Why self direct your IRA?

A self-directed retirement account provides a wide range of investment options. Greater options allows for a more diversified investment portfolio thus giving you greater control of your financial future.

Since IRAs were established over 30 years ago, depositors have been allowed to choose alternative assets with which invest them. Unfortunately, this option has not been well publicized.

What are the benefits of a self directed IRA?

Self directed IRAs have a multitude of benefits including 1) the ability to invest in alternative assets such as  real estate, metals, LLCs etc., 2) greater diversification for your retirement portfolio, 3) tax-free or tax-deferred income on contributions, profits and compounded interest, and 4) YOU control all aspects of your investments allowing YOU to potentially earn greater returns than the market.

Is it legal to purchase non-traditional assets using my IRA?

Yes. Self directed IRA’s were permitted in 1974 as part of ERISA, the Employee Retirement Income Security Act. Instead of designating allowable investments, IRS Code identifies which investments are not permitted under applicable laws. The following assets are NOT allowed in an IRA: collectibles, i.e., rugs, gems, art, alcoholic beverages and antiques, as well as life insurance contracts and Subchapter S Corporations.

How come self directed retirement plans are not widely publicized?

It is a common misconception that self directed transactions are illegal. Large transaction-driven custodians/brokers focus largely on a narrow universe of investments for retirement clients. While these types of accounts may be right for some, they do not offer the freedom and diversification to invest in non-traditional products, such as real estate.

Who can my IRA lend money to?

You can lend money to an LLC, C-Corp, or any individual not considered by the IRS to be a disqualified individual. The IRS considers spouses, parents, grandparents, and children disqualified individuals. Therefore, you can lend to a brother, sister, aunt, uncle, cousin, or friend. You cannot loan to an S-Corp.

What is my ROI (Return on Investment)?

The return on your investments depends on the investments you select and the terms and conditions you as the account owner negotiate and/or agree to for that specific investment. Investment decisions are made solely by you and/or your authorized representative (if appointed).

Where can I find out more information about rules/regulations associated with various types of retirement accounts?

Please refer to the IRS website at irs.gov and/or refer to IRS Publication 590 and 560.

Custodian

What is the role of Preferred Trust?

Preferred Trust Company is a Retail Trust Company licensed in the state of Nevada to act in the capacity of Custodian for self-directed IRAs. The responsibilities of Preferred Trust include safely keeping the liquid funds and invested assets purchased on behalf of the Depositor (you), collecting and receiving income and principal on behalf of the Depositor, and making disbursements from the account as directed by the Depositor in accordance with the account agreement.

Are my non-invested funds insured and where are they held?

Funds not invested are held in FDIC-insured demand accounts, certificates of deposit, or US government-backed securities. Our policy ensures liquid funds are always available to meet client requests.

Do my non-invested funds earn interest?

Non-invested funds earn interest monthly. The rate is based on a national average for six-month CDs and may be adjusted from time to time. Earned interest is credited to accounts on the last day of the month.

Taxes

What is the difference between Qualified and Non-Qualified funds?

Qualified funds are monies deposited into a retirement account prior to paying taxes on it (pre-tax). Non-Qualified funds are monies available outside of a retirement plan, and for which taxes have been paid.

Will I be taxed and/or penalized for transferring my account from my current custodian to Preferred Trust?

No, the funds transfer from one Qualified Retirement Plan to another – a direct custodial transfer. The client never comes into contact with the funds. If the client initiates the transfer independently (without Preferred Trust participation), the current custodian may make the check payable to the client. In this case, the client has 60 days to open an account and deposit funds with Preferred Trust.

Will I be taxed or penalized for purchasing property or lending funds with my IRA?

No, as long as the transaction is held as an investment in your account, it is not considered a taxable transaction.

Transferring Funds

How long will it take to transfer my funds?

It takes approximately 1 – 3 weeks to transfer funds from one Custodian to another. The sooner we receive your application and required compliance items, the sooner we can begin the transfer process.

Do I need to liquidate my funds into cash prior to transfer, or can I transfer my assets ‘in-kind’?

Preferred Trust cannot liquidate traditional assets such as stocks, bonds, or mutual funds, therefore, this requires asset liquidation prior to transfer.  The process generally moves more quickly if assets are liquidated on the transferring custodian side. Preferred Trust can accept the in-kind transfer of alternative assets such as real estate. Please discuss with one of our client representatives for specific transaction requirements.

