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Investment Resources

Making an investment choice requires due diligence. Preferred Trust does not offer, endorse, or sell investments. What we do is open the door for investors to invest in alternative assets outside of stocks, bonds, and mutual funds.

Let’s get the three options off the table that the IRS states are not eligible investments in the IRA: Collectibles, Life Insurance, and S-Corporation Stock.

That leaves many options still available, and the most popular options with our clients are listed in the investment resources below. In each of these categories, our clients have also identified their most popular investment sponsors to invest in. Check them out, do your due diligence, and decide for yourself!

The options to invest in real estate are endless. Familiarize yourself with the options, including the pros and cons – and then find one that meets your investment strategy.

Real Estate Education

Chances are you are already investing in real estate. There is also a high probability that you are investing with cash. Complement your existing strategy with a self-directed IRA. This powerful financial tool can help you leverage retirement savings and maximize returns through this tax-deferred or tax-free strategy.

Below is a list of Real Estate topics with educational content that Preferred Trust has provided for our clients to assist them in their Real Estate investments. Click on the item to be taken to that segment or scroll through the text.

Roles & Responsibilities

 

Property Managers

Earnest Money Deposit

 

Fees Associated with Investment Property

Property Expenses and Balance Requirements

 

UBIT and UDFI

Real Estate Investment Resources Roles and Responsibilities

The guides below discuss the roles and responsibilities of each party involved in the real estate transaction, based on the type of transaction, to help ensure that the process goes smoothly and is compliant with IRA rules.

Rental Property
Investment Fund
Trust Deed Investment
Real Estate Investment Resources - Earnest Money Deposit
Can I use personal funds as a down payment on an investment property that I intend to purchase using my Self-directed IRA?

The short answer is no. Paying for the Earnest Money deposit with personal funds disqualifies the IRA. If the property is being purchased by the IRA, then the initial deposit must be from the IRA.

So what happens if I personally paid the EMD? Can the IRA reimburse me at the final closing?

When a client pays for the Earnest Money deposit with personal funds, that usually means that they’ve also signed the purchase contract and the vesting name of the buyer may not actually in the name of the IRA. If any of these scenarios are the situation you find yourself in, you should contact your custodian immediately.

An amendment to the purchase agreement will be required. The purchase contract and all documents related to the purchase must reflect the IRA as the buyer. The correct Vesting name must include the following:

Preferred Trust Company, LLC FBO John Doe Traditional IRA (account number).

Once the purchase agreement is amended then you will initial the amendment as “Read & Approved” and Preferred Trust will sign the amendment as custodian for the IRA as the buyer.

Next, you will need to complete the Investment Authorization and Direction form and indicate on the form the amount of money you personally sent to the Title Company for the EMD. You will need to provide Preferred Trust with a copy of the wire instructions for the Title company. Preferred Trust will process a payment from your IRA to the Title Company for money you personally paid for the Earnest Money. The Title Company will reimburse you the money you paid once they receive funds from Preferred Trust.

You are now compliant and can proceed with the purchase of the property!

Real Estate Investment Resources - Investment Property Expenses and Balance Requirements

All investment properties incur expenses; and these expenses must be paid directly from the IRA. Paying for any expenses personally for a property owned by your IRA (no matter the percent ownership) is a disqualifying event and will result in the distribution of the property to you in a taxable event.

So how do you ensure that the expenses are paid from the IRA?

First, Preferred Trust requires every account to maintain a minimum cash balance equal to five (5) percent of the value of the property. This cash balance requirement ensures there is cash available in the account to pay for property taxes and insurance, property repairs and general maintenance, HOA dues, utilities, and property management fees. Second, become familiar with the Investment Expense Authorization forms. You will find a selection of payment options through our various expense forms. You can schedule recurring payments for annual expenses such as taxes and insurance that will automatically be paid from the IRA when an invoice is received. You can also schedule recurring payments for monthly expenses such as HOA dues and utilities. Making sure that all invoices for the property are sent to the address of Preferred Trust will ensure that no payments are missed.

STOP! What happens if I accidentally pay for an expense associated with my investment property?

If an expense such as a water heater breaking over a weekend occurs, don’t panic! We understand that there are events that occur with investment properties that are considered emergencies and may not be within your control. The IRA can reimburse you the amount you paid personally but you must request the reimbursement within thirty (30) days of the payment being made. You will need to complete the Investment Expense Authorization and Direction form and submit the form with a copy of the invoice and payment receipt to our Accounting Department for processing.

Please select the link to access the Forms page of our website to review all the Expense Authorization form options.

Real Estate Investment Resources - Property Managers
Are they required?

