Self Directed IRA FAQ | Your Investing Questions Answered Here

Answers to some of the most frequently asked investing questions (FAQs) about IRAs, self directed IRA, Roth IRA and related investments.

  • Simple Rules for Beginner IRA Investing

    For big companies, retirement investing isn’t something that employees have to put a lot of thought into. They have their 401(k) plans set up for you can you just have to decide a few of the smaller details. But when it comes to investing in an IRA, there is a lot more that goes into the decisions you have to make. Not only are you getting the chance to decide between Roth IRAs and Traditional IRAs, you also get to decide what you want to invest in and how much you’re willing to invest. IRAs are unique because you are able to invest in a much wider variety of things rather than the limited investments you can make with other retirement plans. With this expanded selection of choices, however, there are a few things you’ll want to know when IRA investing. Below are some simple ‘rules’ per se to follow for beginner investors. 1. Know what risks you’re willing to take. When investing in anything, one of the most important things to remember is that there is always a risk that comes with it. Investing in high risk stocks can have a higher pay off, but there is also a chance ...

  • Buying Real Estate in Your IRA

    1.  Who is H. Quincy Long and why do I care? H. Quincy Long, who holds the designation of CISP (Certified IRA Services Professional), is CEO/President of Quest Trust Company, Inc., a self-directed IRA third party administrator with offices in Houston, Dallas, and Austin, Texas as well as Mason, Michigan.  Mr. Long has been a licensed Texas attorney since 1991 who specializes in real estate, and has been a fee attorney for American Title Company.  He has sat on the board of directors of the Realty Investment Club of Houston (RICH), the second largest real estate club in the country.  Mr. Long received his Doctor of Jurisprudence law degree in 1990 from the University of Houston.  He received his Master of Laws, also from the University of Houston, in 1997. Mr. Long is also the author of numerous articles on self-directed IRAs and other real estate related topics, and is editor and co-author of the book Real Estate Investment Using Self-Directed IRAs and Other Retirement Plans by Dyches Boddiford and George Yeiter, CPA. . Mr. Long knows real estate and real estate investing. This can be critical to you when choosing a self-directed IRA custodian or administrator, especially if you want to buy real estate or ...

  • Everything You Want to Know About Traditional IRA RMDs

    If you have been contributing to a Traditional IRA, eventually you will need to take yearly required minimum distributions (RMDs). The first RMD is required the year you turn 70 ½, and they continue each year after that. Roth IRAs don’t require RMDs, since those contributions were made post-tax. RMDs on Traditional IRAs are the government’s way of ensuring they get their tax money from investors. Usually, investors make contributions to their IRA pre-tax, and they can write off the contribution on their taxes. When they take a distribution, they are taxed on the money based on their income levels. More frequently asked questions about RMDs are answered below. When Do I Have to Take an RMD? The first year you are required to take an RMD is the year you turn 70 ½. In this year you are allowed to postpone taking it until Tax Day April of the following year. So, if you turn 70 ½ in 2018, you can wait to take your RMD until April of 2019. Every year after the first year, you will be required to take your RMD by December 31st. If you do choose to wait until April 2019 to take your first RMD, ...

  • Frequently Asked Questions About Buying Debt Financed Real Estate in an IRA

    Good news!  You can buy real estate in your traditional, Roth, SEP, or SIMPLE IRA, your 401(k), your Coverdell Education Savings Account for the kids, and even in your Health Savings Account.  Even better, your IRA can borrow the money for the purchase or even take over a property subject to existing financing.  What could be better than building your retirement wealth using OPM (Other People’s Money)?  However, there are some restrictions which you must be aware of when using your IRA to purchase debt financed real estate.  Below I answer a series of frequently asked questions regarding the purchase of debt financed real estate in an IRA. . Q.        Is it really legal to buy real estate in an IRA? A.        Yes.  Even the IRS agrees that real estate is a permitted investment.  In its answer to the question “Are there any restrictions on the things I can invest my IRA in?” the Internal Revenue Service states “IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.” . Q.        Can my IRA buy real estate with a loan or take over a property subject to an existing loan? A.        Yes.  An IRA may borrow ...

