Posted by Entrust Orange County on Tue, Aug 10, 2010
People are excited and intrigued by the 2010 Roth IRA rule changes and how it may benefit them. It’s important to be informed and speak to your team of experts to determine if conversion to a Roth IRA is best for some or all of your retirement funds. Below is an overview of some of the key points to understand.
A traditional IRA is where you put your funds into the IRA on a pre-tax basis, the income and profit from the assets in the IRA grow tax-deferred, you may start to pull your funds out of the IRA at retirement age (59 ½ years old), and you pay taxes on the funds as you pull them out at whatever tax bracket you are in at that time. A Roth IRA is where you put your funds into the IRA on a post-tax basis, and the income and profit from the assets grow tax-deferred for life. Meaning you do not pay taxes on the funds as you pull them out of the Roth IRA at retirement age.
In a webinar I did with Keystone CPA they spoke about some of the benefits of doing a traditional to Roth conversion, as well as some of the tax strategies to keep in mind. A few of the benefits of a conversion to a Roth IRA are that there are no required minimum distributions, qualified distributions are tax free, compounding growth is tax free, you pay the taxes now and grow tax free, and you can spread the tax liability over two years. If you do your Roth conversion in 2010 only, you may choose to pay all of the tax liability in April of 2011 or you may choose to spread it out over two years. Meaning you may pay 50% of the liability in April of 2011 and the remaining 50% in April of 2012.
There are several reasons why it may make sense to do a Roth conversion in 2010. Do you currently own an asset, such as real estate, that has a depressed value, but that you feel the value will be greater in the years to come? Do you anticipate future tax rate increases or do you feel that you will have a lower taxable income this year? Perhaps you have significant write-offs this year, which will offset the tax consequences of a conversion.
Make sure you speak with your tax advisor or CPA to help guide you in determining if a conversion of some of the assets in your traditional or SEP IRA to a Roth IRA makes sense for you. If a conversion is something that you would like to pursue, please make sure you contact Entrust and I can guide you through the process.
By Jennifer Williams, Client Services/Inside Sales Representative
(949) 788-2970
jwilliams@theentrustgroup.com
Posted by Entrust Orange County on Tue, Jul 13, 2010
I often receive calls from potential clients that are not happy with the current performance of their retirement accounts in the stock market, and they want to learn more about what they can invest in with their IRA or old 401(k). One of the wonderful aspects of having a self-directed IRA is that you have the option of investing in areas that you already understand and are passionate about. Just imagine the options, potential success, and growth of your IRA if you take control now by investing in what you know best.
With the freedom of self-direction, comes responsibility. Below is a case study of one client that is truly taking control of his retirement account, doing his due diligence, and getting educated on self-directed IRAs.
Todd has been a real estate broker and investor for 13 years. With all of the changes in the real estate market, and Todd’s vast experience with brokering, financing, and investing in real estate, he decides that he is going to partner with a private placement expert. With them, he will create a new real estate fund with the mission of generating superior returns in the distressed real estate market.
Todd learns that not only can you invest in real estate with an IRA, but that you can also invest in private companies. He is excited to realize that this may potentially rejuvenate his retirement account and secure his family’s future. In addition, his investment could also open the door for others like him that would like to invest in his fund and recover from all of the losses their accounts have suffered in recent years.
Todd contacts Entrust to learn if he can rollover his old 401(k) to a traditional IRA and invest in the new fund, along with other people. Todd learns that he would personally be disqualified to his own IRA, which means he can’t use his own IRA to invest in the fund that he manages. However, others can use their IRAs to invest in the fund and grow their retirement account on a tax-deferred basis.
Todd’s investors are excited to learn about the investment possibility and eagerly move forward with the three-step process of investing with their IRAs. The first step is to open a self-directed IRA with Entrust. The second step is to fund the new IRA with a rollover from an old 401(k), or a transfer from an exiting IRA. The third and final step is to provide Entrust with a Buy Direction Letter, to advise them of what investment they would like to make, and the Subscription Agreement for the fund.
Todd is thrilled that his investors are able to use their retirement accounts, if they choose to self-direct, and that this knowledge opens his pool of investors up to not only people who may use their own capital, but also people who may want to use the funds in their IRAs. Yet, Todd is still eager to take control over his own retirement account. Since he knows that he is disqualified to his own IRA, but has learned that he can invest in private companies, he decides to use his IRA to passively invest in another area he has expertise and passion, Brazilian Jiu-Jitsu. Gracie Barra, one of the largest BJJ organizations in the world, is now based in Orange County, where Todd is located. They are preparing a private placement offering to expand into new markets. Todd finalizes his due diligence on the Gracie Barra offering, and is ready to move forward with his investment.
