Roth IRA for five years or longer.
As long as those two criteria are met, all amounts (contributions and earnings) may be distributed from your Roth IRA tax free.
Note: If your funds in the Roth IRA are from a conversion, then you must have converted the funds at least 5 years ago and must be 59 1/2 or older in order to take a tax-free distribution.

10. Delay Your Roth Distributions.

Don't be so quick to use the funds in your Roth account. It's usually better to distribute and use other funds and assets that are at your disposal. Why? Because those funds aren’t as tax efficient while invested.
Long story short: Roth retirement accounts are the most tax efficient way to earn income in the U.S if you use them right. Learn even more from our other article on the lesser-known benefits of Roth accounts.
That's all folks. As always, if you have any questions, please don't hesitate to ask in the comments below.
 

Estate Planning 101: Who Will Carry On Your Legacy?

Estate planning 101 starts with understanding that a trust is more than an opportunity to guarantee that your assets are distributed the way you see fit upon your death. A trust is also a great way to pass your legacy on to the next generation, whether they be your family, friends or someone else deserving of the privilege.

Your trustee will have an immense responsibility thrust upon their shoulders following your death. But finding a trustee is easier said than done. How do you know how someone will act once you're not around anymore? If you appoint the wrong person as trustee, they might just end up making you "roll over" in your grave.

The Purpose of a Trust in Estate Planning

When establishing a trust you will be outlining your assets and who will receive those assets upon your death. You will also outline certain conditions that may be placed on your assets.

For example, you may state that your children will receive an equal share of your estate upon your death. But you can also add that your children shall not receive a distribution if they have a drug or alcohol addiction or if they have a creditor who would seize the funds. The trust may also set up distributions to minor children so that they don’t receive a large inheritance when they turn 18.

How Do I Pick My Trustee?

As stated earlier, appointing a trustee to your trust is an important part of estate planning. In most situations, you will be the trustee during your lifetime and if you have a spouse your spouse will be trustee if they survive you.

However, you will need to select a successor Trustee of your Trust who will manage your estate following your death. (Even if you have a spouse, you may not want them to be the trustee). This successor Trustee may be a family member, friend, company, etc.

Factors To Consider When Picking Your Trustee

What Will My Trustee Do?

  1. Your Trustee will make funeral and burial arrangements along with family members.
  2. Inform your family members and heirs of the estate plans of the deceased. (This is the part you see in movies).
  3. Your Trustee will pay off creditors and hire professional as needed to assist with the estate. (Lawyers, real estate agents, etc.).
  4. Your Trustee will determine what exactly your assets are to make sure they are distributed to the heirs/beneficiaries of your Trust.
  5. Your Trustee will organize your assets for distribution. This may include listing and selling property, transferring ownership of businesses, jewelry, art, bank accounts, etc.

How Large is Your Estate?

If your trust is only worth a couple million dollars or less, listing a family member as the trustee is probably your best option. However, if your estate is worth over $4 million you may want to consider listing a lawyer as the successor trustee of your estate.

And if you've been fortunate enough to accumulate an estate worth over $10 million you may want to consider listing a trust company or bank as the trustee of your estate. "Absolute power corrupts." Need I say more?

Note: If you appoint a trust company to manage your trust it will cost tens of thousands of dollars, so this option is only viable for large estates.

When Should You Appoint a Non-Relative Trustee?

If you have heirs who are likely to disagree and cause problems, you may want to list a non-family member or a friend as the Trustee so that a third party can make decisions. This way you can avoid potential contention and litigation over your estate.

Does Your Trustee Have Good Financial Skills?

If you are selecting a family member, choose one who has shown good financial skills over their life. If you’re selecting a child over another, consider their financial skills, work background, and family dynamics.

Note: Choose someone who is well organized and who can get things done. You want a responsible person to be your trustee.

What Are The Dynamics of Your Family?

Every family is different, some have gold diggers or feuds, others have delinquents. Maybe your children are too young to be trustees, or you don't have a spouse. In any case, just think long and hard on this one!

Will You Compensate Your Trustee For Managing Your Estate?

You may compensate them or give them something extra from the estate for taking on the responsibility but generally family members are appointed to serve without compensation. Those with large estates may want to hire a professional instead. At any rate, you can do your trustee a favor and supply them with our article on the duties of a trustee.

Can Your Heir/Beneficiary Be a Trustee?

Yes, you may have your beneficiary/heir serve as Trustee. Most people who have adult children will list a child as the successor Trustee and this person will typically be a beneficiary/heir.
 Note: While there is some conflict of interest in this arrangement, the Trustee is bound to the terms of the Trust and can’t abuse that discretion for their own personal benefit.

Should You Appoint Co-Trustees?

Some people will consider listing co-beneficiaries as successor Trustees. This can be a way to involve more than one family member in the distribution of the estate so that one person doesn’t feel left out.
While there can be some benefits to involving another person as Trustee it can cause tension and confusion as to who is doing what. Make sure you're specific about their authority and responsibility if you are listing multiple trustees.

Who is Most Commonly Listed as Trustee?

Most persons with adult children will list one of their children as successor Trustee. Most persons with younger children will list a sibling or close friend as their successor Trustee.

 

11 Crucial Questions You Should Be Asking Before Investing

You probably already know that investing can be a risky business. Some people make it big. Others lose everything. There's always going to be those wanna-be Bernie Madoffs to watch out for.

So before you invest your hard-earned savings or your self-directed IRA into someone's business or real estate, you need to ask questions either to yourself or the person/business receiving your money.

We're here to encourage you to have a healthy level of skepticism. Anyone asking for your money should be comfortable answering questions. Let's go over 11 tips & questions to help you avoid legal trouble and bad investments.

Top 11 Questions You Should Ask About New Investments

  1. How does this investment fit into your portfolio?

    It's important that you diversify your income to maximize your returns and protect yourself against any unforeseen economic shocks.

