Self â Directed IRA
INDIVIDUAL RETIREMENT ACCOUNTS • • • • • • • •
Types of IRA Traditional and ROTH Employer Based IRA IRA Investment Options Self – Directed IRA How Self – Directed IRA works? Choosing a Self – Directed Custodian Q & A
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Types of IRA • Individual Retirement Accounts – Traditional IRA – Roth IRA
• Employer based IRA(s) – SEP (Simplified Employee Pension) – SIMPLE (Saving Incentive Match Plan for Employees)
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Traditional IRA • A traditional IRA is a tax-‐deferred retirement savings account. • You pay taxes on your money only when you make withdrawals in retirement. • You will pay a penalty for early withdrawals • If you (or your spouse) earn taxable income and are under age 70 ½, you can contribute. • Contributions may or may not be tax deductible depends on your income and work-‐related retirement account • You have to take RMD at age 70 ½ ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
ROTH IRA • You fund a Roth IRA with after-‐tax dollars, meaning you've already paid taxes on the money • If you satisfy the requirements, qualified distributions are tax-‐free. • You will pay a penalty for early withdrawals • Income Limits apply for contributing to a Roth IRA • Contributions are not tax deductible • you can leave the money in for as long as you want and can still contribute even if your age 70 ½ or above ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Traditional vs ROTH Features
Traditional IRA
Roth IRA
Who can contribute?
You can contribute if you (or your spouse if filing jointly) have taxable compensationbut not after you are age 70½ or older.
You can contribute at any age if you (or your spouse if filing jointly) have taxable compensation and your modified adjusted gross income is below certain amounts (see 2014 and 2015limits).
Are my contributions deductible?
You can deduct your contributions if you qualify.
Your contributions aren’t deductible.
How much can I contribute?
The most you can contribute to all of your traditional and Roth IRAs is the smaller of: $5,500 (for 2014 and 2015), or $6,500 if you’re age 50 or older by the end of the year; or your taxable compensation for the year, whichever is less.
What is the deadline to make contributions?
Your tax return filing deadline (not including extensions). For example, you have until April 15, 2015, to make your 2014 contribution.
When can I withdraw money?
You can withdraw money anytime.
Do I have to take required minimum distributions?
You must start takingdistributions by April 1 following the year in which you turn age 70½ and by December 31 of later years.
Not required if you are the original owner.
Are my withdrawals and distributions taxable?
Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. Also, if you are under age 59 ½ you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.
None if it’s a qualified distribution (or a withdrawal that is a qualified distribution). Otherwise, part of the distribution or withdrawal may be taxable. If you are under age 59 ½, you may also have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.
Employer based IRA • There are several IRA plans where employee/employer or both can contribute • The law permits each type of plan to have different requirements for participation in the plan as follows, -‐ SEP or SARSEP plan -‐ SIMPLE IRA plan -‐ Qualified plan (for example, 401(k), profit-‐sharing etc.) -‐ 403(b) plan – Tax exempt/public organizations -‐ 457(b) plan – State governments etc.
SEP – Simplified Employee Pension • A SEP IRA is a type of traditional IRA for self-‐employed individuals or small business owners. • Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. • Contributions are tax-‐deductible for the business or individual, go into a traditional IRA held in the employee's name. • Employees of the business cannot contribute – only the employer • SEP IRA has much higher contribution limit. Employers can make contributions to the lesser of: -‐ 25% of the employee's compensation, or -‐ $52,000 for 2014 ($53,000 for 2015)
SIMPLE – Savings Incentive Match Plan for Employees • A SIMPLE IRA, is a type of traditional IRA for small businesses (100 or less employees) and self-‐employed individuals. • Contributions are tax deductible, and your investments grow tax deferred until you are ready to make withdrawals in retirement. • Unlike SEP IRAs, SIMPLE IRAs allow employees to make contributions. • Employer is required to make a contribution on the employee's behalf -‐ either a dollar-‐for-‐dollar match of up to 3% of salary or a flat 2% of pay -‐ regardless of whether the employee contributes to the account. • The amount the employee contributes to a SIMPLE IRA cannot exceed $12,000 in 2014 and $12,500 in 2015. • An employee's compensation up to $260,000 (for 2014; $265,000 for 2015) is contribution limit for none-‐elective plans.
