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The
Center for Financial, Legal & Tax Planning, Inc. |
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Advisories
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Self Directed IRAs Introduction Individual Retirement Accounts
are accounts set up during a person’s life which grow tax free until that
person takes distributions in which to fund their retirement. They are recognized by the IRS, mutual fund
advisors, stockbrokers, and taxpayers all over the country as being
legitimate vehicles for retirement preparation. Self directed IRAs are the same account;
however self-directed accounts rely on the judgment of the investor to make
the investments. This is a bit out of
the ordinary for most investors, but it is a legitimate and a recognized
retirement planning device which relies on the principals of the IRA, while
putting the investor in control. Set Up Self-Directed IRAs
are easy to set up and require no financial expertise to do so. The IRA account holder merely calls a
broker who administers self directed IRAs.
You ask the broker to aide you in converting your IRA into a self
directed IRA. The broker will then
send you two forms to fill out. Once
they are filled out, you send them back.
Depending on how long your mutual fund IRA administrator takes to
perform the process, it should be completed within 30 to 45 days. Once completed, the broker you have chosen
will alert you that your self directed IRA has been set up and is ready for
your control. You then take the reigns and make the decisions as to the
investments. Prohibited Transactions Generally, IRA’s were
created to benefit the investor DURING THEIR RETIREMENT and absolutely not
sooner. With that principal in mind,
it is easier to spot the transactions which are prohibited. Generally, if you or your spouse receives a
direct benefit, such as having the IRA invest in your company, such a
transaction is disallowed. IRA holders
cannot invest in items which might defeat the purpose of investing all
together. These items include antiques
and other items that are questionable.
The investment must generally be business or commodity related. Gold, silver, and platinum, although they
may be considered antiques, can be purchased.
It can be said that the authorities who wrote the rule (concerning
enjoyment of benefits during retirement, but not during a taxpayer’s working
life), specifically meant that you should wait until retirement to obtain
direct benefit from the investment. Allowed Transactions Given that
self-dealing is prohibited, what transactions are allowed? The answer is pretty much anything
else. Once the self directed IRA is
set up, the IRA account holder can invest in real estate, gold, silver,
stock, bonds, and even closely held business ventures which you own. However, if the business venture is owned
50% or more by you, the IRA holder, the transaction becomes a prohibited
transaction. Therefore, if you are
investing money in a company, you should make sure your interest in the
partnership or corporation is less than 50%.
To do so otherwise will cause premature taxing and penalties on the
money in the self-directed IRA. Conclusion In conclusion, IRA’s
were meant to benefit individuals during retirement. Most mutual fund managers who administer
IRAs are very competent in investing for growth. However, the authorities have allowed
people to invest their own funds in their own ideas. Given this privilege, in some circumstances,
investors may benefit from self-direction of an IRA. To do so is easy to set up and
administer. Contact the professionals
at the Center for further guidance. (05-01) To receive the Advisory by e-mail,
please send your address to lacie@taxplanning.com |
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The Center for
Financial, Legal and Tax Planning, Inc. |
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Satellite Office: Longboat Key, FL |
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(618) 997-3436 Fax: (618) 997-8370 ©
Copyright 2005. All rights reserved. |
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