  • The Truth About Self-Directed IRAs and Other Accounts

    There is a lot of confusion over self-directed IRAs and what is and is not possible.  In this article we will disprove some of the more common self-directed IRA myths.   Myth #1 – Purchasing anything other than CDs, stocks, mutual funds or annuities is illegal in an IRA. Truth:  The only prohibitions contained in the Internal Revenue Code for IRAs are investments in life insurance contracts and in “collectibles”, which are defined to include any work of art, any rug or antique, any metal or gem (with certain exceptions for gold, silver, platinum or palladium bullion), any stamp or coin (with certain exceptions for gold, silver, or platinum coins issued by the United States or under the laws of any State), any alcoholic beverage, or any other tangible personal property specified by the Secretary of the Treasury (no other property has been specified as of this date). Since there are so few restrictions contained in the law, almost anything else which can be documented can be purchased in your IRA.  A “self-directed” IRA allows any investment not expressly prohibited by law.  Common investment choices include real estate, both domestic and foreign, options, secured and unsecured notes, including first and second liens against real ...

  • Why Your IRA May Owe Taxes: To Pay or Not to Pay? – That is the Question

    By: H. Quincy Long A. Introduction Many people are surprised to learn that, as discussed below, there are 2 ways in which an IRA or 401(k) investment in an entity may cause the retirement plan to owe tax on its income or profits from that investment. This does not necessarily mean that you should not make an investment which subjects your retirement plan to taxation. It does mean that you must evaluate the return on the investment in light of the tax implications. B. Unrelated Business Income (UBI) The first situation in which a retirement plan might owe tax on its investment is if the entity invested in is non-taxable, such as a limited partnership or an LLC treated as a partnership for tax purposes, and the entity operates a business. Although investment in an entity which is formed for the purpose of capital investment, such as the purchase and holding of real estate, should not generate taxable income for the retirement plan (unless there is debt financing, as discussed below), any income from business operations would be considered Unrelated Business Income (UBI) for the plan. UBI is the income from a trade or business that is regularly carried on by an exempt organization ...

  • Six Widely Held Untruths About Self Directed IRAs

    By H. Quincy Long for Self-Directed Source Blog There is a lot of confusion over self-directed IRAs and what is and is not possible. In this article we will discuss six of the biggest self-directed IRA myths. 1)      Purchasing anything other than CDs, stocks, mutual funds or annuities is illegal in an IRA. FALSE! According to the Internal Revenue Code for IRAs, the only disallowed investments are life insurance contracts and in “collectibles”, which are defined by the IRS to include any work of art, any rug or antique, any metal or gem (with certain exceptions for gold, silver, platinum or palladium bullion), any stamp or coin (with certain exceptions for gold, silver, or platinum coins issued by the U.S. or under the laws of any State), any alcoholic beverage, or any other tangible personal property specified by the Secretary of the Treasury (no other property has been specified as of this date). With so few restrictions contained in the law, almost anything else which can be documented can be purchased in your IRA. A “self-directed” IRA allows any investment not expressly prohibited by law. Common non-traditional investment choices include real estate, both domestic and foreign, options, secured and unsecured notes, including first and ...

  • The Dangers of Checkbook Control IRAs

    A very popular idea in the self-directed IRA industry is to have what some have termed a “checkbook control” IRA. These have been under attack by the IRS. Click the link below to listen to Quest Trust Company President H. Quincy Long talk about the dangers of Checkbook Control IRA LLCs. Click Here To Listen

  • Checkbook IRA LLC Pros and Cons with Quincy Long Hosted by Cash Flow Depot (Teleconference)

    A very popular idea in the self-directed IRA industry is to have what some have termed a “checkbook control” IRA. These have been under attack by the IRS. Click the link below to listen to Quest Trust Company President H. Quincy Long talk about the dangers of Checkbook Control IRA LLCs Click Here To Listen

  • FAQ Real Estate in your IRA

    How fast can Quest Trust Company purchase an investment?   We pride ourselves in our fast processing time of 24-48 hours.  Please note that our processing begins when we have received the completed Direction of Investment form as well as any supporting documentation (example: properly vested sales contract).   How can I take funds out of my IRA to buy Real Estate, without having to pay taxes and penalties? When using your IRA for the purposes of purchasing Real Estate, you are not actually taking the funds out. Similar to how your IRA can purchase an asset of a stock, your IRA can also purchase an asset of Real Estate.  Quest Trust Company specializes in helping our clients purchase RE through their retirement accounts.   What are the differences between buying real estate personally and buying real estate with my IRA?  a)      Title of the property: When using your IRA for RE investments it must be titled in the name of your IRA. When using a Quest Trust Company, the title will read “Quest Trust Company, Inc. FBO (Your Name) IRA (Account number)” b)      Funds- When your IRA is used to purchase an asset, the funds must come from the IRA. This includes any expenses that are related to ...