Todd has already opened a traditional IRA with Entrust, and rolled over his old 401(k) funds. He just needs to submit his Buy Direction Letter to Entrust along with the Subscription Agreement documents for the investment with Gracie Barra offering. Entrust will then fund the investment and the transaction will be complete.
The above example shows you that not only can you use a self-directed IRA to take control of your retirement account, but you can also invest in something that you understand and do in your daily life. Please feel free to contact me if you want to learn more about self-directed IRAs, and how you can invest in what you know best and are passionate about!
By Jennifer Williams, Inside Sales Manager/Client Services Manager
jwilliams@theentrustgroup.com
Posted by Chris Kramer on Tue, Jun 08, 2010
As I present to groups, I am often asked, “Can I use an LLC to invest funds from a self-directed IRA in real estate?” The answer is yes. The use of Limited Liability Companies in conjunction with a self-directed IRA, for real estate investments, seems to be gaining popularity these days.
This strategy generally involves forming an LLC with the self-directed IRA as an owner (or "member") of the LLC. Funds are transferred to the LLC, which in turn purchases and holds title to the real estate. Many investors using self-directed IRAs to purchase real estate form LLCs. It can simplify investing and provide asset protection.
It is important to consult with an attorney when structuring the ownership of your LLC, to ensure that your investments are not considered to be prohibited transactions, as defined by the Internal Revenue Code. Prohibited transactions can jeopardize the tax-deferred status of an IRA.
If you have any questions, please feel free to call us at (949) 788-2970.
By Chris Kramer, Business Development Manager
ckramer@theentrustgroup.com
The above listed information is NOT intended to be tax advice, as Entrust does not provide legal and/or tax advice.
Posted by Chris Kramer on Tue, May 04, 2010
In today’s financial environment, I am often asked: “Where can I invest my IRA and receive a reasonable rate of return in a safe environment?” Of course, every investor should do their due diligence, and make the best decision for their specific situation. More and more, I am seeing investors lend money from their IRA to other investors, secured by the trust deed.
Here is an example of one investor I know, who did just that:
Mr. Hurtado had $105k in his old 401k plan with a former employee. He did a direct rollover into his new self-directed IRA. Once the account was established, he knew a real estate investor who was seeking money for his next deal. The market value of the property was 198k and the investor had an offer on it for 71k. The investor estimated rehab costs to be 30k. So, Mr. Hurtado and the investor agreed that Mr. Hurtado would lend him 101K from his new self-directed IRA, for 12% with a 12-month balloon payment. They drew up the promissory, secured by the trust deed. The investor was responsible for the rehab work, listing the property, working with the real estate agent and ultimately selling the property. Mr. Hurtado not only liked the terms of the agreement, but he felt secured knowing if the something happened to the investor, he was secured by the trust deed.
With conventional financing guidelines they way they are today, there are many investors that are looking for alternative sources of capital. This can create a mutually beneficial situation for both investors and IRA holders.
By Chris Kramer, Business Development Manager
ckramer@theentrustgroup.com
Posted by Entrust Orange County on Tue, Apr 06, 2010
Our clients invest in very diversified assets, and as such we like to share unique and interesting case studies whenever possible. Would you like to use your IRA to invest in something that you personally believe in? You can. Below is a case study you may find intriguing.
Scenario: A church is currently renting a small space to hold their weekly services and youth events. The church is outgrowing the space and is interested in moving into a larger property. Sadly, funds are an issue for the church, making it difficult to buy a property directly.
Various members of the community start a Limited Liability Company, or LLC, and use their Entrust self-directed IRA and personal funds to buy shares of the LLC in order to acquire real property. As the LLC is oriented to investments, the owners and manager of the LLC know when they find the right property. The church can then rent the property from the LLC. The investors using their self-directed IRA funds provide Entrust with a simple Buy Direction Letter, along with the LLC Subscription Agreement (in the name of their Entrust IRA), and Operating Agreement. They also submit instructions for where they would like Entrust to wire the funds to the LLC. Once the LLC receives all of the necessary funds, it is ready to move forward and close on the property. The LLC then enters into a rental agreement with the church.
It can be very rewarding to take control of your retirement accounts and truly diversify your portfolio. Imagine the possibilities if you can find an investment that you personally believe in and are passionate about, while building wealth for the future. That is true self direction.
