Prohibited IRA Transactions and Holdings

There are many choices when deciding how to invest your self-directed IRA. There are also rules that you need to be aware of before investing.  Violating the rules on transactions prohibited in your self-directed IRA can make your IRA account subject to risks and penalties. These transactions are prohibited because they are considered as providing immediate financial gain to you or other disqualified persons.

 A disqualified person includes the account holder, their spouse, descendants, investment advisors/managers and any corporation, partnership, trust, or estate in which the holder had a 50 percent or greater interest.

As a Self-Directed IRA holder, you may not:

  • Borrow money from or lend to the IRA
  • Sell, exchange or lease property to the IRA account or from the account to yourself
  • Use the IRA as a security for a loan
  • Transfer plan income or assets to disqualified persons
  • Lend account money to disqualified persons
  • Extend credit on their IRA to disqualified persons
  • Furnish goods, services, or facilities to disqualified persons
  • Allow fiduciaries to obtain or use the plan’s income or assets for their own interest

There are also prohibited holdings in a self-directed IRA. These include:

  • Collectibles
  • Metals other than gold, silver and palladium bullion
  • Gems
  • Stamps
  • Coins
  • Alcoholic beverages and other tangible personal property as defined by the Secretary of the Treasury

There is an exception to the coin holding. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins and certain gold, silver, palladium, and platinum bullion.

In general, a self-directed IRA account is extremely flexible, however, it is important to stay within the guidelines as the penalties can be significant.  As one of the nation’s leading independent self-directed IRA and 401(k) administration companies, Mountain West IRA not only guides investors through the process of establishing a self-directed IRA account, but also ensures accounts are maintained to avoid prohibited transactions.

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What Type of Investor Are You?

Each generation faces differing events and challenges that impact their investment strategies. Which type of investor are you?

The Traditionalist Generation (1925-1945):

Defining events: The Great Depression, lunar landing, WW I & II, Korean War, Peace Corp, McCarthyism, JFK assassination, Martin Luther King Jr. assassination

Traditionalists are generally a financially conservative generation. In fact, 49% of Traditionalists have more conservative risk tolerances, while only 10% are more aggressive investors. Traditionalists experienced employment stability, pension plans, and assured social security, leading to over half of Traditionalists with assets in annuities, and 87% with savings, investments or insurance to provide additional retirement income.

The Baby Boomer Generation (1946-1964):

Defining events: Watergate, Vietnam, women’s liberation and feminism, Roe v Wade, Civil Rights Movement, selective service

Boomers balance the liberalism of their youth with conservatism from age and years of family demands. 41% of Boomers have more conservative risk tolerances while 16% are more aggressive. While Boomers hope to receive retirement assets from employer-sponsored plans these plans are disappearing, leaving many late to realize the necessity of investing. They are currently facing the unique position of allocating unexpected income (parents’ trusts, real estate and other assets) while aiding the financial needs of their children. This has lead them to look toward longer-term income-producing investments with low volatility.

Generation X (1965-1980):

Defining events: Challenger explosion, “Black Monday,” Cold War, fall of the Berlin Wall, end of apartheid in South Africa, sale of the first Macintosh computers, rise of the AIDs epidemic, the Internet

Generation X witnessed the rise of technology, making them more entrepreneurial, independent, and goal-oriented. 23% of Generation X exhibit more conservative risk tolerance, while 31% are more aggressive. They started careers as cutbacks began on pensions and healthcare benefits. Additionally, nearly 30% of people in their 30s and 40s (includes early Millennials), still possess outstanding school debts. After paying debts, Generation X places priority on saving for housing and children rather than retirement. They view themselves as permanently on the cusp of financial disaster, minimizing their investments.

Millennials (1981-2000):

Defining events: Desert Storm, Iraq War, 9/11, Oklahoma City Bombings, Global Financial Crisis and Great Recession, social media, schoolyard violence, environmental impact awareness, Googling, multiculturalism.

Millennials witnessed an economic collapse, often referred to as “the Second Great Depression.” This impacts their investment decisions. In fact, 59% of Millennial investors say avoiding risk is their top priority. Investors, however, are few. With 37% of 18 to 29 year olds unemployed, 44% of recent college graduates underemployed (part time or in jobs that require no degree), and the highest student loan debt in history, Millennials are slow to invest.  Those who are investing, however, ensure that their investments are aligned with their philanthropic interests. In fact, Millennials ranked “social responsibility” in their investments higher than any other generation.

Which of these categories describes your investment style? The beauty of a self-directed IRA is the flexibility to manage your own investments. This allows you to match your investment risk comfort with your investments based on your own knowledge of investment. Contact Mountain West IRA to learn more about self-directed IRAs.