  2. Are you being pressured to invest?

    If you are told that this opportunity will pass if you don’t invest now, then let the opportunity pass. Most scams use this technique.

  3. Have you been given documentation?

    If you aren’t given documents outlining what has been explained to you in conversation or what has been put into a presentation then don’t invest.

  4. Do you understand how you will make your money back?

    If you don't understand how the business or investment makes the returns being promised, then don't invest.

  5. Have you been offered commissions?

    If you’re told that you can get a commission for bringing others to invest into the same company, be skeptical. Especially if you don’t have a license to receive such commissions then don’t invest. If they're willing to break the law, they're willing to screw you over.

  6. What's going to happen to the money you loan them?

    If you are loaning money for a real estate venture, then get a deed of trust or mortgage on the title to the property protecting your investment. Also, make sure that you get a copy of the title report or commitment showing what position your loan is being placed into when the deed of trust or mortgage is recorded.

Lenders: Do What the Bank Does.

Create lending instructions to the title company closing the real estate transaction. Tell the title company to only use the funds being loaned when the borrower signs the note/loan documents and when all other defects to title have been cleared or disclosed.

  1. Have they filed with the SEC?

    If you’re investing into a PPM (Private Placement Memorandum) or offering you should receive lots of documents outlining the investment, the use of funds, the background of those managing the company, and also documents regarding your rights as an investor.

Also, check to see if the PPM or offering was properly filed with the SEC by going to SEC.gov and checking the company name in the SEC database. If no filing record exists for the PPM or offering with the SEC, then the person raising the funds has possibly disregarded the law. They'll probably "disregard" your money next!

  1. Are they credible?

    Investigate the background of the person you are entrusting your money with. When you are investing with others, you need to think like the bank and do what the bank does.

What is this person’s credit history, employment or prior business experience? What's their plan? What are the terms of the investment? Is there a realistic rate of return that fairly recognizes the risk being taken? Remember, the person who has your best interest at heart is you, so be vigilant.

  1. Have you looked closely at the documents provided to you, if any?

    Make sure a lawyer representing your interests reviews the documents. A second pair of eyes always helps. If a lawyer drafted the documents already it is still important to have a lawyer look at the documents as they relate to your interests and with an eye towards protecting you.

The "small print" in investing can be tricky. Many investments have clauses that can impact your ability to get your money back. Some even give the company raising the money the ability to pay whatever compensation to themselves they desire, which will eat into the bottom line of your profits. If you don't know what you're looking for, find someone who does. More on that in a moment.

  1. Have you sought a second opinion?

    Seek the opinion of another investor, business owner, or friend whose opinion you trust. Sometimes when you explain the investment to someone else they can help you find issues to consider and questions you should be asking.

  2. Are you willing to lose the money you're thinking about investing?

    Be comfortable saying no and only invest what you are willing to lose. Just like you would in Vegas.

Sometimes you may need to get out of your comfort zone by asking lots of questions, by demanding additional documentation, or by simply saying no. Remember, you are the only authority on what types of investments are best for you.

Of course, you're also human and flawed. It's best to seek professional advice if you're uncertain about an investment for any reason. At Royal Legal Solutions, our attorneys are investors themselves. If you need a second opinion, an extra pair of eyes, or assistance managing your investments in a corporate structure, start with our investor quiz and we'll take it from there.

Law in Every Day Life: Pet Law Fundamentals

Do you have a pet, or are you thinking of adding one to the family? If so, have you ever wondered what would happen to your pet if you got divorced or if you died? I have, so I figured you might have too.
I know this isn't something I usually write about, but we all encounter these everyday legal issues and I thought it would be fun. (Yes, reading about law can indeed be fun.)
There are four common situations where familiarity with pet law can save you a lot of time, and potentially, heartache.


Four Fundamentals of Pet Law

1. Buying a Pet.

According to the American Veterinary Medicine Association, 21 states have so called “pet lemon laws” that allow a buyer of a pet to return the pet to the seller for a full refund in the event that the pet has an illness or disease.
In most states, you will have between 15 to 60 days to return the poor little guy. It depends.

2. Owning a Pet

There are a number of laws that outline what kind of care you should be giving your pet. They vary from state to state. In most states, you can't leave your pet outside in extreme weather conditions, such as hot, cold, or hurricane weather.
And interestingly enough, while you always see something in the news about a baby being left in a hot car, rarely are the hot car deaths of animals mentioned. It's also illegal if you leave a pet in a hot car. Not that we think YOU would do such a thing, of course.

3. Divorce of the Owners

Let’s address divorce briefly. By law, pets are personal property. Like your clothes, shoes, or jewelry. Although there is much more meaningful attachment to our pets than to personal effects, the law treats them the same.
As a result, in the event of divorce where the ownership of a pet is in dispute, the court will analyze certain factors to determine who should receive the pet. These factors are different from the factors a court will consider when determining custody of children. In those cases, custody is determined by considering the best interests of the child.
In determining ownership of a pet following divorce, the court would look to see who took care of the pet, paid for it, and spent time with it.
Note: If the pet is a family pet and if children are involved, the pet will probably go to the person who receives custody of the children.

4. Death of the Owner

We all want our pet(s) to be loved and cared for after our passing. As a result, if you have a pet, consider listing in your will or trust a provision that states who will receive your pet and how money you will leave for its care.
While you may create a "pet trust" to outline the care of your pet,  there's definitely someone out there who will gladly "adopt" your pet for free. But if  that's what you want to do, go ahead. You won't be the first or the last!
Fun fact: Leona Helmsley left millions of dollars to her dog. (Most of which was never spent in the interest of her dog either, might I add.)
I hope you enjoyed this post and learned something new. If you still have questions, keep the conversation going in the comments below.

