Using a Self-Directed IRA To Purchase Property

When investing in real estate with a self-directed IRA, there are a few rules the account holder needs to be aware of so they don’t get penalized. Here are five rules pertaining to purchasing real estate through an IRA:

  1. Cannot be Owned or Rented by Disqualified Persons

An IRA cannot purchase a property already owned by the account holder. It is also prohibited from purchasing property or selling property to disqualified persons. A Disqualified Persons cannot rent the property from the IRA, this created a prohibited transaction. Visit the Mountain West IRA website to learn more about who is considered a disqualified person.

  1. No Indirect Benefits

The account owner cannot use the property the IRA has purchased for a vacation home or as an office space for themselves. Investments are for benefits at a later date, not right now. If the property in some way benefits the account holder or a disqualified person, that is considered an “indirect benefit.”

  1. Titles

Account holders need to view their IRA as a separate entity. As such, investments are titled in the name of the IRA, not the investor themselves. Properly titled investments make the transaction clear and easy to follow when purchasing real estate in an IRA.

  1. No Out-of-Pocket Expenses

Every expense related to the property in question must be paid for through the IRA. This includes improvements, taxes, home owner’s association fees, maintenance, and more. Paying for such items outside of the IRA could lead to penalties.

  1. Buying Real Estate

With a self-directed IRA, the investor does not have to purchase the property outright for the full amount. Options like partnering with others or using a mortgage are also available.

For more details on the process of investing in real estate with a self-directed IRA, visit the Mountain West IRA website.

The Basics of Mortgage Notes

To diversify their portfolio, investors sometimes need to think outside the box. This means considering alternative investments such as mortgage notes. Investing in mortgage notes allows investors to get involved in the real estate investing world without flipping houses or vetting tenants for rentals.

When an investor uses their self-directed IRA to invest in a mortgage-backed note, the IRA acts like a bank by loaning money to the borrower. The IRA then receives a note and deed of trust. According to the terms of the mortgage, the borrower pays back the principal and/or interest to the IRA each month until the loan is satisfied. Once payments have been completed, the borrower owns the property outright.

The deed of trust provides protection for the investor in the event of default, putting a lien against the property so the mortgage holder can foreclose and take control of the property if necessary. If this happens, the IRA will own the property instead of the mortgage. The investor is then free to do with the property as they see fit.

To invest in a mortgage note, the investor needs to work with a title company or real estate broker. They will help to gather all of the necessary forms for the investor to sign and send to Mountain West IRA. As the custodian, Mountain West IRA will then review the paperwork before approving the investment to make sure everything is in order.

Mortgage notes do not require as much personal involvement as directly owning a piece of real estate, making them a favorable investment to many investors. For those interested in investing in mortgage notes with their self-directed IRA, visit the Mountain West IRA website to learn more.

The Basics of Limited Partnerships

In a partnership, which is a type of unincorporated business organization, multiple individuals, called general partners, manage the business and are equally liable to the debts of the business. Investors can invest their Self-Directed IRA in these businesses. These investors are then called a limited partners. They simply invest in the business but are not involved in management.
Limited partnerships are an investment option for Individual Retirement Account holders with Mountain West IRA. The partnership does not pay income taxes, but the individual partners have to report their share of business profits or losses. This means the investment is subject to Unrelated Business Income Tax. However, this is only if the IRA earns more than $1,000 in unrelated business income.
Although the investment might require the IRA to pay taxes, it requires little involvement by the owner since they are not involved in management. This is one of the benefits of this type of private placement investment. One important advantage when investing as a limited partner is the liability limitation. If the business goes bankrupt or is sued, the investor is only responsible for their own investment and not the debts of the business. General partners have a much greater liability.
Some rules regarding partnership investment with a self-directed IRA include:
• 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 the investor as having been read and approved, and will be executed by Mountain West IRA on their behalf
Research and learn about Unrelated Business Income Tax and the company itself before making any investing decisions related to limited partnerships. Visit the Mountain West IRA website to learn more about private placements such as limited partnerships.

Gold Investments

Gold is not only a great way to diversify an investment portfolio, but has also been a reliable investment commodity for throughout history. Take a look at why many investors choose to include gold in their investment portfolio:

History

Over the decades, gold has generally been trusted as a wealth-preserving commodity holding its value during financial upsets. This is because gold can not be created like other currency with an assigned value. While currency fluctuates and weakens, gold tends to stay strong and not waiver much in value.

Diversification and Protection

Most investors stick to traditional investments such as stocks and bonds. However, a lack of diversification could put them in danger if things start to go downhill. Having a nontraditional investment like gold can help protect their portfolio from volatile times. While the value of the dollar has dropped, the value of gold has actually risen.

Types of Gold Investments

Gold Bullion– The value of a gold bullion is determined by the market price of gold at the time of purchase and it comes in two forms.

