Many financial professionals have concerns about their clients holding precious metals in an IRA. Part of what we do at New Direction is simplify and clarify the process so investors can make smart decisions about their IRAs.

There are three parties an investor needs to choose in order to hold a gold IRA: a self-directed IRA provider, a precious metals dealer and a depository.

A self-directed IRA provider like New Direction IRA will set up an IRA for your client that allows precious metals, provide education on IRS requirements and perform record keeping for the account. Investors can move their funds without a tax penalty to a provider that does allow precious metals if they currently have an IRA.

With a truly self-directed retirement account, your client can select a precious metals broker with whom they are comfortable. Due diligence is your client’s responsibility. Dealer fees, shipping and handling charges are also likely to be incurred.

Your client must choose a depository in which to store his metals. Clients should consider fees, segregated storage, facility location and/or insurance levels. The depository will charge for their storage services.

There are also strict regulations about which metals an IRA may hold. IRAs may only purchase gold, silver, platinum and palladium products approved by the IRS. You can view the full list of allowed and disallowed metals here and share that list with clients.

Financial professionals also may be concerned about their clients self-dealing assets. Indeed, an investor who’s IRA owns precious metals does not personally own the metals and cannot physically handle those assets. New Direction provides education to investors so that they know what constitutes self-dealing and how to stay within IRS code.

After our client decides to invest his IRA in precious metals, it’s simple to get started. The investor will open and fund the account via contribution, transfer or rollover. Then he’ll select his dealer and depository. Then, he’ll direct the provider to fund the purchase and the metals will be sent to the chosen depository.

Like all investments, due diligence is required to decide what will work best for your client’s IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your clients’ IRAs, and will ensure all transactions and/or conversions are done according to IRS code.

Step up in basis at death is not available for a Traditional IRA’s assets, including any real estate it owns. Normally, if you die before the sale of investment property, your heirs would get a step-up in basis. They could sell it immediately and pay no tax. If it is in an IRA, there is no step-up in basis and they would pay taxes on the amounts distributed from the IRA at their ordinary tax rate.

However, the goal for any retirement plan is to maximize its value. If real estate assets achieve a higher return than any other investment available, then that should be the investment of choice.

Alternatively, this issue can be solved by converting the Traditional IRA to a Roth IRA.

Step up basis is not a concern for Roth IRA owners who invest their IRA in real estate because their taxes will have already been paid, either in the year of contribution to the Roth or at the time of conversion from Traditional to Roth. Plus, those benefits pass to the beneficiaries of the account.

The recent relaxation of Roth conversion rules has led to a surge of account holders electing to pre-pay their future retirement income tax by converting from Traditional to Roth IRAs. This legislation is beneficial to investors who believe they will pay fewer taxes by converting their IRA now than they will upon distributing their Traditional IRAs at retirement age.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.

Browse our website for more answers to the most common questions and concerns we receive. New Direction is committed to providing you with the best education so you can self-direct your IRA successfully.

IRAs don’t normally have any need for a 1031 exchange although they are allowed to do so if needed to decrease taxes. Money in an IRA can generally move tax free from one asset class to another, so a 1031, which allows you to defer any taxable gain on exchanges of like-kind assets (like real estate for real estate), is rarely needed.

However, IRAs may have taxable income (and taxes) when assets, including real estate, are purchased with debt financing. In that specific case, the IRA may take advantage of the 1031 rules and exchange the first debt financed property for another, typically real estate for real estate. The result is that all or most of the IRA income taxes are deferred.

An IRA may borrow money from a bank to purchase property; an IRA with $100,000 can have the buying power of $300,000 or more. Leverage is seldom, if ever, available with securities investments in IRAs—another benefit to non-traditional IRAs.

Many of our clients believe that investing in a cash flowing real estate property with funds they have available in their IRA maximizes the value of their account. Many of them selected real estate as an asset after being unsuccessful with more traditional retirement investments. They are making their own best investment choices given their unique knowledge and experience using their own retirement funds. They generally are already doing similar investments with their non-IRA funds, which is where they got the experience in the first place.