You are not required to hire a Property Management Company for your investment property; however, you may want to consider the advantages. Keeping all transactions involving your IRA owned property and yourself at an arm’s length distance is crucial. You do not want to engage in any transaction or do anything that could potentially disqualify your IRA. While you can collect rents on the property and forward them to Preferred Trust for credit to your IRA, you cannot personally deposit them in your checking or savings account for future credit to your IRA.  And while you can hire a maintenance company or repair servicers, you cannot personally do any work on the property. Not to mention, it can be difficult to manage a property if you do not live in the city where the property is located. For a nominal fee a property management company can provide the overarching management of the property and all transactions as well as vet renters and deal with city, county, and municipal ordinances. They also perform regular inspections on the property and rectify any violations. Most importantly, they collect rents!

As you can see, having a property manager for your investment property is a good investment and ensures your IRA remains compliant. As always, be sure to do your due diligence before engaging in a contract with a company. They need to understand the IRA ownership component and your role as owner of the IRA. Once you select a property manager it is a good idea to provide the property manager with contact information for Preferred Trust and vice versa. Communication between the two entities is important.

Real Estate Investment Resources - Fees Associated with Owning an Investment Property
It is important to differentiate between the fees and expenses associated with having an investment property owned by your IRA.

By definition, a fee is an amount paid to a professional person or company in exchange for advice or services. You pay Preferred Trust an annual fee to administer your IRA. You can use personal funds to pay these annual fees by completing a credit card authorization form or by sending a check.

The Real Estate Asset Administration fee is assessed annually for each property owned by the IRA. The fee includes confirmation and remittance of property taxes, insurance, receipt of rents, processing of expenses, communication with the property manager and related municipalities, and compliance with IRS rules and regulations.

On the other hand, expenses in relation to an investment property are the costs associated with owning and maintaining the real estate. Expenses cannot be paid outside of the IRA. Even HOA “dues / fees” are considered an expense and not a “fee” associated with owning an investment property. You cannot use personal funds to make those payments.

Making regular contributions to your IRA will help to ensure there are funds available to pay fees and expenses throughout the lifetime of ownership of the property.

Real Estate Investment Resources - UBIT and UDFI
What is UBIT and UDFI and does it apply to the real estate investments I have in my IRA?

Unrelated Business Income Tax and Unrelated Debt Financed Income Tax.

UBIT tax applies when an IRA receives ordinary income as opposed to passive income from the investments owned by the IRA. Rental income, interest income, and dividend income are the most common income received by self-directed IRAs and are exempt from UBIT. UBIT is due from real estate activities that are not passive in nature. For example, acquiring real estate with the intent to purchase, develop, and sell. The rate is 37% percent for any income over $12,500.00 and Form 990-T must be filed with the IRS.

UDFI tax applies to the gains received by an IRA that are attributable to debt. The tax applies when a nonrecourse loan is used to finance the purchase of property with an IRA. The gains apply to the rental income derived from that debt.

UBIT and UDFI rates are the same based on the income generated subject to a maximum of 37%. UBIT and UDFI is not triggered until $1,000.00 of income is generated annually.

Investing in precious metals can help diversify your retirement portfolio, but not all precious metals companies are created equal.

Precious Metals Education

Precious Metals Investment Resources - Choosing a Precious Metals Dealer

The precious metals industry is not fully regulated. Keep in mind that dealers make their money on purchase commissions, and are not licensed or registered to provide investment or trading advice.

Below are three important factors to consider when choosing a precious metals dealer.

To learn more about what to watch for, check out this guide to Protect Yourself With Precious Metals Investing.

The daily spot price of metals can be found through various web sites such as https://bullionvalues.org/. These prices are important to know as you compare precious metals dealers as some dealers persuade investors to purchase metals at premiums between 40%-200% above the spot price. This can cause a heartache for clients that need to liquidate their investment when the dealer offers to purchase back the metals at a fraction of the original cost.

 

Many dealers have designated themselves as “IRA experts” when they have no license to do so. IRA Custodians are licensed and regulated by the Internal Revenue Service (IRS) and the Department of Labor (DOL). Precious Metals dealers are commissioned salespeople paid according to the products they sell. They have no fiduciary responsibility to you.

 

Most states have commodity laws that require that each commodity purchased under a contract must be delivered between 7 and 28 days. The US Commodity Futures Trading Commission issued a report to help consumers identify fraud related to precious metals dealers.

If you’re considering an investment that will affect your future retirement, do your due diligence and proceed with caution. Pay extra attention to the pricing and delivery of any metals you are considering for purchase.

Precious Metals Investment Resources - Holding Precious Metal Investments in Your Self Directed IRA

Asset diversification is crucial when it comes to selecting investments that will create a strong and viable retirement portfolio. Precious metals are one type of tangible asset that can weather a financial crisis. Investing in gold, silver, platinum or palladium can help minimize your exposure to losses when other investment types lose value. Metals can be held for infinite periods of time, and unlike stocks and bonds, have inherent value.

In a self-directed IRA, you control the ability to purchase or sell the metals in a tax-deferred (Traditional IRA) or tax-free (Roth IRA) environment. When you decide to make a withdrawal, you can choose to liquidate a portion of your metals (sell your bullion or coins for cash), or take an in-kind distribution and assume physical possession of the assets.