Everything You Need To Know About College Savings Accounts

Is it almost time for your son or daughter to go off to college and finally stop mooching off of your hard earned money make you proud? Planning financially for college can be tricky, especially when it comes to taxes.
There are two types of accounts you can open to save for those  college expenses further down the road. These two types of accounts are Coverdell Education Savings Accounts and 529 Plan accounts.

The Coverdell Education Savings Account

A Coverdell account is typically set up for the higher education expenses of a child.  The funds you contribute grow in the account tax deferred and the money comes out for education expenses tax free.
There is no tax deduction for the amounts you contribute to a Coverdell. But you do have significant investment options including self-directed investment options (similar to IRA rules). A Coverdell has the following rules and benefits:

Coverdell Rules

Coverdell Benefits

The 529 Plan Account

Your contributions to a 529 Plan account can be eligible for a state income tax deduction (depending on your state). Money contributed to your 529 Plan account is invested into a state managed fund. A 529 has the following rules and benefits:

529 Rules

529 Benefits

College Savings Account Recap

As you can see, the main difference between the two accounts is that Coverdell accounts have the benefit of allowing you to decide how your contributions will be invested, but the money is not tax deductible.
On the other hand, contributions to a 529 Plan account must go to a state run fund, but that money is usually eligible for tax deductions.
If you still need help making decisions about how to best save for your little angel's college education, Royal Legal Solutions can help. If you have questions or want to discuss other ways to save, schedule your consultation today. Happy college planning!

Joint Venture Agreements For Real Estate Investors

If you've been in the real estate business for awhile now, the chances are extremely high that you've entered a Joint Venture Agreement at least once.
Right after the recession hit, Joint Venture Agreements became all the rage. Mainly because lenders began imposing loan-to-value ratios as high as 70%. Not many real estate investors are willing to put that much on the line, not by themselves anyway!
But maybe you don't know what a Joint Venture Agreement is? Whether you do or don't this article might can teach you something new. Let's begin.

What Is a Joint Venture Agreement?

A JV Agreement is a contract between two or more parties. It outlines who is providing what. (Money, services, credit, etc.). It also outlines what the parties responsibility and authority are, how decisions will be made, how profits/losses are to be shared, and other venture-specific terms.
A joint venture agreement is typically used by companies or individuals (like real estate investors) who are entering into a onetime project, investment, or business opportunity.
Usually the two parties will form a new company such as an LLC to conduct operations or to own the investment. This is usually the recommended path if the parties intend to cooperate over the long term.
However, if the opportunity between the parties is a one-time venture where the parties intend to cease working together once the agreement or deal is completed, a joint venture agreement may be an excellent option.

Typical Joint Venture Scenario For Investors

For example, consider a common joint venture agreement scenario used by real estate investors, and let's say you're the real estate investor. You purchase a property in your LLC or s-corporation and intend to rehab and then sell the property for a profit.
Then you, the real estate investor, finds a contractor to conduct the rehab. Your arrangement with the contractor is that the contractor will be reimbursed their expenses and costs and is then paid a share of the profits from the sale of the property following the rehab.
In this scenario, the joint venture agreement works well as both you and the contractor can outline the responsibilities and how profits/losses will be shared following the sale of the property.
It is possible to have the contractor added to your s-corporation or LLC in order to share in profits. But that could be bad for you.
If you did add the contractor to your s-corporation or LLC, that contractor would permanently be an owner of your company. Which is bad because you will likely use that company for other properties and investments where the contractor is not involved.
As a result, a JV Agreement  between your company that owns the property and the contractors construction company that will complete the construction work is preferred.
A JV agreement lets each party keep control and ownership of their own company while they divide profits and responsibility on the project being completed together.

Why You Should Use a Joint Venture Specific LLC For My Assets

While a new company is not required when entering into a joint venture agreement, many joint venture Agreements benefit from having a joint venture-specific LLC that is created just for the purpose of the joint venture agreement.
This venture-specific LLC is great in situations such as:

A $1M deal or venture could be done with a joint venture Agreement alone, however, you would be well advised to create a new entity as part of the JV Agreement. On the other hand, if the venture is only a matter of tens of thousands of dollars, the costs of a new entity may outweigh the benefits of a separate LLC for the venture.

Enter Agreements With Joint Ventures Wisely

Joint venture Agreements are great when you need cash now or can't qualify for financing. They also enable you to work with someone who can bring something to the table you can't. But in any case, always make sure you carefully consider everything before entering into one.
As always, if you have any questions about this article please do not hesitate to ask. If you're wondering whether a joint venture arrangement is right for you or have questions about setting up a venture-specific LLC, contact us today.

Who Can Help You Establish Your Solo 401k Retirement Savings Plan?

Yes, it's true. There are plenty of other legal firms and experts that can help you set up your self-directed, or solo 401(k)—or what the IRS calls a one-participant 401(k).

So what separates Royal Legal Solutions from the competition? In short, our experience as actual tax attorneys with the credentials you want from experts.

Warning Signs: Things to Watch Out For in a 401k Provider

Of course, we don't expect you to simply take our word for it. Here are some things to be wary of when you're shopping around for a solo 401k provider:

Unfortunately, many of our clients come to us after another one botches the job. Royal Legal Solutions has had to help many individuals who worked with a number of these companies. Why? Because these individuals made their "friends at the IRS" unhappy due to their improper plan contributions or with their prohibited transactions.

Royal Legal Solutions Ensures Tax Compliance

 The Solo 401k Plan is based on the rules found in the Internal Revenue Code, which can be complicated to someone without a tax professional background. This is why it's strongly advisable to work with a Solo 401k Plan provider like Royal Legal Solutions.

When you come to Royal Legal Solutions, you will be working directly with a 401k Plan tax professional that has been specifically trained on the special tax aspects of the solo 401k Plan.