IRA investment Options • Many IRAs allow you to choose from individual securities, such as stocks, bonds, certificates of deposit (CDs), mutual funds, exchange-‐traded funds (ETFs), or a "single-‐fund" option, where the asset allocation is done for you. • Internal Revenue Code Section 408 prohibits IRA investments in life insurance and in collectibles such as artwork, rugs, antiques , metals, gems, stamps, coins, alcoholic beverages, and certain other tangible personal property. • The IRS dictates a few ways in which you can't use the money in your IRA and beyond those exceptions, you can invest in just about anything: even certain Real Estate. Real estate may include residential and commercial properties (U.S. & Internationally), home flipping, farmland, raw land, new construction, property renovation, development, and passive rental income etc.
Self – Directed IRA • A self-‐directed IRA is identical to an IRA. • Different types of investments are allowed by the IRA custodian. • A self-‐directed IRA custodian frequently permits the IRA account owner to make investments into a broader range of alternative investments. • Alternative investments are: real estate, private mortgages, private company stock, oil & gas, horses, and intellectual property. • Self-‐directed IRA custodians are specialize in alternative investments, are better equip to handle such investments due to the increased complexity of documentation. • Choose the correct self directed IRA custodian. Most custodians which handle stocks, bonds, and mutual funds are not capable of providing proper custody to alternative investments.
How a Self-‐Directed IRA investment work? 3 Step Process 1. Identify Your Investment and Request Funds Important: All documents related to the investment must be titled in the name of your IRA, not to you personally 2. Process the Investment IRA Custodian will review and process your forms. If everything is correct and approved, the funds will be sent from your IRA for the investment based on your specifications. All records pertaining to the investment (such as real estate deeds, original notes, operating agreements for LLCs) are retained by Custodian for safekeeping. 3. Manage and Sell the Investment Once your IRA owns the investment all expenses and profits related to the investment must come from and back to the IRA. When you are ready, instruct Custodian to sell the investment on behalf of your IRA. Funds from the sale of the investment return to your self-‐directed IRA tax-‐free.
Choosing a Self Directed IRA Custodian • This is very important task and your choice can have an impact on your investments, the amount of time spent managing them, and performance. • There are many factors to consider when choosing a self-‐directed IRA custodian, here are some of the more important ones, 1. 2. 3. 4. 5.
Specialization Fees Number of Transactions Miscellaneous Fees Service
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Self – Directed IRA Custodians •
http://selfdirectedira.nuwireinvestor.com/list-‐of-‐self-‐directed-‐ira-‐custodians/
•
http://www.thehardmoneypros.com/self_directed_ira_custodians.shtm
Q&A
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Types of IRA Traditional and ROTH Employer Based IRA IRA Investment Options Self – Directed IRA How Self – Directed IRA works? Choosing a Self – Directed Custodian Q & A
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Types of IRA • Individual Retirement Accounts – Traditional IRA – Roth IRA
• Employer based IRA(s) – SEP (Simplified Employee Pension) – SIMPLE (Saving Incentive Match Plan for Employees)
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Traditional IRA • A traditional IRA is a tax-‐deferred retirement savings account. • You pay taxes on your money only when you make withdrawals in retirement. • You will pay a penalty for early withdrawals • If you (or your spouse) earn taxable income and are under age 70 ½, you can contribute. • Contributions may or may not be tax deductible depends on your income and work-‐related retirement account • You have to take RMD at age 70 ½ ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
ROTH IRA • You fund a Roth IRA with after-‐tax dollars, meaning you've already paid taxes on the money • If you satisfy the requirements, qualified distributions are tax-‐free. • You will pay a penalty for early withdrawals • Income Limits apply for contributing to a Roth IRA • Contributions are not tax deductible • you can leave the money in for as long as you want and can still contribute even if your age 70 ½ or above ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Traditional vs ROTH Features
Traditional IRA
Roth IRA
Who can contribute?
You can contribute if you (or your spouse if filing jointly) have taxable compensationbut not after you are age 70½ or older.
You can contribute at any age if you (or your spouse if filing jointly) have taxable compensation and your modified adjusted gross income is below certain amounts (see 2014 and 2015limits).
Are my contributions deductible?
You can deduct your contributions if you qualify.
Your contributions aren’t deductible.
How much can I contribute?
The most you can contribute to all of your traditional and Roth IRAs is the smaller of: $5,500 (for 2014 and 2015), or $6,500 if you’re age 50 or older by the end of the year; or your taxable compensation for the year, whichever is less.
What is the deadline to make contributions?
Your tax return filing deadline (not including extensions). For example, you have until April 15, 2015, to make your 2014 contribution.
When can I withdraw money?
You can withdraw money anytime.
Do I have to take required minimum distributions?
You must start takingdistributions by April 1 following the year in which you turn age 70½ and by December 31 of later years.
Not required if you are the original owner.
Are my withdrawals and distributions taxable?
Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. Also, if you are under age 59 ½ you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.
