Frequently Asked Questions

Mountain West IRA - General

What type of services does Mountain West IRA provide?

Mountain West IRA is a retirement plan record keeper for self-directed IRAs. We offer the same retirement plans as other plan administrators with one exception – we walk you through and explain the process of how to purchase the investments that you choose with your IRA funds.

Our office will help to ensure that your investment is purchased quickly, safely, and accurately. As your account administrator, we do not tell you what to invest in; rather, we guide you through your transaction purchases.

You can review our retirement plans section for more information regarding plan types and contribution comparisons. You should also seek the services of a tax professional to assist you in the proper selection of the plan best suited for you.

Why do I need an administrator like Mountain West IRA?

The Internal Revenue Service requires a custodian to hold the IRA assets and the custodian is required to report transactions on the account. Due to some of the nuances with self-directed accounts, a majority of custodians do not accept these types of assets. Mountain West IRA performs the record keeping as a nominee of our custodian Mainstar Trust. We handle these requirements in an effective and efficient manner.

Learn more about Mountain West IRA here

What types of IRAs can be self-directed?
  • Traditional IRA
  • Roth IRA
  • SEP
  • Simple IRA
  • Health Savings Account (HSA)
  • Individual(k) Plan/Solo(k) Plan
  • Record Keeping Account

Review Plan Types Here

What are the potential benefits of a self-directed IRA?

You are able to invest your tax-advantaged retirement dollars in investments you know and understand. Through the power of compounding interest, this has the potential to create lasting wealth for you and your family.

How do I determine which retirement plan is best for me?

The factors to consider are:

  • Your age
  • Your contribution and deferral capability
  • Whether you have common-law employees
  • When you wish to retire
  • Your tax situation

Seek to make the highest contribution to your retirement plan
that you can. Then choose the plan that will give you the most flexibility.

You can review our retirement plans section for more information regarding plan types and contribution comparisons. You should also seek the services of a tax professional to assist you in the proper selection of the plan best suited for you.

Watch our Which IRA is Right For You by clicking the link

What are the limits to the investments I can make?

You cannot invest in Collectibles or Life Insurance Contracts. There are also certain transactions in which you cannot participate when using IRA funds. These transactions are referred to as “prohibited transactions“. Prohibited Transactions are defined in IRC § 4975(c)(1) and IRS Publication 590. These transactions were established to maintain that everything the IRA engages in is for the exclusive benefit of the retirement plan.

Sometimes professionals refer to these as “self-dealing” transactions. Self-dealing happens when an IRA owner uses their individual retirement funds for their personal benefit instead of benefiting the IRA. If you violate these rules, your entire IRA could lose its tax-deferred or tax-free status. It is important that you work with a competent Retirement Account Facilitator such as Mountain West IRA to avoid violating these rules.

What are required minimum distributions?

Required minimum distributions (RMD) are the minimum amounts that must be distributed to you from your retirement account(s) after you reach age 70½ (with the exception of the Roth IRA).

Where do I find more information on your education?

 

To learn more about Mountain West IRA’s educational events and tools:

  1. Visit our Webinar Page
  2. Sign up for our monthly Newsletter – you will receive our most recent blog posts, upcoming events, and all important self-directed IRA information
  3. Like us on Facebook

What is a Self-Directed IRA

What is a self-directed IRA vs a regular IRA?

There is not a legal distinction between a “self-directed IRA” and any other IRA. The difference is Mountain West IRA lets you take control of your retirement by letting you invest your IRA in what you know and understand best.

There are 2 different sets of rules that govern
what you can do with your IRA:

  1. Internal Revenue Code, which has very few
    restrictions.
  2. Your account agreement with your current Custodian. With most Custodians you are restricted in the type of investments you can buy in your IRA.  Mountain West IRA allows you to maximum the amount of control and flexibility.

Almost anything that can be documented can be held in your Mountain West IRA self-directed IRA.

