Delivering Measurable Results

K. A. Lindow, CPA, P.C. CPA Firm, Phoenix, AZ.

Frequently Asked Questions

Subscribe to our Emailed Newsletter

Recent News

Tax Calendar

Self Directed 401K & IRA
Frequently Asked Questions

 

1. Why haven't I heard about flexible IRA/401K investing before?

Brokerage companies earn commissions when you buy and sell stocks, bonds, and mutual funds. They don't make money when you buy real estate. Further, very few custodians are interested in holding "non-traditional" assets they don't understand. Finally, the industry is small. Only a few firms such as ours provide "full service" to self-directed retirement plan beneficiaries.

2. Can I really invest my retirement assets in real estate?

Absolutely! In 1974, the Employee Retirement Income Security Act (ERISA) gave all self-directed retirement plans this option. In addition to real estate, you can direct your IRA/401K investments into, among other things, mortgages, notes, tax liens, and private businesses. There are, of course, restrictions on some investments, but we will help you navigate around them.

3. What are "IRA transfers" and IRA/401K rollovers?

A "rollover" occurs when an individual requests a distribution from an IRA/QRP (Qualified Retirement Plan) and then "rolls" the assets into another IRA/401K. An individual is limited to one rollover per year. A "transfer" is when IRA/401K assets are moved directly from one financial institution to another without the IRA/401K owner taking possession of the assets. Unlike rollovers, there is no limit on how many transfers can be executed in a year.

4. How can I leverage the assets in my IRA/401K to buy more expensive properties?

You can use the equity in the property that you expect to purchase to borrow funds on a non-recourse basis, and you can also pool your IRA/401K funds with those of other people, other IRAs, or even your personal funds to buy large properties. The leverage limitation is not placed on 401(K) funds.

5. Are there any investments that I can't make with my self-directed IRA/401K?

You cannot invest in Life Insurance Contracts or Collectibles (as defined by the IRS). Also, you may not participate in prohibited transactions.

6. What exactly is a "prohibited transaction?"

IRA/401K transactions must be for the exclusive benefit of the retirement plan and must not directly or indirectly benefit the IRA/401K owner. For example, the owner cannot:

  1. Borrow money from his IRA, but you may borrow from your 401(K)
  2. Buy property for personal use with his IRA or 401(K) funds
  3. Use IRA or 401(K) assets to secure a loan
  4. Sell property to your IRA or 401(K)

7. How fast can I respond to an investment opportunity?

You can respond immediately to any allowed investment opportunity, because you're in control of your funds. The only delay would be to you, make sure that the transaction is structured within the confines of the tax law. This information is only a phone call away to our office.

8. When an investment is sold by my IRA or 401(K), can I keep the profit that is above my initial investment?

All money generated from an investment owned in an IRA or 401(K) must be deposited back into the respective account. Of course there is no income tax on this profit until you begin taking annual distributions from their plan.

9. Are there any pitfalls to self-directed IRA or 401(K) plans?

There are many potential pitfalls with respect to both prohibited transactions and timely reporting at the state and federal levels. We specialize in structuring transactions in "safe harbors" to avoid such problems and ensure statutory compliance.

10. Who makes the IRA's or 401(K) investment decisions?

You do. Your account is truly "self-directed," which means that you make the investment decisions for your retirement assets in much the same way as you invest outside of your retirement plan. But you don't invest alone. We will help you navigate the complex rules that govern prohibited transactions so you can focus on making the best investment decisions.

11. How are my assets managed?

Your assets are managed by you. You make all investment decisions, and we take care of all of the paperwork and reporting details. Once you make an investment, you may track the investment results or, we will keep your books and records if you desire. We help with the annual asset valuation, and file all required annual reports.

12. What are the benefits of having a Limited Liability Company (LLC) own my IRA/401K assets?

There are many advantages of using an LLC to own your IRA's or 401(K) assets. The LLC structure offers maximum investment flexibility, provides asset protection, allows for "checkbook control", simplifies asset titling, eases pooling of assets, and allows for immediate response to investment opportunities.

13. Can I combine personal money with my IRA/401K money to make an investment?

Yes. You and your IRA or 401(K) can purchase an investment together. However, since you cannot sell property to your retirement plans, transactions between you and your plan involving an asset after that asset is purchased are prohibited.

14. How much support can I expect from you?

We are proud of our superior customer service. We have several full-time CPAs and attorneys, who are available to answer your technical questions at any time. We also provide quarterly newsletters and educational information for our clients and their other professional advisors.

15. What is your fee structure?

We have an initial fee that covers the setup of your self directed IRA’s, 401(K) s, LLC and all associated transactions and documentation, and we have an all inclusive yearly administrative fee for whatever level of service you desire.

16. Are there restrictions on where my IRA or 401(K) can purchase real estate?

No. You can purchase real estate anywhere.

Please contact me if you have any questions. If you haven't set up your true Self Directed IRA, you should do it now. This will really put your retirement funds under your control and reduce your maintenance fees with your IRA custodian.

We advise clients on how to structure transactions to reduce or eliminate income tax.


Tax Due Dates