Do I need to transfer the entire balance of my account?

No, you may transfer a portion of your funds and maintain a balance with your current Custodian.

Can I transfer funds from multiple accounts or make an additional transfers?

Yes, you may transfer additional funds at a later date.  You will need to complete an additional Transfer Request form.  You can also transfer/roll-over funds from multiple accounts into one account with Preferred Trust as long as the accounts are compatible.

I received a check from my current custodian. Can I send that check to Preferred Trust to open a new account?

If you receive a roll-over check, you have sixty (60) days to deposit the funds into another Qualified Retirement plan.  Preferred Trust cannot accept third party checks.

Will I be charged a fee to transfer my account?

Preferred Trust Company does not charge a fee to transfer your account.

What is the minimum and maximum amount I can transfer?

There are no limits to the amount that can be transferred to Preferred Trust from another Qualified Retirement Plan.  It is important to be mindful of any fees or minimum balance requirements and any expenses associated with the specific investments held in the account.

Qualified Money

Can I transfer/roll-over my 401k Plan with my current employer?

This depends on the employer and the plan stipulations/guidelines established. Each employer plan is unique and set up according to employer stipulations. Many employers forbid account transfers while you are still employed by the company. Some employers will allow you to request a partial in-service withdrawal. This is a question clients must ask their employers – typically someone in HR or a Benefits Department Representative.

Can I transfer my 403b, TSP, 457, or Pension Plan?

This involves guidelines similar to a 401k Plan – If your plan allows such a transfer, we can accept it.

Account Types

What type of account does my 401k, 403b, TSP, 457 or pension plan transfer into?

The equivalent account types are a Traditional IRA or a SEP IRA, which may be converted into a ROTH IRA. However, the account holder is responsible for paying applicable taxes and penalties on the conversion amount.

My current custodian said my account is self directed. Do I still need to transfer it to Preferred Trust?

Accounts can be considered ‘self directed’ if owners can make online trades (buy/sell assets held within the account). Truly self directed accounts can hold real estate and other non-traditional assets.

Contributions

How much can I contribute to my IRA for 2015 and 2016?

The following contribution limits apply for 2015 and 2016:

Traditional IRA – $5,500.00

Roth IRA – $5,500.00

**The above limits can be split between a Traditional IRA and a Roth IRA, but the combined limit is $5,500.00.

SEP IRA – The annual contributions you make to each employee’s SEP IRA cannot exceed the lesser of 25% of compensation or $52,000 for 2016.

Can I make catch-up contributions to my account?

Individuals who are 50 or over at the end of the calendar year can make annual catch-up contributions that total $6,500 per year.

You can make these contributions to your Traditional or Roth IRA in amounts up to $6,500 in 2015. Catch-up contributions to an IRA must be made by the due date of your tax return (not including extensions).

SEP IRA’s are funded by employer contributions only. Catch-up contributions apply only to employee elective deferrals. However, if you are permitted to make Traditional IRA contributions to your SEP IRA account, you may be able to make catch-up IRA contributions. Please refer to the specific employer plan structure.

For additional information regarding SEP IRA’s, please visit the IRS website at: www.irs.gov

Can I contribute after I am 70 years?

You can’t make regular contributions to a traditional IRA in the year you reach 70½ and older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

Beneficiaries

How do Beneficiary IRAs work?

A beneficiary can be any person or entity the owner chooses to receive the benefits of a retirement or an IRA after he or she dies. Beneficiaries of a retirement account or Traditional IRA must include in their gross income any taxable distributions they receive.

IRA Beneficiaries inherited from spouse.

If a Traditional IRA is inherited from a spouse, the surviving spouse generally has the following three choices:

    1. Treat it as his or her own IRA by designating himself or herself as the account owner.
    2. Treat it as his or her own by rolling it over into a Traditional IRA, or to the extent it is taxable, into a:
      • Qualified employer plan
      • Qualified employee annuity plan
      • Tax-sheltered annuity plan
      • Deferred compensation plan of a state or local government
    3. Treat himself or herself as the beneficiary rather than treating the IRA as his or her own.

If a surviving spouse receives a distribution from his or her deceased spouse’s IRA, it can be rolled over into an IRA for the surviving spouse within the 60 day time limit, so long as the distribution is not a required distribution. This rule applies, even if the surviving spouse is not the sole beneficiary of his or her deceased spouse’s IRA.