  • Why You Might Consider A Non-Deductible Self-Directed IRA

    Tax deductibility of annual contributions has always been one of the biggest selling points of traditional IRAs, self-directed IRAs included. This tax break is often the deciding factor that gets some individuals to adjust their budgets or forego discretionary spending in order to save for their own retirement future. But the Roth IRA, even though contributions to it can never be deducted, can still be extremely valuable (and for some individuals, even more valuable). Even non-deductible contributions to a traditional account can provide you with significant long-term tax savings. If you’re faced with the prospect of having to make a non-deductible IRA contribution this year, here are some reasons to go ahead and do so. Tax-Free or Tax-Deferred Investment Growth. It’s important to understand that while there’s unmistakable value to the current year tax break you might get from a deductible contribution, you may get greater value from the tax-free investment growth that a Roth IRA can provide. Consider that even though you don’t have to pay income tax on the investment gains you realize within a traditional self-directed IRA, you will eventually have to pay taxes on those gains when you take a distribution of those funds. And that total tax bill ...

  • Top Ten Things You Need to Know When Investing in Real Estate Notes with Your IRA

    Investing in real estate notes with your IRA is one of the most popular self-directed IRA investments available. But with this popularity comes common mistakes when people lend their IRA (and non-IRA) money out, secured by liens on real estate. Follow these 10 tips to avoid potentially costly mistakes when choosing real estate as an IRA self-directed investment. 1) You may end up owning this piece of real estate if your borrower defaults. Never loan on something you wouldn’t want your IRA to own. The risk of loaning your IRA investments toward real estate notes is matched by the reward: I routinely see yields from these loans at 12% and higher; however, borrowers can default and you may be left with the property in foreclosure. If you would be upset by the potential of taking over this property in foreclosure, you probably should not make the loan. 2) Do not advance IRA money for home repairs until the repairs are finished; then have the repairs inspected before advancing the money. This is one of the biggest mistakes that I see clients make with their IRAs. They fund the full loan amount expecting that the repairs will be done on the property, but ...

  • Two Ways to Invest in Promissory Notes with Your IRA

    Promissory notes are alternative methods for businesses and individuals to obtain funds if they don’t qualify for a traditional bank loan. They are basically an official and legally binding IOU. The owner of an IRA can use their IRA funds to finance these notes, and they have the authority to set specific terms to the agreement. IRA owners can decide the term length (how long the borrower has to pay them back), the interest rate, the dates for when each repayment is due, and even consequences in the event the borrower fails to meet these requirements. Promissory notes can help IRA owners diversify their portfolio with a long-term investment. Since promissory notes have high interest rates, IRA owners typically earn high rewards on these investments when they reach maturation. They can also guarantee cash flow for years, as the borrower must make the payments on time. Like any investment, not all promissory notes are sure investments. If the borrower defaults, especially on an unsecured note, the IRA owner could lose on the investment. It’s important to research the borrower and discuss this option with your broker before investing in promissory notes. Secured notes are safer since they will include collateral, ...

  • Top 10 Things You Need to Know About Self-Directed IRAs

    There is a lot of confusion over self-directed IRAs and what is and is not possible. In this article I will discuss some of the most important things you need to know about self-directed IRAs.   1) IRAs Can Purchase Almost Anything. A common misconception about IRAs is that purchasing anything other than CDs, stocks, mutual funds or annuities is illegal in an IRA. This is false. The only prohibitions contained in the Internal Revenue Code for IRAs are investments in life insurance contracts and in “collectibles.” Since there are so few restrictions contained in the law, almost anything else which can be documented can be purchased in your IRA. A “self­directed” IRA allows any investment not expressly prohibited by law. Common investment choices include real estate, both domestic and foreign, options, secured and unsecured notes, including first and second liens against real estate, C corporation stock, limited liability companies, limited partnerships, trusts and a whole lot more.   2) Seven Types of Accounts Can Be Self-Directed, Not Just Roth IRAs. There are seven different types of accounts which can be self-directed. They are the 1) Roth IRA, 2) the Traditional IRA, 3) the SEP IRA, 4) the SIMPLE IRA, 5) the Individual 401(k), ...

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