None if it’s a qualified distribution (or a withdrawal that is a qualified distribution). Otherwise, part of the distribution or withdrawal may be taxable. If you are under age 59 ½, you may also have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.
Employer based IRA • There are several IRA plans where employee/employer or both can contribute • The law permits each type of plan to have different requirements for participation in the plan as follows, -‐ SEP or SARSEP plan -‐ SIMPLE IRA plan -‐ Qualified plan (for example, 401(k), profit-‐sharing etc.) -‐ 403(b) plan – Tax exempt/public organizations -‐ 457(b) plan – State governments etc.
SEP – Simplified Employee Pension • A SEP IRA is a type of traditional IRA for self-‐employed individuals or small business owners. • Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. • Contributions are tax-‐deductible for the business or individual, go into a traditional IRA held in the employee's name. • Employees of the business cannot contribute – only the employer • SEP IRA has much higher contribution limit. Employers can make contributions to the lesser of: -‐ 25% of the employee's compensation, or -‐ $52,000 for 2014 ($53,000 for 2015)
SIMPLE – Savings Incentive Match Plan for Employees • A SIMPLE IRA, is a type of traditional IRA for small businesses (100 or less employees) and self-‐employed individuals. • Contributions are tax deductible, and your investments grow tax deferred until you are ready to make withdrawals in retirement. • Unlike SEP IRAs, SIMPLE IRAs allow employees to make contributions. • Employer is required to make a contribution on the employee's behalf -‐ either a dollar-‐for-‐dollar match of up to 3% of salary or a flat 2% of pay -‐ regardless of whether the employee contributes to the account. • The amount the employee contributes to a SIMPLE IRA cannot exceed $12,000 in 2014 and $12,500 in 2015. • An employee's compensation up to $260,000 (for 2014; $265,000 for 2015) is contribution limit for none-‐elective plans.
IRA investment Options • Many IRAs allow you to choose from individual securities, such as stocks, bonds, certificates of deposit (CDs), mutual funds, exchange-‐traded funds (ETFs), or a "single-‐fund" option, where the asset allocation is done for you. • Internal Revenue Code Section 408 prohibits IRA investments in life insurance and in collectibles such as artwork, rugs, antiques , metals, gems, stamps, coins, alcoholic beverages, and certain other tangible personal property. • The IRS dictates a few ways in which you can't use the money in your IRA and beyond those exceptions, you can invest in just about anything: even certain Real Estate. Real estate may include residential and commercial properties (U.S. & Internationally), home flipping, farmland, raw land, new construction, property renovation, development, and passive rental income etc.
Self – Directed IRA • A self-‐directed IRA is identical to an IRA. • Different types of investments are allowed by the IRA custodian. • A self-‐directed IRA custodian frequently permits the IRA account owner to make investments into a broader range of alternative investments. • Alternative investments are: real estate, private mortgages, private company stock, oil & gas, horses, and intellectual property. • Self-‐directed IRA custodians are specialize in alternative investments, are better equip to handle such investments due to the increased complexity of documentation. • Choose the correct self directed IRA custodian. Most custodians which handle stocks, bonds, and mutual funds are not capable of providing proper custody to alternative investments.
How a Self-‐Directed IRA investment work? 3 Step Process 1. Identify Your Investment and Request Funds Important: All documents related to the investment must be titled in the name of your IRA, not to you personally 2. Process the Investment IRA Custodian will review and process your forms. If everything is correct and approved, the funds will be sent from your IRA for the investment based on your specifications. All records pertaining to the investment (such as real estate deeds, original notes, operating agreements for LLCs) are retained by Custodian for safekeeping. 3. Manage and Sell the Investment Once your IRA owns the investment all expenses and profits related to the investment must come from and back to the IRA. When you are ready, instruct Custodian to sell the investment on behalf of your IRA. Funds from the sale of the investment return to your self-‐directed IRA tax-‐free.
Choosing a Self Directed IRA Custodian • This is very important task and your choice can have an impact on your investments, the amount of time spent managing them, and performance. • There are many factors to consider when choosing a self-‐directed IRA custodian, here are some of the more important ones, 1. 2. 3. 4. 5.
Specialization Fees Number of Transactions Miscellaneous Fees Service
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
Self – Directed IRA Custodians •
http://selfdirectedira.nuwireinvestor.com/list-‐of-‐self-‐directed-‐ira-‐custodians/
•
http://www.thehardmoneypros.com/self_directed_ira_custodians.shtm
Q&A
ASM TAX OFFICE -‐ M. Usman (EA, MBA) -‐ 732-‐379-‐4500 -‐ [email protected]