But like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.

Browse our website for more answers to the most common questions and concerns we receive. New Direction is committed to providing you with the best education so you can self-direct your IRA successfully.

Health Savings Accounts (HSAs), specifically, are rapidly growing in popularity and provide a unique way to save money, grow retirement accounts and pay for medical expenses. HSAs have been available since 2004 and have the tax-free quality of a Roth IRA but the tax deductibility of a Traditional IRA.

Rising health insurance costs have forced employers into offering High Deductible Health Plans to employees.  Some employers choose to fund the HSA for the employee to take some of the sting out of the high deductible.  However, what makes these HSAs alluring is that contributions to HSA accounts made by the individual are 100% tax deductible and distributions for qualified expenses from the HSA are not taxable.

The best part of taking HSA distributions is that there is no time limit on how long you can hold onto qualified expenses before requesting a reimbursement. In fact, waiting to take distributions from the HSA gives the account time to grow.

Most HSA accounts are meant to be spent, which means that most of those offered are without access to true investments.  In order to gain access to investments that are going to grow your HSA, you need to open a self-directed HSA account and direct the funds.  You may direct the funds into brokerage accounts, precious metals or, in the case of one account holder, real estate.  There is no limit on what you can invest in as long as you stay within the IRS guidelines.

Consider this example:  Joe has been contributing to his HSA for 3 years and has accumulated more than $16,000.  Although he has more than $10,000 in reimbursable medical expenses he plans on holding on to them for a while.  As a real estate broker Joe sees lots of opportunities for second mortgages.  One of his office mates, Phil, has a deal that requires additional cash.  A first mortgage has been obtained by Phil’s client for the purchase but the renovations will require an additional $15,000.  Joe offers to lend the funds to Phil’s client for 8% and will secure the financing with the property.   The money will be tied up for 2 years but during that time it will be earning a reasonable interest rate.

Why not invest in something long-term and request reimbursement 10, 15 or 20 years in the future?  Allowing your contributions to grow long-term (now $6,450 per family in 2013) could result in a lucrative and pain-free investment.

New Direction IRA is a self-directed IRA and HSA account administrator and does not sell or sponsor any investment products nor provide investment or tax advice.  Since 2003 New Direction has helped clients invest in what they know and understand.

The webinar, held February 20th, was sponsored by the National Association of Personal Finance Advisors (NAPFA) as part of their educational programs directed towards members and non-members alike. The webinar provided an overview of a topic about which many financial professionals are now fielding questions from clients.

Humphrey also recently met with financial advisors in North Carolina and will be presenting a live talk for a NAPFA member study group in Scottsdale, Arizona this week. Due to the growing interest from the financial community, New Direction is planning similar presentations over the coming months nationally.

CFPs and other professionals earned one hour of Continuing Education credit for attending the NAPFA webinar, which included discussions about the basics of self-directed IRAs as well as unique aspects like taxes, property management and asset-specific opportunities.

Humphrey also spoke at length about how financial planners can stay involved in a client’s self-directed IRA—just because the IRA holder has chosen to pick unique, alternative investments and manage the assets himself, that doesn’t mean financial planners and advisors can longer serve the investor. Self-directed IRA providers like New Direction do not provide financial or investment advice, thus the door is open for financial advisors to help clients into the new landscape of opportunities presented by self-directed IRAs.

To that end, Humphrey answered questions about common misconceptions and concerns about self-directed IRAs and about why financial professionals may not have heard the full story about self-directed IRAs.

For instance, one attendee asked Humphrey to “describe what happens when RMDs (Required Minimum Distributions) are due if IRAs are invested in real estate.” (After reaching retirement age, IRA holders are required by law to take RMDs out of their account each year.)

“With real estate, a lot of our clients have cash flow,” Humphrey said. “In an ideal world, RMD is paid out via cash or other securities. There’s no requirement for it to be cash so it can be paid in-kind. The majority of our clients have more liquid assets available for their RMD.”