We can guarantee your plan will remain in full IRS compliance and that you will not be engaging in any plan activities not approved by the plan or the IRS.

We can help you retire earlier & richer.

Most solo 401k Plan providers have already forgot about you once your plan has been established. But not us. As you begin administering your solo 401k Plan, you'll be able to consult with our trained 401k plan tax professionals.

Royal Legal Solutions can also take care of the annual maintenance of your solo 401k Plan. Proper maintenance is crucial in making sure your solo 401k Plan remains in IRS compliance. We'll also ensure that the IRS respects all your plan contributions and investment gains.

Tax Disputes 101: 5 Things To Keep In Mind

Who hasn't heard of Uncle Sam's bastard stepchild, better known as the IRS? The IRS can get nasty when it comes to getting "your" money, which they see as rightfully theirs. And you better believe that they have a lot of tools to get your money.

They can seize your home, cash, or even garnish your wages. But that doesn't mean you're helpless. There are many tools available to you as a taxpayer, you can read about them below.
If you are in a dispute with the IRS or you're anticipating one, this 5-point checklist below is loaded with priceless information that will prove useful in disputes with the IRS.

1. Begin With the Appeals Process.

If you disagree with the decision of an IRS employee at any time during the collection process, you may ask that employee’s manager to review your case.

If you disagree with the manager’s decision, you have the right to file a written appeal under the Collection Appeals Program. You can appeal collection actions such as liens, levies of bank accounts or garnishment of wages.

You are also entitled to a Collection Due Process Hearing where you can challenge the IRS’s determination of tax owed. Learn more about the Appeals Process from our other article on surviving tax disputes.

2. Take the Dispute to U.S. Tax Court.

If you are unsuccessful in the IRS appeals process, you may file a petition in U.S. Tax Court to challenge the amount due. This is where you want a whip-smart attorney. Even if you're as smart as a lawyer, the old saying that the man who represents himself has a fool for a client. It's true. Stay in your lane.

3. Explore Installment Agreement Options.

The IRS's version of a payment plan, and yes you have to pay interest until you've paid them back everything you owe.

Also, if you owe the IRS over $50,000, then you must complete IRS form 9465. This form lists all of your assets, income, and debt.

4. Understand and Ask For an Offer in Compromise.

Sometimes the IRS is willing to compromise. You may make a deal with the IRS under what is called an offer-in-compromise. Under an Offer in Compromise, you agree to pay a certain amount to the IRS as a settlement for all the money they say you owe.
There are three circumstances in which the IRS will accept an Offer in Compromise:

Note: Attorneys are experts at persuading people of doubt and what's in your best interest. That's what we're here for.

Office of Taxpayer Advocate. You Really Do Have Friends At The IRS

If you feel at any time during the "tax collection process" that the IRS has been uncooperative, you, as a taxpayer, may receive the assistance of the Office of The Taxpayer Advocate. Most of the time we're being a little facetious when we talk about our friends at the IRS. But in this case, these are your actual friends at the IRS.

The Taxpayer Advocate is an independent office within the IRS but it is their responsibility to assist the taxpayer in dealing with other offices within the IRS.

The Taxpayer Advocate can help give you great advice on how to resolve your tax problem. They can also be extremely helpful in getting responses to requests for information and in obtaining decisions on an "Offer In Compromise" or appeals.

Bottom Line: Tax Disputes Can Be Complex, So Get Help.

If you don't know what you're doing during a tax dispute with the IRS, you can end up in serious financial trouble. You will definitely want the help of an attorney or certified public accountant if the IRS starts applying pressure on you.

Fortunately, we've got your back! Royal Legal Solutions' experienced tax attorneys can help you handle your dispute, or even better, prevent one from happening in the first place. When you take action ahead of time, you can dodge the fight with Uncle Sam altogether. Contact us today for your personalized tax consultation.

What you should know about moving yourself or your money outside of the U.S.

If you're an American citizen, it doesn't matter where you go in the world. You can't outrun, or out-fly, the Taxman.

Beware the Wrath of Uncle Sam

There are many advantages to moving overseas, especially for U.S. citizens (cha-ching!). But before you or your money leave the USA and say goodbye to Uncle Sam, there are a few tax and legal consequences you need to be aware of.

If you're a U.S Citizen, Uncle Sam wants to know about your foreign assets, investments, or bank accounts. In fact, Uncle Sam says that you have 2 legal obligations that you must adhere to, or else!

Let's go over these 2 legal obligations, shall we?

Obligation #1: Disclosure of Bank Accounts and Assets

You must disclose any foreign bank account whose value is over $10,000 (all foreign accounts are combined to reach the $10,000 threshold) and you must report any foreign asset (e.g. foreign stock, company ownership, etc.) whose value is $50,000 or greater.
The form required to be filed annually to disclose foreign bank accounts in excess of $10,000 is known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The form filed annually to disclose foreign assets with a value in excess of $50,000, is IRS Form 8938, Statement of Specified Financial Assets. The first obligation U.S. citizens have to their home country is the disclosure of foreign bank accounts and foreign assets.

Obligation #2: Pay Your Federal Income Taxes

As a U.S. citizen, you are required to pay U.S. federal income tax on the foreign income you receive. The U.S. taxes its citizens on income no matter whether it was earned in the U.S. or abroad. That's one of several reasons our GNP is so high.
So, even if you make money outside the U.S., as a U.S. citizen, Uncle Sam says that you are still required to pay federal tax on that income. If you paid foreign income taxes to the country where the income was derived and if that country has a tax treaty with the U.S., then you’ll typically receive a credit in the U.S. for the foreign taxes paid, which reduces the amount of federal taxes owed in the U.S. You can look online for a current list of countries who have a tax treaty with the U.S.
Some U.S. citizens presume that if they leave the U.S. that they are no longer subject to federal income tax in the U.S. But this is not the case. Uncle Sam wants your (his) money. Failure to comply could result in a nasty tax dispute. And who has the time or energy for that?
Even if you relocate to a foreign country and no longer earn income from the U.S. you are still subject to U.S. tax your foreign income (and potential state income tax depending on your state of residence).  There's one last question on this topic some rebels or activists in the crowd may be wondering about.