By Jennifer L. Williams, Inside Sales & Client Services Manager
jwilliams@theentrustgroup.com
Posted by Chris Kramer on Mon, Mar 08, 2010
1031 exchanges are a great way to defer taxes and buy new
real estate. Did you know your IRA can partner with you in your next 1031 exchange?
I just worked on opening an account for an investor who sold a property and used a 1031 exchange. He wanted to build up his
ROTH IRA, so he decided to partner his ROTH IRA with himself. To achieve this, there are a few things you must pay close attention to and do correctly. First, you should have proper vesting from the beginning. What this means is that if your IRA is going to partner with you, or anyone else, the purchase contract must reflect proper vesting and percentages.
For example, the purchase will be made with $70,000 of 1031 money, and $30,000 from your ROTH IRA. The vesting should read, “Entrust Administration Trust FBO Joe Investor, Roth IRA, A/C #, as to an undivided 30% interest, and Joe Investor as to an undivided 70% interest.” If this is not done up front, the only way to fix this is to rip up the original purchase contract and write up a new one. Do you really want to mess with that? I am sure the bank has no interest in that either. If you have an interest in
self-directing your IRA, open an account immediately, so when something like this comes along, you can start the process right, with the correct vesting.
Lastly, remember when using your IRA, all expenses for the property must come equally from yourself and your IRA. So, for example, if the property needs $10,000 of rehab in this case, 70% of the money needs to come from your personal money and the 30% from your IRA. As long as you follow the rules from the start, using your IRA with a 1031 exchange can be a great opportunity!
By Chris Kramer, Business Development Manager
CKramer@theentrustgroup.com
Posted by Entrust Orange County on Mon, Mar 08, 2010
I have been receiving an increasing amount of calls and e-mails from clients interested in learning more about converting their Traditional or SEP IRAs to a
Roth IRA, and also about the 2010 Roth rule changes. Everyone seems to be excited about these rule changes and how it may benefit them.
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Traditional IRA is where you put your funds into the IRA on a pre-tax basis, and the income and profit from the assets in the IRA grow tax-deferred. Upon reaching age 59 1/2, funds may be withdrawn without penalty. A Roth IRA is where you put your funds into the IRA on a post-tax basis, and the income and profit from the assets grow tax deferred for life. This means that you do not pay taxes on the earnings accumulated from contributions that have been in the account for 5 years and you have reached 59 1/2, been disabled, deceased, or for a first time home purchase.
I recently did a webinar with Keystone CPAs who spoke about some of the benefits of doing a Traditional to Roth conversion, as well as some of the tax strategies to keep in mind. The CPAs stated that a few of the benefits of a conversion to a Roth IRA are tax-free compounding growth and qualified distributions, no required minimum distributions, paying the taxes now and growing tax free, and spreading the tax liability over two years. If you do your conversion in 2010 only, you may choose to pay all of the tax liability in April 2011 or you may choose to spread it out over two years. This means you may pay 50% of the liability in April 2011, and the remaining 50% in April 2012.
There are several reasons why it may make sense to do a conversion this year. Do you anticipate future tax rate increases or do you feel that you will have a lower taxable income this year? Do you own an asset, such as real estate, that currently has a depressed value, but that you feel will grow in value in the years to come?
Your tax advisor or CPA can help guide you in determining if a conversion of some of the assets in your Traditional or SEP IRA to a Roth IRA makes sense for you. If a conversion is something that you would like to pursue, contact us and we can guide you through the paperwork.
By Jennifer Williams, Business Development Manager
JWilliams@theentrustgroup.com
Posted by Entrust Orange County on Mon, Feb 08, 2010
I don’t know about you, but tax season sneaks up on us every year. One moment we’re rushing through the holidays worrying about budgets and how much we are spending on holiday gifts and, in the blink of an eye, it’s time to file our tax returns. Perhaps you’ve been doing strategic tax planning with your financial advisor throughout the past year. But perhaps your life has flown by this year, and tax season snuck up on you like it has for so many Americans. If so, below are a few items to keep in mind as you prepare to file your taxes this April.
Did you know that you still have time to make an annual contribution to a Traditional IRA for 2009? Maybe during these uneasy financial times, you didn’t think you would receive a holiday bonus at work or reach your company goals. Let’s assume that after your company’s year-end, you actually qualified for a bonus or, perhaps due to your diligent budgeting, you have more money left after the holidays than you thought you would. If you make an annual contribution before April 15 of this year, you can choose to apply that contribution to 2009 and reap the tax benefits. If you are under 50 years old, you can contribute up to $5,000 for 2009. If you are 50 or over, you can contribute up to $6,000.