“If push comes to shove, you can take a slice of your hard real estate or asset,” Humphrey added. “The RMD can come out to you in-kind and you would start reporting it on your personal return.”

The webinar was just one of many educational workshops directed by New Direction IRA. With events from Colorado to North Carolina and across the nation, as well as vast resources online, New Direction is committed to educating financial professionals and investors about how to successfully run a self-directed IRA.

For more information about how financial professionals can get involved with self-directed IRAs or to set up a private meeting, call New Direction IRA at 877-742-1270, send an email to info@NDIRA.com  or browse our website, www.NewDirectionIRA.com.

Planning for investment cash flow needs is critical for any investment strategy, particularly illiquid assets like real estate. Annual contribution limits vary from over $50,000 with 401k and SEP-IRA plans down to $3,150 for Health Savings Accounts (all of these plans may be self-directed and are available at New Direction.) The investor needs to determine how much cash will be needed and how much will be available.

When you reach retirement age, you need to take RMDs. This is sometimes tricky for people who only have real estate in their IRA—they’re faced with the prospect of distributing a massive asset, which may incur a lot of tax, to meet the RMD requirements.

Many of our clients choose to own more liquid assets in addition to real estate, such as cash, securities or other alternative assets. Clients also sometimes set up a reserve for unexpected expenses. This allows them to be more flexible, particularly when it comes time to distribute their assets yearly. It is also possible to take incremental “in-kind” distributions of the property itself to satisfy the RMD requirement. This is done by re-titling the real estate each year showing an increasing personal ownership. Although this option may seem complicated, it can be done and is fairly common.

In addition, real estate is unique in that it can generate cash flow for your IRA. By renting the property to tenants, some clients can generate enough income to offset their RMD requirements.

Don’t forget that RMDs apply to Traditional IRAs and regardless of what type of asset you hold, it’s only smart to have a plan for how to accommodate these distribution requirements.

If you come across a situation where your IRA cannot afford any incurred expenses, then you should make plans to sell it, bring in other investors, liquidate other assets or make contributions. It is important that you only use IRA funds for all expenses associated with the property including taxes, repairs and insurance. You are not allowed to use personal funds to cover these costs; if you do, your IRA may be disqualified by the IRS.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.

Browse our website for more answers to the most common questions and concerns about self-directed IRAs. New Direction is committed to providing you with the best education so you can self-direct your IRA successfully.

If you own real estate property, you have to submit a valuation to your administrator every year to ensure proper tax reporting by your IRA administrator. A fair market valuation is used to establish or change the value of a real estate holding.  All IRA custodians are required to provide a year-end value for IRA accounts. A qualified real estate professional who is not a disqualified person to your IRA may provide a comparative market analysis to meet this requirement.

When you reach retirement age, the IRS requires you to start taking Required Minimum Distributions (RMDs) from your IRA. The RMD amount is based on the value of your IRA assets as of Dec. 31 of the previous year.

Formal appraisals for the annual valuation are generally expensive and they aren’t required, though they are acceptable. You can instead get a valuation which is usually much cheaper, and sometimes free.  Although an appraisal is a valuation, they are not one and the same. We understand that real estate agents may not provide appraisals, but they are qualified to determine the market value of a property.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.

Browse our website for more answers to the most common questions and concerns about self-directed IRAs. New Direction is committed to providing you with the best education so you can self-direct your IRA successfully.

It’s not expensive to invest your IRA in real estate. At New Direction, we have a structured fee schedule so you’ll know exactly what you have to pay and when. To start, you’ll have a one-time startup fee and then no fees until you make your first transaction.

It is a common misconception that because brokers and banks generally only allow securities investments in your IRA (like stocks and bonds), that non-traditional investments somehow cost more money. Any account has costs related to it and we encourage you to check out the total fees imposed on your current IRA accounts. In most cases, they will include a variety of management, transaction and administrative fees.