How Can I Avoid Paying Taxes While Living Abroad?

The only way to keep Uncle Sam out of your pockets, (AKA the tax jurisdiction of the United States), is to renounce your U.S. citizenship. However, this is a costly and expensive process with numerous tax repercussions. Not to mention, Trump probably won't be inviting you to anymore future Whitehouse dinners!
Here's a common example that demonstrates how the disclosure and income tax reporting requirements work:
Say you have a bank account in Luxembourg with a balance of $99,999. That account generates income of $10,000 this year. Let's say that the $10,000 in income resulted in taxes owed to Luxembourg of $1000 and that you reported and paid the tax to Luxembourg.
In addition to compliance with Luxembourg law, you would need to file FinCEN Form 114 (FBAR) to disclose the foreign bank account. The FBAR form filing is due by June 30th for the prior year’s accounts. You would also need to file IRS Form 8938, since the account was at or over $50,000.
Form 8938 is due with the filing of your federal tax return. In addition to the two disclosure forms that are filed in the U.S., the $10,000 of income from your Luxembourg account must be reported as taxable income on your income tax return (form 1040).
The $1000 paid in tax to Luxembourg will be credited to you as the tax owed to Uncle Sam because Uncle Sam and Luxembourg have a tax treaty. Woo, that was a lot of information right?
These are just the basics, but every country has their own tax dilemmas. There are many special rules and numerous exceptions to the filing you read about here, please don't take this example too seriously. If you plan on leaving the U.S. or sending money outside the U.S., you should seek out experienced professionals to assist you with U.S. tax reporting obligations. Avoid the wrath of Uncle Sam. If you're living abroad or planning to move, schedule your personal tax and business consultation today.

7 Benefits Of The Self-Directed IRA

The benefits of the self-directed IRA include absolute freedom & control to decide how you invest and what you invest in. When you think about it, this is a privilege the average investor lacks.

IRA stands for Individual Retirement Account, and it's a great way to save for your retirement. A lot of people think an IRA itself is an investment - but it's just the vehicle in which you keep stocks, bonds, mutual funds and other assets. A self-directed individual retirement account (SDIRA) is a special IRA that can hold a variety of investments types normally prohibited from regular IRAs.

While there are many advantages to this powerful investment tool, we've taken the time to list some of our favorites. Below you can read about the top seven exclusive & cost effective benefits of the self-directed IRA LLC.

Benefit #1: Tax Advantages

With a self-directed IRA LLC, you have all the tax advantages of traditional IRAs, as well as tax deferral and tax free gains. All income and gains generated by your IRA investment will flow back to your IRA tax free.
What this means is that you'll experience tax free growth.

Instead of paying tax on the returns from your investments, tax is paid only at a later date when a distribution is taken, leaving your investment to grow tax free.

Benefit #2: Investment & Diversification Benefits

What about self-directed IRA real estate? Your choices include real estate & private business entities. Once again, you can do this tax free.This will also enable you to build a solid portfolio that'll generate beefy returns in both good times and bad times.

Benefit #3: Access

The benefits of the self-directed IRA LLC include having direct access to your IRA funds. This  allows you to make an investment quickly and efficiently. There is no need to obtain approvals or send money to an IRA custodian.

Benefit #4: Speed 

With a self-directed IRA LLC, whenever you find an investment that you want to make with your IRA funds, simply write a check or wire the funds straight from your LLC bank account to make the investment. Other retirement accounts usually have to talk with their custodian first, which can cause a delay.

Benefit #5: Lower Fees

Another advantage to a self-directed IRA LLC account is that you can save a lot of money on custodian fees.
You will not be required to pay custodian transaction fees and account valuation fees. (Which can add up to be thousands of dollars over the years.)

Benefit #6: Limited Liability

By using a self-directed IRA LLC, your IRA will benefit from the limited liability protection afforded by using an LLC. With an LLC, all your IRA assets held outside the LLC will be "shielded" from attack.

This is especially important in the case of IRA real estate investments. This is an area where many state statutes impose an extended statute of limitation for claims arising from defects in the design or construction of improvements to real estate.

Benefit #7: Asset & Creditor Protection

By using this distinct category of retirement account, you will be protected for up to $1 million in the case of personal bankruptcy. Most states will also protect a SDIRA from creditors.

The Bottom Line: The Self-Directed IRA Makes Sense

The self-directed IRA LLC is like an IRA on steroids. If you want to take control of your finances, consider this legal entity for your real estate investments (or other assets).
 

Attorney-Client Privilege & You: How to Talk to Your Lawyer

 "So then I says to the guy, 'leave the gun, take the Canolli."

Yes, we've all seen that movie. When it comes to going over your business plans and tax structure with your lawyer, you need to understand what is privileged and what is not. Knowing the difference will help your lawyer just as much as it will help you.
We've all "left the gun and took the Canolli" at least once in our lives, right? Or more likely, something less extreme but nonetheless unflattering. The point is, you don't want to that client who tells crucial information to his or her lawyer and then ends up wondering whether that information is “attorney client privileged” or not.

What is Attorney-Client Privilege?

Attorney client privilege is a fundamental legal protection offered to individuals, companies, and organizations who provide confidential information and who seek counsel from their lawyer or law firm.
Under law, an attorney cannot be required to provide attorney client privileged information to a plaintiff in a law suit, such as a creditor, or to a government agency (our friends at the IRS) except in certain scenarios.
Below are a couple of common situations where you may lose attorney client privileges and a few tips on how to make sure your confidential information which you provided to your lawyers doesn’t run into the exceptions.