Are there a lot of people who have self-directed IRA accounts?

The self-directed industry is growing very strong with trillions of dollars invested in IRAs that are non-traditional assets. There are over 50 million retirement account holders, and less than 4% of those are held in non-traditional assets. This number is expected to grow significantly over the next five years as more individuals and their financial advisers attain a greater awareness of self-directed IRAs.

Why haven’t I heard about this?

It’s a common misconception that the only investments allowed in a retirement account are stocks, CDs, and mutual funds. The truth is that broader investment options have been available to the public since the inception of the IRA in 1975.

The retirement industry has been dominated by large transaction-driven custodians who have focused on a narrow universe of investments. While these kinds of accounts may be right for some, they don’t offer the kind of freedom that a Mountain West self-directed retirement plan offers.

To fully maximize your investment options, you need to have a retirement plan that allows you to select your own investments. A truly self-directed retirement plan allows you the freedom to invest in many types of assets that are not prohibited by the Treasury Department regulations and the Internal Revenue Service code.

Is it legal to purchase non-traditional assets using my IRA?

The answer is yes! The Employee Retirement Income Security Act (ERISA) of 1974 passed the responsibility of retirement saving from the employer to the employee. Created in 1975, IRAs provide individuals a chance to direct where their retirement funds are invested.

The IRS code, instead of distinguishing which investments are allowed, identifies which investments are not permitted under these laws. Under both ERISA and IRS Codes, there are only two types of investments excluded: life insurance contracts and collectibles such as works of art, rugs, jewelry, etc. Refer to Internal Revenue Code Section 401 (IRC § 408(a) (3)).

My (CPA/attorney/broker/friend/other person) said that buying and selling real estate in my self-directed retirement plan was illegal. Why?

This has been a long-lived myth. Neither the IRS nor the Department of Labor has ever published a list of legal investments. However, there is a list of Prohibited Transactions and Disqualified Persons that deal with what is not permitted. Real estate and other investments are permitted provided you follow the rules.

Are there different tax rules for self-directed IRAs?

The unique thing with IRAs and 401(k) are the tax advantages. Most contributions are either tax deductible as is the case of a Traditional IRA or 401(k) or the distributions are tax free as in the case of a Roth IRA or Roth 401(k). There are no unique rules for self-direction.

What is a prohibited transaction?

There are some transactions that are prohibited by the Department of Labor ERISA division and the IRS. There are basic requirements and procedures needed to apply for exemptions from the prohibited transaction rules (includes ERISA and non-ERISA plans and Individual Retirement Arrangements).

Prohibited Transactions are defined in IRC § 4975(c)(1) and IRS Publication 590. These transactions were established to maintain that everything the IRA engages in is for the exclusive benefit of the retirement plan. If you have questions, please contact us

 

Start Investing in a Self-Directed IRA

How do I open a self-directed IRA?
How long does it take to establish an IRA?

Mountain West IRA has a 2 business day turnaround time for account establishment and transactions upon receiving completed documents.

We will be in contact with in 1 business day to request missing documents or information. If you do not hear from us within 1 business day of submitting document please contact us.

Can I consolidate my IRAs?

Yes. You can consolidate:

What are the fees and costs involved?

For a list of our fees, please see our Self-Directed IRA Fee Schedule or this is included in our IRA Starter Kit

I own a small business. Can I offer self-directed IRAs to my employees?

If you have no common-law employees, you can offer an Individual(k) Plan. If you do have employees they must be spouses, owners or partners, the best plan may be the Individual 401(k), which permits the highest aggregate percentage of contributions and flexibility. The administration is straightforward and you are the trustee, custodian and administrator, unlike IRA plans.

Other options as an employer:

If your employees are common-law, you can choose to establish a self-directed 401(k) Plan with a plan provider and add verbiage for Record Keeping Accounts. Thus, you and your employees will have the option to self-direct or invest in common investments.