You won’t pay any management fees at New Direction because you make the decisions about your IRA’s investments. New Direction only charges “paper pushing” fees, or costs to cover administration and bookkeeping. Even then, in most cases your New Direction account will cost less than your current plan account.

New Direction is aggressively developing new ways to minimize the paper pushing component of our client’s accounts, thus reducing fees even more. With our new online bill pay system, payments may be requested online and processed with no charge. More improvements and systems upgrades are on the way to continue to empower our clients to take charge of their IRAs.

In short, you don’t need to pay extra for the privilege to invest in non-traditional assets like real estate with your IRA.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.

Browse our website for more answers to the most common questions and concerns about self-directed IRAs. New Direction is committed to providing you with the best education so you can self-direct your IRA successfully.

Yes, that is true. Think of it this way: Your IRA is taking advantage of IRS rules that allow it to grow tax-free or tax-deferred. The assets that you purchase with your IRA are not yours, they are the IRA’s assets. We tell our clients that they should think of the IRA as a separate entity (we call it Uncle IRA to illustrate this separation).

Benefitting personally from any asset owned by your IRA is prohibited by the IRS. It’s called self-dealing.  Furthermore, you can’t let any of your lineal relatives benefit from the asset either; this includes your parents, grandparents, children, grandchildren, spouse and fiduciaries. None of you can live in or lease or vacation in real estate owned by your IRA, nor any entity owned or controlled by them or you.

Additionally, you can’t put any personal funds or sweat-equity into the property. New Direction spends the majority of its educational efforts on the rules regarding self-dealing.  Unlike having your IRA own shares of IBM or some other security, the temptation and ability to influence a real estate asset is very real.  Using personal funds or time (“sweat equity”) to benefit the property is strictly prohibited.

The account owner’s job is to make good decisions related to the investment and direct improvements to be made to the property (with Uncle IRA’s funding), but not have transactions with Uncle IRA or his assets.  These rules are the same for any asset owned by the IRA, but like we mentioned, the temptation to influence real estate owned by your IRA is much greater than other assets.

When it comes time to distribute the asset, you can certainly take it out of your IRA and live in it then.  It becomes your personal property after distribution. Smart investors will have maximized the investment before then, however, by renting it to tenants or buying property that has increased in value over the years.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.

Browse our website for more answers to the most common questions and concerns we receive. New Direction is committed to providing you with the best education so you can self-direct your IRA successfully.

This is probably the most common question we receive. Rather than giving up the depreciation tax advantage, you are trading it for a different and possibly better tax advantage.

Essentially, if you buy real estate with personal funds, you can expense a portion of the cost of the real estate over the allowed time period, usually 27.5 to 39 years.  Depreciation expense, which doesn’t require current cash (since you already invested the cash when you initially purchased the property) lowers your taxable income.

IRA-purchased real estate is different and carries its own significant tax advantage. Money in a Traditional IRA has already been 100% deducted at the time of contribution, thus there is no basis left for an individual to deduct.  Money made in a Roth IRA, though not deducted when contributed, is tax free for the future. Either case is better than having to depreciate the property over 27 years or more.

The majority of our clients have money that is already in their 401k or IRA either from their personal contributions or their employer’s contributions. They are already enjoying the benefits of the tax-deferred or tax free money. The only way they could use those funds to purchase real estate personally would be to take it out of the plan, giving up its special tax status and in the case of Traditional IRAs, cause a current income tax.

Comparing post tax money in your pocket to pre-tax or tax-deferred money in your retirement plan is not comparing apples to apples. Since the tax advantaged money in the plan is, in effect, not yours until you take it out of the plan, the real goal is to grow the retirement fund as much as possible. How will you grow your IRA?

Some investors will search for property that is likely to appreciate in value. Our clients have invested their IRAs in land that they figured would grow in value in the future, while others bought property to rent out and generate a steady income.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.

Browse our website for more answers to the most common questions and concerns about self-directed IRAs. New Direction is committed to providing you with the best education so you can self-direct your IRA successfully.