Exceptions to the Attorney-Client Privilege Rules

Third Party Exception: Anyone But Your Lawyer Being Present Waives Privilege.

Was a third party present with your lawyer when the information you wanted to be privileged was discussed? For example, was your accountant or financial adviser present when discussing information you wanted to remain confidential and to remain privileged?
Keep in mind that if a third party is present in a meeting or on a conference call, then that third party may be required to provide information or documents from the meeting. That person can’t raise the attorney-client privileged defense for you unless they are actually your attorney.
If a third party professional does need to be hired, such as an accountant, that third party can be hired or brought into the matter by the attorney and the privilege may remain intact.
Fun fact: This is known as a “Kovel” hiring of the accountant and comes from a landmark case where a lawyer got an accountant for a  client and the accountants work was covered under the lawyer’s attorney client privilege.
TIP: For sensitive matters where you want information to remain confidential and privileged, do not involve outside parties as those outside parties or non attorney advisers cannot raise the attorney client privileged defense.

Only Legal Advice Is Attorney Client Privileged.

This is especially tricky for companies who have their own “in house” legal counsel who also offers business advice.
Only the information exchanged that pertains to legal advice would be privileged. For example, was an organization chart of the companies holdings “privileged” when provided to the company lawyer also manages those assets for the business?
Also, what if that lawyer shared that organization chart to accountants, property managers, or other non lawyers? If they did, then that information is no longer attorney-client privileged.
TIP: If you have sensitive documents or information you want to keep in communication only with your lawyer, ask your attorney to identify the document as “Attorney Client Privileged” and do not provide it to non lawyers.
Not all information with your lawyer needs to be attorney client privileged. But keep these tips in mind when communicating sensitive information to your attorney.
You should always let your attorney know before you provide the confidential information that you intend it to be privileged. This way your lawyer can make sure that your information is properly "handled."
If you still have questions about attorney-client privilege, contact us directly. Or as always, you can leave them in the comments section below.

Are You Interested In Flipping Homes Tax Free?

The world of real estate contains many profitable business opportunities. But it also comes with taxes. You know, those things your friends at the IRS keep misplacing every year.

If you're flipping homes, you know the bottom line is dollar signs. So how do you increase your bottom line?By decreasing your expenses, AKA the taxes you pay. The easiest way to do this is by employing a Self-Directed IRA LLC.

Let's talk about how exactly this is done and what advantages this method offers.

Flip Houses With a Self-Directed IRA LLC

Flipping homes and other real estate transactions are made easy with a Self-Directed IRA.  With your Self-Directed IRA LLC you will have the authority to make real estate investment decisions on behalf of your IRA.

You can  pay for the improvements, sell or flip the property on your own without needing the consent of an IRA custodian.

Another benefit of purchasing real estate with a Self-Directed IRA is that all income and gains are tax deferred until a distribution is taken. In the case of a Self-Directed Roth IRA LLC, all gains are tax free.

Control Your Destiny and Your Investments

Unlike a conventional IRA which requires custodian fees and consent, a Self-Directed IRA LLC will allow you to buy real estate by simply writing a check.

Since all your IRA funds will be held at a local bank in the name of the Self-Directed IRA LLC,  transactions are simple. All you will need to do to engage in a house flipping transaction is write a check straight from the IRA LLC account or wire the funds from the IRA LLC bank account.

There's no need to ask an IRA custodian for permission or have an IRA custodian sign the real estate transaction documents.

Recap: Use Your Self-Directed IRA LLC and Save

Remember, when you're flipping homes with a Self-Directed IRA all gains are tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all gains are tax free.Royal Legal Solutions can set up your entire Self-Directed IRA LLC. The whole process can be handled by phone, online or even through the mail. It usually takes a week or two. Contact us about establishing yours today.

Note: The timing largely depending on the state you want your Self-Directed IRA LLC in and the current custodian holding your retirement funds.

Start flipping homes the smart way.

 

Interested in a Solo 401k? Royal Legal Solutions Can Help!

There are many benefits to setting up a Solo 401k.

When you come to Royal Legal Solutions you'll get to work directly with our in-house tax and ERISA professionals to customize your Solo 401k to suit your investment and retirement goals.

At Royal Legal Solutions, we can handle or help with all of the following Solo 401k issues.

Establishing your IRS-Compliant Solo 401k Plan

A plan that is compliant in the eyes of the IRS is the only kind of plan you want. Trust us on that.

When you meet with our retirement account experts, they will guarantee your compliance. This will help you avoid those costly penalty fees.

We are able to help you with the following:

Note: We will also supply you with free tax updates and ERISA changes.

Transferring Your Retirement Funds Tax-Free

Once you've established your account, you will need to transfer your retirement funds (IRA, SEP-IRA, 401k, 403b, etc.). You can do so tax-free. We can help you move funds from your current custodian to any IRS-approved financial institution or credit union without incurring additional fees.

To do this, simply direct your current custodian to transfer the retirement funds to your new Solo 401k Plan bank account.

Of course, there are mistakes many investors can make that will incur taxes or penalties. But the retirement tax professionals at Royal Legal Solutions will assist you in completing this task in a simple and tax-free manner.

You can look forward to using any local bank or credit union to serve as your custodian. Doing so will allow you to self-direct your retirement assets without the costly custodian fees and delays.

Note: Royal Legal Solutions will assist you in completing all the necessary custodian documents. Your retirement funds may be transferred to a local bank account established in the name of your Solo 401k Plan quickly and without any tax.

Open a local trust bank account for your Solo 401k Plan at any bank or credit union of your choice. If you don't know how to do this, our in-house tax and ERISA professionals will guide you.

Understand the Basic Benefits of Solo 401ks

You get the freedom of choice plus tax-free investments.

