News > Quarterly Newsletters > Aug. 2007
August 2007
Letter to Clients
Catherine Wynne and Bill Humphrey
Dear Clients,
As many of you know, Entrust New Direction acts as the Agent for the Custodian rather than being the Custodian itself. The bank Custodian provides the oversight of the Agent (us), as well as FDIC insurance for cash balances and verification that the assets owned by the plan are under appropriate bank control.
Due to bank regulators' requirements, our bank Custodian, Greater Bay Bank (GBBK), has developed a new program to provide increased oversight of our office and to ensure regulatory compliance. To implement the new program, GBBK engaged a specialty non-depository bank, nternational Bank and Trust (IB&T).
Features of the new program require IB&T to approve all funding transactions and transfer funds from the custodial account pay drafts. IB&T is also taking over the responsibility of sending auditors to our offices at least annually. On a daily basis, IB&T staff reviews details of our records and reviews account balances. They also make random calls to clients to confirm transaction requests.
These procedures will generally be invisible to clients. However, it may be comforting to know that banking regulators are paying close attention to your IRA or other plan's' assets. If you happen to get a call from a representative from IB&T, they will generally just want to confirm that a recent transaction in your IRA was requested
by you.
The additional approval process has changed timing for funding requests. Please provide 24 hour notice before funding is required. Please feel free to call with any questions you might have.
Sincerely,
Catherine Wynne and Bill Humphrey
Principals, Entrust New Direction IRA, Inc.
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Do You Have a 401(k) From a Past
Employer?
Many of our clients may not realize that 401(k) plans from former employers can be rolled directly into a self-directed IRA. If you currently have an IRA with us and some funds are still in a former employer's 401(k) plan, these funds can be rolled into your account and self-directed. The good thing about rolling these funds directly into an IRA is that you will not be subject to the 20% tax withholding that taking the funds as a distribution would cause.
In addition to 401(k) plans, 457 and 403(b) plans may also be rolled into a self-directed IRA. Again, these plans must be from former employers in order to roll them over. We frequently get
the question "Can I take 401(k) funds from my current employer and self-direct?" The answer to this is nearly always no. Under some rare circumstances these plans may provide "in service"
distributions or you may be the trustee of the plan yourself and have the ability to change the plan, but this is rare.
Does your spouse have an old 401(k) plan? Consider a self-directed account for your spouse to roll these funds into and consider partnering yours and your spouse's IRA funds in a larger investment. Take advantage of the investment power and economy of scale available in a larger investment.
Self-direction of your retirement plan provides flexibility and nearly endless choices of investments. Maximizing your IRA through consolidation of old 401(k) plans, making your annual contributions and being vigilant regarding innovative investments will make your retirement years comfortable and fun - if you have the money available.
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New Payment Option
We have a new method available for acceptance of payment
-debit cards. Some of you already know this, but to restate the payment options:
- By credit card
- By debit card
- By check at the time when you submit the Buy
Direction Letter
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Focus on Employees:
Ben Brazda
Ben Brazda, recently promoted to Asset Acquisitions Manager, is a Ford Truck Man. That's all he drives. He's working on an off-road racing Ford 150 which will join his stable of both restored and new Ford F250s. He even built a 5000 square foot barn with his brother and father so he can work on his trucks out of the elements.
When he can take time off from assisting clients with various transactions, Ben also enjoys traveling, especially to the Czech Republic, where much of his extended family resides. His parents escaped from Czechoslovakia during the Communist invasion, starting in Boulder with $20 in their pocket and the clothes on their back. Ben also enjoys playing ice hockey, snowboarding and dirt-biking.
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Insurance on Your IRA-Owned Real Estate
Many of Entrust New Direction (END) clients have real estate assets within their IRA and the subject of insurance on the asset frequently crops up, usually around the time of closing. When your IRA has mortgaged real estate, the lender will always require a hazard insurance policy to insure their interest in the property in the event of a loss. But what about real estate that is not leveraged?
We, as your administrator, do not require insurance on any property owned by the IRA - it is up to you to make that decision. What should you know about insuring properties within an IRA? The following should always be considered:
1. It is your responsibility to ensure that the insurance policy is correctly titled IN THE NAME OF THE IRA. Do not title the policy in your name, as this could result in a prohibited transaction. Many insurance companies are not able to understand this concept, insist that the policy be titled correctly. The IRA must have funds to pay for this coverage.
2. Most basic policies insure for both hazard and liability. A "trip and fall" accident on the premises could result in your IRA, as the property owner, being sued and therefore at risk for losing the asset.
3. Insurance carriers and their requirements vary from state to state. Part of your due diligence when purchasing a property should include both the insurability of the property and the cost to insure.
4. Condos and other common interest properties usually have hazard insurance through the Home Owners' Association. This insurance covers damage to the exterior of the building only. Not covered by this policy is paint, carpeting, window coverings, appliances, lost rent or liability. A contents policy would cover most of these items.
5. Title Insurance: although in a separate category, the most important thing about purchasing a property is a clear title. Your IRA administrator does not require a title policy but if you do have a title policy, again, it is the IRA, not you, who is being
insured. Cash deals between individuals who are doing a deal on a "hand shake" frequently do not have title insurance. Keep in mind that the IRA obtaining title to a property does not necessarily mean that it is unencumbered and free of prior
claims.
There are no IRS or custodial/administrator requirements for insurance on IRA-owned property. As fi duciary of your IRA, the decision to insure or not is entirely yours. The IRA's assets face the same threats as an individual owning property, so consider what you need to do to protect your IRA-owned asset.
Your insurance agent is the fi rst stop for questions on the different types of insurance coverage available. Title companies are the best source of information on insuring title. Questions on who is the insured and if the IRA's interest is refl ected in the policy may be referred to END if there are questions. All policies, whether for hazard or title insurance, must be reviewed by END before closing the deal.
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$10 Million in IRA Borrowed Loans:
An old adage, often repeated, "You need to have money to make money", is a little less true today. You, Entrust New Direction's clients, recently acheived IRA borrowing of 77 loans totaling over $10 Million.
Your IRAs are being used to purchase various forms of real estate, business franchises and pre-IPO shares as well as the more standard retirement fund fare of bonds and mutual funds. Thanks to several national and local banks offering established real estate IRA lending programs, many of you can leverage your IRA funds to purchase investments previously considered
out of reach.
In case any of our clients are not using a loan, but have interest in doing so, one of our highest priorities is educating clients in various aspects of self-directed IRAs, including IRS requirements for IRA loans. One IRS requirement for IRA-leveraged purchases is that the loan be a non-recourse loan, which means the loan collateral is only the property being purchased. The owner of the real estate IRA is not personally responsible for the IRA's non-recourse loan, nor does the
loan show up on the IRA owner's credit report.
If you have any questions regarding loans or any other aspect of self-direction, please contact us.
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Client IRA Investments:
Focus on Clients:
We've been sending this newsletter, providing some insights and focusing on employees for 3 years now, and we think it's time to focus on some clients. We'd like to know if any of you have an investment story to tell.
As you know, we cannot, will not and do not provide any investment advice to our clients. Any response should not be a sales pitch or a request for investors.
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