Funds are put into a Traditional IRA on a pre-tax basis, so it will reduce your taxable income for the year. For example, let’s assume that you are under 50 and your annual compensation is $80,000. If you contribute $5,000 before April 15, 2010, you reduce your taxable income to $75,000 for your 2009 taxes. Depending on your personal financial situation, this type of contribution could put you in a lower tax bracket and thus save you money this April. Do you have a spouse who does not work outside the home? If so, your spouse might be able to open a Traditional IRA and make an annual contribution that will also apply for 2009.
When you meet with your tax advisor, don’t forget to ask about how opening an IRA or making contributions to an existing IRA can help you today and in the future.
By Jennifer Williams, Business Developement Manager
JWilliams@theentrustgroup.com
Posted by Entrust Orange County on Tue, Dec 08, 2009
TIPRA an acronym for a relatively new tax law passed just a few years ago. In essence, one of the major opportunities provided by this tax act related to investing with your traditional and Roth IRA’s. Before the new act, an individual could only convert their Traditional IRA to a Roth IRA if their adjusted gross income for that year was below $100,000. But with the new tax act, in 2010, these new rules will allow taxpayers to convert or rollover funds from a Traditional IRA to a Roth IRA regardless of their income level.
So you may have the question as to why would you want to convert your traditional IRA into a Roth IRA? Well, the answer lies in the different tax treatment of Traditional IRA’s vs. Roth IRA’s. For those of you who are not familiar with the differences between a Traditional and a Roth IRA, here is a quick overview. With the traditional IRA, you make pre-tax contributions to the retirement account but pay taxes on the money once you withdraw upon retirement. Conversely, with a Roth IRA, you make after-tax contributions to the retirement account, but the withdrawals upon retirement are tax free. So in summary, the traditional IRA allows for tax deferred growth while a Roth IRA generally provides for tax-free growth.
The benefit of the strategy of converting your money from a traditional IRA into a Roth IRA lies in the number of years to retirement and the number of years of compounding growth left. So if you can pay taxes now on a smaller amount and then let that money grow tax-free, then you are able to accelerate your wealth building potential by eliminating the tax drag on your investments. Here is the down-side to this new rule, the amount that you convert to a Roth IRA in 2010 will be taxed as ordinary income when you make the conversion.
So let’s share with you two tax saving techniques that can reduce this potential negative impact. For the first strategy, look to minimize your income in 2010 so that any income resulting from the Roth Conversion could be taxed at a lower rate. Those of you with substantial real estate investment, plan ahead to generate enough tax losses from your real estate in 2010 to offset this other income from the conversion.
And the second strategy is for those of you who can’t currently contribute to a Roth because your income is too high and/or for those of you who can’t make deductible contributions to a Traditional IRA because you are covered by another retirement plan. If this is you, then you may want to consider making non-deductible contributions now to a Traditional IRA and then convert such amounts to a Roth in 2010. Even if you can’t get a deduction for these contributions now, this sets aside some funds that you can convert into a Roth IRA in 2010, which in essence starts the clock ticking for your tax-free growth. Also, the roll-over of nondeductible traditional IRA money is not taxable in the year of a Roth conversion. This roll-over opportunity is a huge advantage to many high-income taxpayers who traditionally have not been able to maximize their wealth preservation through Roth IRAs. Please speak to your tax advisor if you feel this could benefit you and start planning now to take full advantage of the 2010 TIPRA rules.
By: Keystone CPA, Inc.
Posted by Entrust Orange County on Tue, Dec 08, 2009
I recently did a presentation regarding self-directed IRAs with two CPAs who were there to explain the upcoming 2010 Roth conversion rule changes. The room was packed with people wanting to learn more about these exciting changes and what this opportunity might mean for them.
Some of the benefits of converting a traditional IRA or old 401(k) plan in 2010 are that you have the option to spread the tax liability over two years, and the usual income limit for Roth IRAs doesn't apply. So if you can afford to pay the taxes now for the conversion, the money then grows tax free for life. In fact, there are no required minimum distributions for a Roth IRA.
And if you convert to a self-directed Roth IRA, think of the investment options that are possible-real estate, tax liens, notes, green communities, forex, foreclosures, and more. On top of that, all the profit from those investments will be tax free for life!
By Jennifer Williams, Entrust Financial Services
Jwilliams@theentrustgroup.com