Plans that we act as record keeper on where an employer could invest for employees are SEP (Simplified Employee Plans).

Plans that we act as record keeper on where employers and employees can contribute include a SIMPLE Plan.

For more information on the types of retirement plans for small businesses, please check the Retirement Plans section of this site.

Investment Options - General

Can my IRA be sued?

Your IRA may be subject to legal action. Individual retirement accounts (IRAs) are not always exempt from creditor claims, and are never exempt from federal or state taxing authorities; however, most states do not permit creditors to collect from IRAs.

What can I invest in?
  • Real Estate
  • Promissory Notes
  • Private Companies, Trusts, LLCs
  • Precious Metals/Foreign Currency

You may invest in anything which is not prohibited or collectible as defined by the Internal Revenue code. For a list of investment options, please visit the investment options section of the site.

What kinds of investments can I make?

You may invest in anything which is not prohibited or collectible as defined by the Internal Revenue code. For a list of investment options, please visit the investment options section of the site.

How fast can Mountain West IRA fund a transaction?

Mountain West IRA funds all transactions within 2 business days of receiving completed documents. We do have the ability to expedite and fund within 24 hours for a $95 expedite fee.

Can I borrow money from my IRA?

You may not borrow funds personally from your IRA under any circumstances. This is a prohibited transaction. You may lend to any person other than disqualified persons or companies.

As a real estate professional, why should I know about self-directed IRAs?

Investors, you can invest in something you know and understand which means you will be able to grow your retirement much more efficiently compared to traditional methods. you can help others transfer their retirement funds into a self-directed IRA, then you can borrow those funds to make your own investments – in other words, you can create your own private bank!

Realtors/Investors: You can make other people aware that they actually have more money to invest in real estate than they thought since they can use their IRAs to buy real estate. Your knowledge of self-directed IRAs can increase your pool of eligible buyers for your properties.

Does Mountain West IRA have a financial adviser or investments to offer?

No, Mountain West IRA is a passive, self-directed IRA administrator of your account, preparing account statements for you and reports for the IRS.

Our role is to carry out an IRA owner’s directions (much like a bank carries out payment instructions when an account owner writes a check). We do not review, research or analyze your investment choices and do not opine on investment decisions.

You should consult a trusted financial professional such as your accountant, financial planner or lawyer before making an investment.

What is Unrelated Business Income Tax (UBIT), Unrelated Debt Financed Income Tax (UDFI)?

UBIT comes in two forms. Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income Tax (UDFI).

UBIT applies to IRAs invested in entities that do not pay taxes (such as many LLCs) that are an operating entity of a business that produces in excess of $1,000 per year in income.

UDFI relates to an individual retirement account that has a debt financed portion. The UDFI tax is based on income from the Debt Financed portion provided that the net gain is more than $1,000 in a year.

Preparation of the 990-T tax forms is performed by you. The trustee or custodian or appropriate agent will file such taxes and sign the tax forms on behalf of your plan.

Read more on UBIT/UDFI here

Real Estate

How does an IRA purchase real estate without taking a distribution?

When using your IRA for the purposes of purchasing real estate, you are not actually taking a distribution. Similar to how your IRA can purchase an asset of a stock, your IRA can also purchase an asset of real estate. Mountain West IRA specializes in helping our clients purchase real estate through their retirement accounts.

All dividends from your real estate purchase must come back to your IRA.

What is the benefit to purchasing real estate through my IRA vs personally?

You can use this calculator to determine the potential tax benefits to purchase real estate in your IRA.

*Please contact your CPA or tax professional for specific tax advice

Can I purchase an investment property I already own?

No, a property your IRA is purchasing must be a new purchase. You are a disqualified person, so your IRA cannot purchase from you as this creates a prohibited transaction.

What real estate purchases can be made with an IRA?
  • Single family
  • Multi-Family
  • Commercial
  • Joint Venture
  • Rehab/Fix and Flip (as long as you are not doing the work personally)

Read more about Real Estate in your IRA here

Can I purchase a house and personally live in it?