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Roth IRA V.S. Traditional IRA

When making the choice to invest in an IRA, the decision can seem a bit daunting. You may be wondering what type of IRA would work best for your needs. Additionally, the terminology and volume of information may have become overwhelming.

Mountain West IRA offers multiple retirement savings options to our customers. It’s important to understand that SEP IRA and Simple IRAs as well as individual 401(k) plans all revolve around meeting business needs. If, however, you are attempting to meet your own retirement needs, regardless of your employer, the Roth IRA or Traditional IRA are two options available to you. Did you know that all of these different types of IRAs can be done in a self-directed IRA account?

To begin, let’s take a look at the similarities:

Maximum Contributions: The maximum contribution limit for both IRAs is $5,500 for 2014. The only exception is for those who are age 50 or older. These individuals may contribute an extra $1000 to their IRA as a catch up contribution.

Contribution Deadlines: Contributions to an IRA must be completed by April 15 to count for the prior year.

Here’s a comparison of the Roth IRA and the Traditional IRA:

 

Roth IRA

Traditional IRA

Tax Benefits:

Tax and penalty free growth, and qualified (conditions apply) withdrawals after 5 years

 

No tax breaks for contributions

Tax deferred growth

 

Tax deductions may apply in contribution years

 

Eligibility:

Any age

Earned Income

Income restrictions apply

Under 70.5

Earned Income

No income restrictions

Withdrawals:

Contributions are withdrawn tax-free

 

Earnings are withdrawn tax-free after 5 years and only when meeting certain conditions

Withdrawals of pre-taxed contributions and all earnings are taxed when withdrawn

Penalties:

Non-qualified withdrawals are penalized with income tax and a 10% tax

 

Exceptions apply

Withdrawals prior to 59.5 years of age are subject to a 10% early withdrawal tax

 

Exceptions apply

Minimum Distributions:

None

starting at the age of 70.5

Other Benefits:

After the 5 year holding period, up to $10,000 can be withdrawn (tax and penalty free) to cover first-time homebuyer expenses

Contributions lower your adjusted gross income providing tax benefits

 

Up to $10,000 may be withdrawn (penalty fee but still taxed) to cover first-time homebuyer expenses

 

Although these guidelines provide some great information you’ll want to consult your tax professional for the plan that best suits your individual needs. Regardless of which IRA you select, Mountain West IRA would be happy to help you open your self-directed IRA account. With your self-directed IRA you’ll be able to take advantage of a host of different IRA investment options to assist you in your quest for a happy and comfortable retirement. Please contact Mountain West IRA today to discuss the possibilities.

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5 Must-Have Characteristics for Successful Real Estate Investing

real-estate-investmentOver time, real estate investments have afforded many people the powerful combination of appreciation and income.  The purchase of real estate through a self-directed IRA is a popular choice for this and other reasons. While there is no definitive list of characteristics that make someone successful at real estate investing, most successful real estate investors share a certain set of characteristics.

  1. Competence – it is crucial to understand the ins and outs of investing in real estate. Joining local associations, such as a real estate investment association, can be a great way to develop an understanding about real estate investing. Mountain West IRA provides our clients with continuing education and seminars to put their self-directed IRA to work for them by investing in real estate. Learning as much as you can about real estate will help you become a more competent investor.
  2. Make decisions grounded in logic – with every investment decision you make, your strategy must be based on facts and logic. You cannot let emotions sway your financial decisions. Work on developing solid financial goals based on your knowledge and understanding of the market and avoid being influenced by emotion in your real estate transactions.
  3. Understand the real estate market – while it is necessary to understand the principles and strategies of real estate investing, you must also understand your particular market. Certain concepts you’ve learned about may not apply to the real estate market you’re investing in, so completing your own research becomes essential.  Asking questions of successful real estate investors or joining a real estate investors association can provide valuable information. If you are using money from a self-directed IRA for your real estate investments, it is absolutely crucial to understand the applicable rules and regulations. Contact Mountain West IRA for help in setting up your self-directed IRA and to understand the prohibited transactions.
  4. Be consistent – when you first begin investing in real estate, you must develop an investment strategy. Begin developing good habits early. There will be regular steps to take on a daily, weekly or monthly basis – do them consistently. Consistency is one of the biggest hurdles to overcome, but if you do establish consistency, success will likely follow.
  5. Establish good character – Stick to your principles and treat business deals the way you would a relationship – treat the other person like you want to be treated. Shortcuts and hasty deals can backfire and a damaged character is more difficult to repair than the “fixer upper” investment property. In the world of real estate investing, opportunities abound.

With patience, logically grounded decisions, and professionals like Mountain West IRA to help you establish and manage your self-directed IRA, you will have a much more enjoyable real estate investment experience.

