Many people dream of starting small businesses or starting a new venture but fear using traditional small business financing or taking out loans with high interest rates. However, prospective entrepreneurs and business owners don’t often realize that existing retirement funds can be used to fund start-up businesses. If you’re confident the business has the potential to be a success over the long run, investing your retirement funds can be a very savvy financial decision. By rolling your existing retirement savings into a Mountain West self-directed IRA, you can now invest in a business or start-up without tax penalties. There are IRS restrictions, but you should certainly consider using this smart and viable financing option.
Investing your self-directed IRA in a start-up or small business allows you to affect the value of both your small business and retirement account. You have the ability to lower the overhead of your start-up while accelerating the growth of your IRA. In addition, the following benefits make investing in a start-up a win-win situation:
- Use funds from your self-directed IRA without early distribution taxes or penalties
- Start your small business without incurring as much debt while gaining substantial tax benefits
- Invest up to 100% of your self-directed IRA or use a percentage
- Combine your self-directed IRA funds with those of your spouse or business partner
- Net substantial savings on interest fees and protect your credit
- Roll profits you gained back into your business or retirement plan
- Put yourself in the fast lane for financial success
To learn how you can invest your self-directed IRA in a start-up or small business, contact Mountain West IRA. Now’s the time to enjoy the substantial savings that come along with the tax and credit advantages of a self-directed IRA.
A defined benefit plan promises a specified monthly benefit at retirement. A defined benefit plan can be rolled over to a self-directed plan, but typically only if you are no longer an active participant in the plan. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service — for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance. When you roll over a retirement plan distribution, you generally don’t have to pay tax on it until you withdraw it from the new plan. By rolling over, you are saving for your future and your money continues to grow tax-free.
If you don’t roll over your distribution, you will pay tax on the amount received (other than qualified Roth distributions) and possibly an additional tax on early distributions.Keep in mind that the portion of a distribution from a traditional IRA or pre-tax retirement plan account that is not rolled over is generally taxable in the year of the distribution. If you are still employed by the plan provider, you will need to check with your plan administrator to see if the plan allows for “in-service” distributions, which allow employees to withdraw funds from their workplace retirement plan without penalty. If the answer to that question is yes, you would be able to perform a direct rollover to a self-directed IRA. By moving funds to your self-directed IRA, you can take advantage of greater choice in investments.
Generally, to roll over your retirement plan or IRA distribution:
- Ask the plan administrator or IRA trustee to transfer the amount to another plan or IRA, or
- Have the distribution paid to you and contribute it within 60 days to another eligible retirement plan.
If the distribution from the qualified plan or IRA is paid to you, you have 60 days from the date of receipt to roll it over to another qualified plan or IRA. If you make a tax-free rollover of a distribution from an IRA, you generally cannot make another rollover from the same IRA within a one-year period. You also cannot make a rollover from the IRA to which the distribution was rolled over. If you receive an eligible rollover distribution from your plan, your plan administrator must provide you with a notice informing you of your rights to roll over the distribution and must facilitate a direct rollover to another plan or IRA. Contact Mountain West to roll over your defined benefit plan to a self-directed IRA and take advantage of the many investment opportunities self-directed IRAs afford you.
Although the options are nearly unlimited when investing in real estate with a self directed IRA, it is extremely important to understand and follow the IRS guidelines to avoid hefty penalties for violations.
Some of the options available for the purchase of real estate investment properties within a self-directed IRA include:
•Domestic or international real estate
•Residential or commercial real estate
•Single family or multi-family units
Use of real estate within your self-directed IRA does have some restrictions. The owner of the self-directed IRA and members of their immediate family cannot personally use or benefit from the real estate. For example, the owner of the self-directed IRA may not purchase an investment property with funds from their self-directed IRA for their child to live in while attending college. Another important guideline to note: money earned from the investment properties must go directly back into the IRA account used to purchase the property and expenses for the property must also be paid from the account.
Although the rules and guidelines for self-directed IRAs may seem confusing at first, the professionals at Mountain West IRA specialize in facilitating the management of self-directed IRAs and are available to guide investors through the process. Contact Mountain West IRA to schedule an informational appointment.