No, that is considered a prohibited transaction.

Can I purchase an investment property for my child to live in, but the roommates pay rent?

No, your child is considered a disqualified person and this will create a prohibited transaction.

I own a construction company or property management company, can my IRA pay my company to do the construction or property management?

No, you are a disqualified person, thus this will create a prohibited transaction.

What if I don’t have enough cash to buy real estate in my IRA?

You may partner with yourself or others; you may make allowable contributions; you may obtain debt financing through private sources or financial institutions on a non-recourse basis; you may arrange a seller carry back loan; you may sell other assets in your IRA to raise cash to make the purchase; you may transfer funds from other IRAs or rollover funds from qualified plans, such as 401k, 403(b) or 457(b) plans you may have at employers where you no longer work; if you have a profit sharing portion of 401(k) plan where you currently work, you may be able to make in-service rollover distributions to a Mountain West IRA.

Where can I get a loan for real estate purchases using my IRA?

Normally private lenders, seller carry backs, and mortgage companies may lend to your IRA on a non-recourse basis. Sometimes banks and credit unions may make non-recourse portfolio loans to IRAs. Please visit our Resource Center for contacts.

Can my IRA take a loan to enhance the purchasing power of the IRA?

Yes the IRA can. However, the loan must be a non-recourse, which means no personal guarantee by the IRA holder or any other disqualified persons.

Who manages the property when my IRA owns it?

You can choose to hire a property management company or you can personally manage. However, if you choose to personally manage you cannot do any “sweat equity” (ex: do any repairs) all repairs must be hired to a third party.

Can I personally partner with my IRA to purchase real estate?

Yes, as long as it is a new purchase and the percentages are determined upon the purchase of the property. All rules associated with the IRA owning the property 100% still apply for partially owned.

Promissory Note

Can my IRA make loans to others who want to purchase real estate?

Yes, as long as they are not a disqualified person. Your promissory note can be secured or unsecured. You and the person you are loaning to will determine the terms.

Can I partner with another IRA to loan money?

Yes, as long as upon creation of the note each percentage is determined.

Can I loan myself money from my IRA?

No, you are considered a disqualified person.

Private Entities

What are private placement investments?

Private placements such as LLCs, Partnerships & Joint Ventures, and Private Stock are just some of the many options available with a Mountain West IRA self-directed individual retirement account.

What are Limited Liability Companies (LLCs)?

An LLC is a legal organization that provides the advantages of a partnership while limiting legal liability of the individual partners the same way a corporation does. 

Mountain West IRA also requires proof that the LLC in good standing on an annual basis, as well as an annual fair market valuation of the LLC provided by a qualified third party. 

What is a Partnership (LP)?

A partnership is a type of unincorporated business organization or agreement in which multiple individuals, called general partners, manage the business and are equally liable for the debts of the business.

Other individuals or entities such as an IRA called limited partners may invest in the business but are not directly involved in management. Limited partners are only liable to the extent of their investments.

The partnership itself does not pay income taxes, but each partner has to report its share of the business profits or losses on either individual tax return or in the case of an IRA, a 990T Exempt Organization Business Income Tax Return. Estimated tax payments may be necessary for each of the partners for the year in progress. It is always recommended that anyone investing their IRA in an LLC or LP consult a tax advisor prior to the investment.

Here are some general rules regarding partnership investments in your self-directed IRA:

  • The partnership agreement must permit an individual retirement account or a qualified plan to be a partner.
  • The partnership must comply with the appropriate state law, have a determinate life, and be assignable.
  • The partnership subscription agreement must be signed by you as having been read and approved, and will be executed by Mountain West IRA for your benefit.

Partnerships may be subject to unrelated business income (UBIT) and other taxes. It’s important to consult your tax adviser for proper direction.

What is private stock?