Posted in IRA, Land Investment, Non-traditional IRA, Real Estate Investments, Self Directed IRA, Uncategorized | Leave a comment

Paradigm Commercial Capital Group

Paradigm Commercial Capital Group is a nationally recognized leader in equipment lease and finance. Paradigm CCG provides commercial lending of all types, including commercial real estate loans, private equity transactions, and with a primary focus on equipment leasing. Composed of a group of certified, highly experienced financial professionals, Paradigm CCG is at the forefront of the commercial finance industry. Paradigm works in correlation with wealth management groups and financial planners to provide both investors and small businesses a distinctive opportunity for concurrent growth. Paradigm primarily seeks to lend to C and D credits, companies that are considered unbankable. To counter the credit risk for these borrowers, Paradigm requires a 10% cash security deposit, along with a 2:1 collateral security based on third-party inspections and evaluations.

After a comprehensive approval process, Paradigm uses private investors’ money to fund these transactions, generally paying investors 18% over a 24-month period. The relationship with the investor or fund is vital to the overall success of Paradigm’s business model. The model is based on transparency, not only between Paradigm and clients, but also between Paradigm and the investor. Each investor knows exactly which transaction they are funding and no monies are ever pooled from multiple sources in any given transactions. Paradigm allows the investor the opportunity to review deals prior to the dispersal of the investment.

Once Paradigm receives notification from the investor that the deal is something he or she would like to fund, Paradigm collects and then disperses the money to the borrower. In closing documents to the borrower, a sale and assignment is issued to the funding party. This gives the investor protection with rights to the specific collateral assigned to the deal. Paradigm will issue monthly payments to the investor of the full return from the corresponding month’s interest and principal payments received. In the event that there is any default, Paradigm handles the liquidation of the collateral. Any monies received will first be deployed back to the investor to make them whole, including interest that would have accrued. If in the liquidation process there are leftover funds from the sale, the proceeds will be split between Paradigm and the investor.

Paradigm has developed a process that investors value. Using a self-directed IRA to invest in commercial financing with Paradigm can be a lucrative addition to an investor’s portfolio. With numerous strategic alliances and expertise in private investments, Paradigm Commercial Capital Group provides a broad range of investment options. Their knowledge and depth of expertise maximizes efficiency to an investor’s advantage.

Interested in Investing with the Paradigm Commercial Capital Group but don’t have cash available?Mountain West IRA can help you transfer your IRA or 401k funds into a self-directed IRA which you can then use to invest in private commercial financing with Paradigm Commercial Capital Group, real estate, precious metals, private notes, or many other investments. Contact Mountain West IRA to get started.

Posted in Equipment Lease and Finance, Individual Retirement Accounts, Non-traditional IRA, Self Directed IRA | Leave a comment

5 Lessons Learned from Rehabilitating Properties—by Robin Moffitt of Gold Star Realty

distressed homeIt’s a very profitable time to be involved in real estate, so think about modifying your business plan to include rehabilitation of properties for profit. I have been buying properties at 50 to 60% of their value and rehabbing them, which require a range of repairs from light cosmetic touch-ups to a complete remodel. I’ve managed to recreate my portfolio with significant growth in equity and cash flow. Throughout my experience rehabbing homes for resell, I’ve learned a few lessons I’d like to share with you:

  1. You can buy property at significant discounts without feeling guilty
  2. There is private money available to fund those with no credit
  3. You should not be greedy when you resell your property—I target 5 – 10% discounts on fair market value.
  4. Cash will start flowing—expect $150 – 500 per property on average. You’ll earn a guaranteed 12% with a couple of points up front on a property that has been completely rehabbed.

For realtors who were counting on their real estate portfolio for retirement and were hurt by the downturn in the housing market, this system will allow them to create cash flow and equity build up quickly.

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Your child can save, too!

lawnmower-3Did you know that you can set up an IRA for minors? Setting up an IRA for your child or grandchild can be a very effective way to teach children about the principles of savings, financial management, and retirement. That first car or new laptop might look attractive to a kid, but even small contributions to an IRA will pay off in the long run. The only requirement to make a contribution to an IRA is earned income, even if it’s earned from mowing lawns or babysitting. For 2013, your child can contribute the lesser of

  1. Her earned income for the year or
  2. $5,500

You can set up either a traditional IRA or a tax-free Roth IRA —both accounts have the same contribution limits. And because these earnings compound tax-free, the accumulation of wealth over the course of your child’s lifetime is substantial. Schedule a meeting  with one of our Self Directed IRA experts for more details on setting up a self-directed IRA for your child.

Posted in Individual Retirement Accounts, IRA, IRA for children | Leave a comment