Inherited from someone other than spouse.

If the inherited Traditional IRA is from anyone other than a deceased spouse, the beneficiary cannot treat it as his or her own. This means that the beneficiary cannot make any contributions to the IRA or roll over any amounts into or out of the inherited IRA. However, the beneficiary can make a trustee to trustee transfer so long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of the beneficiary.

Like the original owner, the beneficiary generally will not owe tax on the assets in the IRA until he or she receives distributions from it.

Generally, the entire interest in a Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner’s death, unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70 ½ or treat the Roth IRA as his or her own.

Investments

How do I use my IRA as a hard money lender?

Your IRA can lend funds as an investment to any individual or entity not disqualified by the IRS. This type of loan is known as a Private Debt Investment. A secured private debt investment requires a Promissory Note and a Deed securing your investment. An unsecured private debt investment requires a Promissory Note and a Joint Venture Agreement. The lender must be listed as Preferred Trust, Custodian FBO Account-holder Name, and Account Number in all documents. The interest rate and pay off date must be listed in the Promissory Note and Joint Venture Agreement (if applicable), which will be negotiated by both client and borrower.

How can my IRA invest in Tax Liens?

The lien documents, including the contract/purchase agreement must be written as, Preferred Trust Custodian FBO Account Holder Name, and Account Number. A draft of the lien must be submitted, which encumbers the property to Preferred Trust, Custodian FBO Account-holder Name, Account Number. The Lien Investor Direction and Certification and Servicing Agent Agreement will need to be completed and submitted. These documents will be found in the Processing Checklist for Tax Liens.

What is a Private Equity investment?

Private Equity investments include the purchase of stock in C-corporations, limited partnerships, limited liability companies, and unit investment trusts. Private Equity investments to single-member entities, general partnerships, and limited liability partnerships, joint ventures, working interests, foreign entities or S-corporations will not be processed by our Company. Private Equity investments to entities wherein the account holder or a disqualified individual owns fifty percent or more of the entity will not be processed by our Company. An account holder or a disqualified individual cannot own more than forty-nine percent of an investing entity.

Are there any types of Private Debt investments that Preferred Trust will not process?

Yes, these investments include, but are not limited to, individual loans secured by vehicle titles and/or other personal property or loans to disqualified individuals or entities.

Can I lend money to my LLC?

You can lend to your LLC if you own forty-nine percent or less of the entity. The other owner(s) cannot be a disqualified individual, such as your spouse, parent, grandparent, or child.

Can I sell property that I currently own to my Preferred Trust account?

No. Property that you or a disqualified person has ever owned may not be purchased by your Preferred Trust account. This would be a prohibited transaction, as it is considered self-dealing.

Can my Preferred Trust account purchase a portion of a property along with other investors, including myself?

Yes, as long as the investing is recorded accurately. The deed must be registered to “Preferred Trust, Custodian FBO Account-holder Name, Account Number, with the exact percent interest listed by the owner(s). Example: Preferred Trust, Custodian FBO Jane Smith, IRA 123456789 50% and Jane Smith, 50%.

How are rehab expenses, miscellaneous expenses, and income handled with real estate investments purchased and sold within my IRA?

Expenses and income related to the real estate investments within your IRA are dependent upon the exact percent interest the IRA owns of each investment. For example, if the IRA owns fifty percent interest in an investment property, the IRA can only contribute to fifty percent of all rehab and/or other miscellaneous expenses. In the same way, the IRA can only benefit from fifty percent of any earned income, such as rental proceeds or sale proceeds. If your IRA owns 100 percent interest in an investment property, your IRA must pay 100 percent of the rehab and/or miscellaneous expenses. In this example the IRA will receive 100 percent of earned income, including rental proceeds or sale proceeds.

Can I refinance the investment property within my IRA?

Yes, an investor can refinance an investment property within his or her IRA by using a hard money lender or private lender, as long as proceeds from the loan are returned to the IRA. We can provide investors with a list of hard money lenders, but they will be responsible for performing their due diligence with each of these hard money lenders as we do not recommend, advertise, or promote any particular hard money lender.

Can I use traditional lending in conjunction with my IRA to purchase an investment property?