Private or closed corporation stock offerings are not available to the public on the open market. Normally, they are made to pre-qualified individuals. These offerings must comply with the securities Blue Sky laws in the state in which the offering is made. The number of individuals included in the offering cannot exceed the maximum stipulated by state law.

These offerings, usually made by corporations seeking capitalization, can be in any class of stock described in their prospectus. Many corporations act as their own registrar as well as transfer agent. They may or may not use market makers for their offerings. Purchases and sales are described in their offering materials, which you should study closely.

Partnerships and small businesses have been the backbone for our nation’s economic growth. Companies such as HP, Merck, IBM, Disney, and GE were once private entities that went on to become pillars of the American business landscape.

What are joint ventures?

Joint ventures can be in many forms. Usually it is an agreement between two or more individuals or entities where the agreement outlines which partner in the joint venture is responsible for and how the project will be completed and profits or losses split.

How do I find a private entity to invest in?

Often you are invited to be an investor, work within the company or know someone who works at the company, or you find a private entity via research. Mountain West IRA is a passing self-directed IRA administrator who does not do due diligence on private entities.

Precious Metal/Foreign Currency

Does Mountain West IRA choose the dealer?

No, as the IRA holder, you get to choose the dealer and the type of product you want. Mountain West IRA does not sell or promote any products or vendors.

Who chooses the depository?

Unlike most self-directed IRA administrators, Mountain West IRA allows you as the IRA holder to choose any precious metals storage facility. The choice is up to you. Please do your due diligence on the depository you choose.

What types of metals are allowed in an IRA?

Gold bars: They must have a purity of 24 karat (0.995+ fineness). These bars come in 1 oz., 10 oz., 1 kilo (32.15 oz.), 100 oz., and 400 oz. sizes.

Gold coins: They must have a purity of 24 karat (0.9999 fineness), with the exception of the 22 karat U.S. Gold Eagle.

Silver coins & bars: They must have a 0.999+ fineness, like the 1 oz. U.S. Silver Eagle. You can purchase 100 oz. silver bars and also 1000 oz. silver bars. Pre-1965 bags of US silver coins (dimes, quarters, half dollars, and silver dollars) are not allowed in an IRA because their alloy contains only 90% silver.

Platinum/palladium bars & coins: They must have a 0.9995+ fineness, however, private companies who manufacture platinum and palladium bars ranging in size from 1 oz. to 100 oz. with well-established hallmarks, are acceptable as well. Both the U.S. and Canadian mints make 1 oz. platinum coins meeting these standards. Other countries, such as Great Britain and Australia, have 1 oz. platinum coins, which are not as well-known but are also acceptable.

Currency: Iraqi Dinar, Vietnamese Dong, Zimbabwe Dollar. All currencies must be purchased from a dealer.

What are the different forms in which precious metals can be held in a Mountain West IRA?

Precious metals can be held in your IRA in the form of physical (allocated or unallocated) gold and silver bullion, coins from specified countries, and certificates.

What is the difference between allocated and unallocated storage?

Allocated or segregated storage only applies to gold bars 10 oz. or greater and it ensures that the bars are kept separate from the other metals in the depository’s vault. Bars are identified by size, refinery, and serial number (for example: 100 oz. PAMP Swiss gold bar SN#35427681). When the metal is distributed from the depository, it will be the exact same bar that was originally deposited.

With unallocated or unsegregated storage, the metals are commingled in a depository metal account. Bars are identified by size/weight and refinery (for example, a 100 oz. JM silver bar).

When the metal is distributed from the depository, it will be the same size bar, from the same refiner as the bar that was originally deposited. Coins are identified by type and year minted (for example, a 1992 American Silver Eagle). When the coin is distributed from the depository, it will be the same year coin as the coin that was originally deposited.

Can I put precious metals or foreign currency that I currently own into my IRA?

No, this is considered a prohibited transaction because you are a disqualified person.