As the trustee of the Solo 401k Plan, you will have the freedom to make all investment decisions. Your Solo 401k Plan will allow you to eliminate the expense and delays associated with an IRA custodian. This means you can act instantly when the right investment opportunity presents itself to you.

Once you make an investment, the investment is then made in the name of your Solo 401k account. Finally, all you have to do is sit back and wait for those returns.

 

A Beginner's Guide to Investing With Your Self-Directed IRA LLC

When it comes to making investments with a self-directed IRA LLC, the IRS doesn't tell you what you can invest in. What's funny is they only what you can't invest in. They made a few rules about the subject. These include prohibited transactions, and a series of other regulations.

What You Can't Do With Your Self-Directed IRA LLC

Besides the Prohibited Transaction rules, the IRS imposes a levy or tax on certain transactions involving IRA funds.
Let's say you use IRA funds to invest in an active business. Active businesses include restaurants, stores, and factories  operated through a pass through entity such as an LLC.
They could also be operating through nonrecourse financing, such as a nonrecourse loan or margin in a stock or trading account. In any case, a percentage of net profits or income generated by that activity could be subject to a tax.
The tax imposed is often referred to as Unrelated Business Taxable Income or UBIT/UBTI.  The UBTI rules are outlined in Internal Revenue Code Sections 512-514. For your convenience, we've broken down what self-directed investors should know about UBTI/UBIT in a separate article.

UBTI Taxes: What You Should Understand as a Self-Directed Investor

The reason the UBTI tax rules do not impact most retirement investors, is that Internal Revenue Code Section 512(b) provides a general exemption for the following categories of income generated by a retirement account:

Since the majority of retirement investors purchase publicly traded company stock, which is exempted from the UBTI tax, the UBTI tax rules are not widely known.
When it comes to investing in options with a self-directed IRA LLC, the question then becomes whether the investment would trigger the UBTI rules. This brings us to a fan-favorite UBTI exempt investment: stock options.

Avoiding UBTI When Investing in Options With Your Self-Directed IRA 

An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.
According to the IRS, any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income.
Note: The exclusion is not available if the organization is engaged in the trade or business of writing options or if the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business.
If option trading is not being done as an active trade or business, then using a self-directed IRA LLC to invest in options would not trigger the UBTI tax rules.

Learn More About Your IRA Investment Options From the Pros

Congratulations, you're on your way to a happier and more comfortable retirement.
If you have any more questions, fire them away in the comments below, or check out our other free resources about self-directed IRAs. You can also contact Royal Legal Solutions directly or explore our Self-Directed IRA LLC service. We'd love to help you!
 

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:

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.

Owning Coins With Your Self-Directed IRA LLC

Are you a current or aspiring coin collector? Of course this can be a satisfying hobby in its own right, but what if you want your coins to be protected as an investment? You may already be familiar with, or even already investing with a Self-Directed IRA LLC. But many investors don't know that sometimes you can hold certain types of coins within a Self-Directed IRA LLC. Of course, holding your coins with this type of account is not without heavy restriction from the taxman. Ensuring with your compliance with the law can be a complex matter, but we're here to break it down as simply as possible.

When it comes to investing and holding coins or metals with your Self-Directed IRA, Internal Revenue Code Section 408 outlines what your friends at the IRS say you can and can’t do.  Items classified as "collectibles" can't be held within your Self-Directed IRA LLC. These include, but aren't limited to, the following:

But wait, there are some exceptions.

Exceptions for Coins in a Self-Directed IRA


The IRS makes specific allowances fors specific types of  gold or silver coins, as well as any coins minted or issued within the U.S. This will be a recurring theme in the life of a coin-collecting investor.  All of the coins allowed in a Self-Directed IRA have to originate and have been crafted by either the federal or a state government.

So what defines these exceptions? Here are  the rules, which you can read for yourself (scroll down to section "m" for the exceptions). And yes, this will involve some serious reading. As you read, remember that collectibles are NOT fair game. This should help you determine what items in your collection meet the specifics. Don't worry, we'll go over all of this in more detail below.
Here's a quick summary of everything above you just read. Or, more likely, skipped right on over. And I don't blame you, at least I get paid to read this stuff. This portion of the tax code is basically saying any metals must be in the "physical possession" of an American institution, such as a bank.  This, however, doesn't apply to specific coins, such as you might have in your own collection. More details about the physical possession requirement can be found below.
31 U.S.C. 5112 gives a comprehensive list and definition of the types of coins that the IRS allows. Refer to it in the link above if you're unsure whether your coins are permitted in your Self-Directed IRA LLC.

How Do Investors Hold IRS-Approved Coins With A Self-Directed IRA?

Hopefully you now have at least some understanding about how the IRS views Self-Directed IRA’s holding coins. If you don’t, I can’t blame you. There’s a reason people pay me money to interpret these IRS rules for them!
Did you know that a coin can be treated as bullion? This means that, it's essentially going to be treated similarly to precious metals (such as raw platinum, etc.). That "physical possession" requirement  we discussed above will apply if this is the case.

What’s the Key Difference Between Bullion and Money?

Think of bullion as raw material. Gold, as we all know, can be made into lots of stuff: jewelry, coins, nuggets, bars, even a lovely commode if you're ultra-wealthy and eccentric. Bullion is distinguished from money based on the fact that it is appraised, bought, and sold at a given price based on mass and purity.  The smart-alecks reading this are likely already aware that the value of these kinds of items can fluctuate substantially.
Money, however, only has a face value. Most of the time, what you see is what you get.  Whether we're talking a $20 bill or a quarter, you know exactly what it's worth and can exchange it for items of equivalent value basically anywhere in the U.S.