Traditional lending such as Fannie Mae and Freddie Mac cannot be used to purchase investment property through your IRA. Fannie and Freddie must be the first lien on any property. Likewise, an IRA also must have first lien. Therefore, the two are incompatible. Our office can provide a list of hard money lenders for your reference. But you are responsible for performing due diligence on each, as we do not recommend, advertise, or promote hard money lenders.

Can I use the property owned by my IRA as anything other than an investment?

No. Neither you, nor any other individual can have personal use or benefit of the property while it is held in your retirement account. The property must be purchased for investment purposes only. Income derived from your investment must be deposited to your IRA account.

Distributions

What happens if I take a distribution from my account to purchase an investment?

You must Quitclaim Deed the real estate or tax lien investment into your IRA within sixty days of the date of the distribution. You are responsible for ensuring there is not verbiage in the purchase documents that prevents the deed or tax lien from being changed for the first sixty or ninety days after the purchase. You must provide all purchase-related documents, including the HUD for real estate purchases and the receipt of sale for tax liens. Any funds not used to purchase the investment and not returned to the IRA within sixty days will be considered a distribution and therefore a taxable event.

What are required minimum distributions?

Required minimum distributions are the lowest amounts that must be distributed to you from your retirement account(s) after you reach age 70 ½ (with the exception of the Roth IRA) as per IRS guidelines.

How do I access my funds, and how quickly can I make withdrawals?

Requests for distributions and disbursements are generally processed within 48 hours. Requests must be submitted in writing, using the appropriate form via fax, e-mail, or standard mail.

Payments may be issued by wire, automatic clearing house (ACH), or check, depending on Client preference. Processing fees are assessed depending on the method of payment selected.

Funding requests for investments are generally remitted via wire upon review and approval by our Client Investment Department.

Account Maintenance

Can I consolidate my retirement accounts?

Yes. You can consolidate Traditional and SEP IRAs into a single Traditional IRA. A Simple IRA can be combined with a Traditional IRA after two years. Multiple Roth IRAs can be combined into a single Roth IRA.

How often do I receive a statement of my account?

Statements of account are mailed via USPS to clients annually. We offer online account access so that you may view your account twenty-four hours a day, seven days a week. Statements also can be sent via e-mail or USPS upon request.

I want to transfer my funds out of Preferred Trust – How do I do that?

To transfer funds from Preferred Trust to another custodian, you must contact the new custodian, complete their Request for Transfer form, and have them send the original to us. If you intend to take a distribution of funds and close the account, you must complete a Distribution Request form and an Account Closure form.

Who do I contact if I have questions about my account?

General Service questions should be directed to Client Services. Specific questions related to account activity may be submitted to Accounting Services via fax, e-mail (ptcacctg@ptcemail.com), or regular mail.
Accounting issues generally will not be addressed or resolved over the phone.

Fair Market Valuation

How should asset be valued?

To comply with the Internal Revenue Code requirement, assets must be valued at fair market value, not cost. A Fair Market Value (FMV) is an estimate of the market value of a property or asset, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller in the market.

What happens if I do not turn in my Fair Market Valuation Form?

 Preferred Trust Company is required to obtain the most recent fair market value available for investment(s) in your account at least once a year. If we do not receive the Fair Market Valuation Form, we will report the last known value of the asset(s) held in your account. Please note that the Internal Revenue Service (IRS) requires annual valuations.No. For assets where fair market value cannot be determined and documented, such as real estate, this must be provided by a qualified, Independent Third Party Valuator who is not a disqualified person.

May I provide my own valuation of the assets held in my self-directed IRA?

No. For assets where fair market value cannot be determined and documented, such as real estate, this must be provided by a qualified, Independent Third Party Valuator who is not a disqualified person.

Who pays for the valuation?

Your IRA does. If your IRA account does not have sufficient funds to cover the cost you will have to make an annual contribution, transfer, or rollover funds from another custodial account.

What do I do if the asset is worthless?

In order to remove the asset from your IRA account, the Internal Revenue Code requires that their be specific type of documentation to do so. The following are some acceptable examples; Tax Form 1099-C (Cancellation of Debt), Deed in Lieu of Foreclosure or a copy of the recorded Trustee’s Deed, county’s recorded Tax Deed, Bankruptcy Notice, legal collection efforts, a Cease and Desist Order from an entity such as SEC or a similar state agency.