  • Bars: Gold bars are not generally kept in physical possession of the investor. The larger sized bars are usually only purchased by larger companies and organizations instead of individuals. However, there are smaller bars that are kept by individuals.
  • Coins: Gold coins are minted in several different one ounce forms ranging from 1/10 oz. to 1 kilo. The smaller coins are most popular among individual investors.

Jewelry/Coins with Artistic Value– Numismatic coins and jewelry made of gold are also purchased for their cultural, historical, or aesthetic appeal. Generally this leads to their value increasing faster in a bull market. In a bear market, they will decrease faster.

Gold Mining Stocks- With this, investors are buying a share in a gold mining company. Share prices are subject to a variety of factoring including performance of company management, auditors and geologists, cost basis, and the environmental and economic risk of the company.

Gold ETFs– Gold Exchange Trade Funds are products that track the price of gold and are traded on major stock market exchanges. They are not all backed by physical gold.

To learn more about investing in gold using a self-directed IRA, contact Mountain West IRA or visit their website. It breaks down what types of gold investments are allowed in a self-directed IRA and how they are handled.

Five Threats to Retirement Savings

Saving for retirement does not always go as planned. Retirement savings are subject to threats, both direct and indirect. Some of these threats are just unfortunate circumstances, while others are deliberate actions trying to take advantage of the investor.

  1. Boomerang Children

These are the children of the Boomer Generation that are still being supported by their parents by living at home. According to a study by Hearts & Wallets, only 21 percent of Boomers still supporting their children are fully retired, compared to the 52 percent who are not supporting their children.

To avoid this threat, investors need to teach their children how to properly handle finances and be self-sufficient. This way they are less likely to move back in with their parents due to money issues.

  1. Caring for Parents

As investors’ parents age, they often need help either with personal care or finances. Helping them financially can make it more difficult for the adult child to save for retirement. Also, 25 percent of adult children younger than 65 help parents with chores, personal care, etc. This may lead to less time spent at a paying job, causing them to earn less than they otherwise would earn.

Although difficult to avoid, there are assistance programs and other means for children to help their parents get what they need without sacrificing their time at work.

  1. Spousal Death without Life Insurance

For those who have a mortgage, debt, or children to support, life insurance can be critical. It can also be critical to those in their final years of saving for retirement. The loss of that second income can hit a spouse hard financially, making saving next to impossible.

Spouses should evaluate life insurance options and have a clear plan if something were to happen to one of them.

  1. Medical Crisis

In the US, medical bills are the leading cause of bankruptcy. Those with injuries or a chronic illness might not be able to work, causing investors to dig into savings to pay for medical bills. Long-term care is also very expensive and can derail even the most stable retirement plans.

Health Savings Accounts are one way to battle this issue. With this account, investors can use it to pay qualified medical expenses tax-free at any time.

  1. Scams

There are plenty of people attempting to scam people out of their retirement savings. The Financial Industry Regulatory Authority advises people to be cautious around schemes that promise returns of 12 percent or higher. Often these scammers use early retirement seminars to pitch their strategies.

Being aware of potential threats is the first step to avoiding them. Meeting with a financial planner can also help to address concerns investors might have about their retirement savings. To maximize potential retirement savings, contact Mountain West IRA to learn about their self-directed accounts and investment options.

The Balancing Act

Many younger workers have the task of balancing debt reduction with retirement savings. Often the debt they have accrued is related to student loans and credit cards. Many of these workers believe they need to pay off their debt before they begin actively saving for retirement.

However, to be able to save a sufficient amount for their golden years, young workers are going to need to save while also paying off debt. Here are some ideas on how to do that:

  1. Focus on High Interest Debt

Getting out of high interest debt should be a priority. Credit cards are usually the main culprit with interest rates as high as 18 or even 25 percent. Once rid of high interest credit card debt, try to stay out of it. When these debts are out of the way, there will be more funds available to allocate to retirement savings.

  1. Be Smart with Loans

Often, loans are just a necessary evil in life. This is especially true when making large purchases, such as buying a new car. Try to find the best deal possible, with smaller payments. Sometimes this means buying a used car or a less expensive option. The larger the down payment, the smaller the monthly payments. With smaller payments, more money can be put toward retirement.

  1. Set Realistic Goals

Instead of having an illusion of spending very little in retirement, plan for spending more. The average annual spending for those age 65 and older is $40,938. Workers need to realize they will probably spend more and account for that in their savings.

This is especially true of spending money on healthcare. Many retirees do not account for medical needs when saving. One way to be cognizant of upcoming healthcare costs is to start a health savings account. These accounts help retirees cover the medical costs rather than dipping into their retirement savings.

Often, younger workers are only encouraged to take advantage of a 401(k) match plan through their company. While this is a great tool, opening a separate account in addition to a work-sponsored one can bump up their savings potential. Visit Mountain West IRA’s website to learn about their retirement plans and investment options.