Physical Possession

It appears those requirements regarding where IRA-held coins are stored apply both to bullion and coins. This includes the IRS-approved coins, such as the American Eagle gold coins collectors know and love. The rationale behind this is the fact that many of these coins are worth far more than their face value, based on the fact that their materials are worth more than however much they were stamped to be worth when they were minted.

Which means, legally speaking, you should put all IRS approved coins in a bank or other trust.

Putting IRS-Approved Coins in a Bank


Banks are a smart place to hold your coins.  They're also often the only legal place to do so, at least if you want the coins in your Self-Directed IRA LLC. There's some debate over whether safe deposit boxes are compliant with the Taxman's requirements.
Many people believe a safe deposit box held within your Self-Directed IRA LLC (complete with its name on it, not yours) will be okay with Uncle Sam.  IRS-approved precious metals should not be stored at home or in the personal possession of an individual the IRS wouldn't consider a trustee. So if you own the coins, don’t keep them at home or at your friend's house.
Here’s my personal take on this issue. So before I give you my perspective from a legal standpoint, just remember, it’s my job to help you avoid costly fees and penalties. Also keep in mind that unless you've paid a retainer and have  a signed contract with both of our names on it, I'm not your lawyer.
Your best option when it comes to IRS-approved precious metals or coins which are owned by your retirement account is to keep them in a depository approved by the IRS. This will eliminate any doubt that you're keeping in line with the physical possession requirements.  
If you would like answers to any questions you have about owning coins, collectables, or anything else  with your Self-Directed IRA LLC, call Royal Legal Solutions at (512) 757–3994 to schedule your consultation.
 

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 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).

 

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:

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:

 

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:
 

 
 

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:

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.
 

Lawsuits Are A Money Driven Business: What Real Estate Investors Should Know

 The title of this post says it all. As a real estate investor, you have to understand: lawsuits are a business. When someone wants to sue you, they are only looking for money. To be specific, your money.

How Do I Protect My Real Estate Investments?

You get a proper asset protection strategy.

A proper asset protection strategy keeps people from finding out what you own, and if they ever were to sue you, it limits what they can take. But more importantly, a proper asset protection strategy exhausts their will and their resources to fight you.

This keeps people from continuing with the lawsuit. It usually gets them to settle early and for less. It even gets them, in most cases, to stop the lawsuit before it starts.

What you have to understand is that, because lawsuits are a business, the main question people who want to sue you are wondering is: how do we get money out of somebody when we use them?

This question is answered with a proper asset protection strategy. And you better believe it's the correct one!

How a Proper Asset Protection Strategy Defends Your Assets

A proper asset protection strategy protects your assets from being seized by somebody via a judgement. It makes people (attorneys) believe they’re not going to get anything out of their investment in a lawsuit. This is extremely important.

Because, you see, lawsuits are only paid for in two ways: someone either has to pay an attorney to sue you or an attorney can take a case on contingency. (Attorneys usually take cases like these on contingency.)

Let’s say I’m an attorney who wants to sue you. While researching you, I find out that you have no assets. My research tells me you’ve qualified for food stamps for the past five years.

How much money do you think I’m willing to risk for a judgement which is merely a piece of paper? Without an asset to seize, a judgement is worthless.

Moreover, there’s no attorney worth their salt who’s ever going to take a case like that on contingency. When an attorney takes a case on contingency, that attorney is risking everything. Clients lose nothing.

Attorneys only take cases that they’re very confident they can win and collect on. So when you ask yourself, how do I protect myself from a lawsuit? What you should really be asking yourself is, how do I make it look as if I don’t own anything?

Remember: Lawsuits Are a Business

Well, that’s everything. If you have any questions feel free to ask me in the comments below, I’d be happy to answer  them! Feel free to continue our discussion on this topic or share any of your thoughts on asset protection.

How My Client's Asset Protection Strategy Saved Her From Being Sued

On my blog I've gone over countless ways to protect yourself using an asset protection strategy. But what I haven't done is shown you real-life examples of how asset protection can benefit you, until now.

Get Information From Real Asset Protection Experts

There's a lot of bad information out there about how to protect your real estate investments. You may have seen YouTube videos or read forum posts from people who claim to be experts. T

he thing about the internet is, anyone can claim to be an expert. Even if they've just read a single Wikipedia article on the subject.

You may have even received bad advice from your CPA or an attorney who's a general practitioner in the field. These people will tell you real estate insurance is enough to protect you. But the fact is they don't know. Their advice isn't just wrong, it's dangerous.

Insurance covers things like negligence or a slip and fall in a house. It doesn't cover a lifetime of fraud or breaches of contract. You may think "hey I'm an honest person, I don't need to worry about lawsuits."

But that's not why lawsuits happen.

Understand Why Lawsuits Happen

The majority of lawsuits happen because of a misunderstanding. Take for example a client of mine. She recently bought a house and renovated it. During her renovations she put in some new plumbing because she thought it would add more value to the house.

asset protection case study

Then she went ahead and told the person buying the house how she re-did the plumbing. So they sent her an email asking what plumbing she replaced. She responded, "Well, I re-did all the plumbing in the house."

So they bought the house from her. Some months after the sale there was a leak that caused tens of thousands of dollars worth of damage. The people who bought the house from her threatened a lawsuit based upon her email that said she replaced all of the plumbing in the house.

Now, this seems to be a simple misunderstanding of what she meant in her email, but that was the basis of this lawsuit. I'd like to point out that this is actually a case of intentional fraud, which isn't something an insurance policy would ever cover.

My Client's Asset Protection Strategy Saved Her Thousands

Luckily, my client had the foresight to put in place a proper asset protection strategy, including a series LLC with an Anonymous Trust. Because of the superior position she was in due to her asset protection strategy, they eventually dropped the lawsuit against her.

As real estate investors, we should all be using this type of asset protection strategy. If you have any questions about asset protection, feel free to ask me in the comments below or read more of my free educational pieces.