Purchase
Sell
Precious Metals Investment Resources - Staying Compliant

When you hold Precious Metals in a Self-Directed IRA there are 3 components to maintaining a compliant account with Preferred Trust Company.

Minimum Account Balance

It is the policy of Preferred Trust that all accounts maintain a minimum cash balance of $500.00. The minimum cash balance cannot be used to pay fees. The minimum account balance can only be obtained by transferring funds from another Qualified Retirement Account, making a contribution to the account, or selling precious metals to ensure your account complies with the policy.

Annual Depository Fee

Your precious metals are stored at a third-party Depository. The Annual Depository Fee associated with the storage of your precious metals is considered an expense related to the investment and must be paid directly from your IRA. You cannot pay the Depository directly for this fee. The Annual Depository Fee can only be obtained by transferring funds from another Qualified Retirement Account, making a contribution to the account, or selling precious metals to ensure your account complies with the policy.

Annual IRA Account Administration Fee

If your self-directed IRA exclusively holds precious metals as the only asset the Annual IRA Account Administration Fee is $300.00 a year. This fee is due in the month prior to the anniversary date you established your IRA account with Preferred Trust. The Annual IRA Account Administration Fee can be paid by credit card, check or wire. If you elect to send a wire, you must also include an additional $30.00 Wire Fee to the amount you are wiring.

Precious Metals Investment Resources - Determining a Fair Price for Precious Metals

Spot Price

The “spot price” of a commodity is the unit price for which the asset can be bought or sold in the present moment. With precious metals, the spot price for is priced per ounce. The spot price for gold, silver, platinum and palladium fluctuates with the market and changes throughout the day.

Bid/Ask Price

The bid price is how much a dealer is willing to pay for your silver, while the ask price is how much they are asking in terms of gold, silver, platinum, or palladium. The spread between the two prices is largely determined by market conditions and dealer preference.

Precious Metals Investment Resources - IRS Approved Precious Metals

In 1997, Congress passed the Taxpayer Relief Act which expanded the precious metals holdings allowable in IRAs. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce US gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, platinum, and palladium bullion. Proof coins must be encapsulated in complete, original mint packaging and include the certificate of authenticity. Small bullion bars must be manufactured to exact weight specifications and non-proof bullion coins must be in brilliant uncirculated condition and free from damage.

GOLD
Gold must be 99.5% pure and must be produced by a refiner/ assayer or manufacturer that is certified/ accredited by NYMEX or COMEX and meets minimum fineness requirements.
SILVER
Silver bullion bars must have a minimum pureness of 99.9% and must be produced by a refiner/assayer or manufacturer that is certified by NYMEX or COMEX.
PLATINUM
Platinum bullion bars must have a minimum pureness of 99.95% and must be produced by a refiner/assayer or manufacturer that is certified by NYMEX or COMEX.
PALLADIUM
Palladium bullion bars must have a minimum pureness of 99.95% and must be produced by a refiner/assayer or manufacturer that is certified by NYMEX or COMEX.
Precious Metals Investment Resources - Depositories and Storage Options

Selection of the precious metals storage facility is an important part of the investment process. It is up to the account owner to perform all necessary due diligence related to the depository.

Per the IRS, precious metals invested using your IRA must be held in the physical possession of a bank or an IRS-approved nonbank trustee. You may not personally store the precious metals that are owned by your IRA. This rule also applies to indirect ownership through an IRA owned LLC. Specific factors to consider when selecting a depository include location, security, licensing, insurance, storage fees and types of storage offered; segregated vs. non-segregated. It is important to understand that the custodian of your IRA does not physically store your precious metals. They are a separate entity.

Some depositories only provide segregated storage options for certain types of coins and bullion while others don’t offer segregation. It is important to understand the different depository storage options prior to purchasing the metals.

Segregated Storage

With segregated storage the bullion is inspected, packaged, labeled, and stored, physically separate and apart from the bullion of other Preferred Trust Company clients.  Typically the cost of segregated storage is more than the cost of non-segregated store. The segregation of metals guarantees that you will receive the same exact bars or coins that were originally purchased upon distribution.

Non-segregated Storage

With non-segregated storage, fungible bullion products (which by nature are commercially interchangeable) are inspected and stored in high-security vaults. Clients that select non-segregated storage benefit from significant cost savings because the bullion is stored in bulk.

The storage of your precious metals investment at a depository will also incur a separate fee. Custodians and depositories work independently of each other and have separate fees for their services. Most storage facilities provide an invoice to the custodian annually while others bill quarterly. Since the cost of storage is a direct an expense associated with the investment the fee must be paid from qualified funds; this means that you cannot use a credit card or pay the depository directly.

Please visit our Investment Services page to learn more about specific depositories.

Precious Metals Investment Resources - Required Minimum Distribution (RMD) with Precious Metals

At some point in your lifetime, you will be required to distribute the assets in your retirement account if you have a Traditional IRA. Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that they reach age 73.

So what happens if you’ve invested 100% of your retirement dollars in precious metals?

You have two options:

Option 1:

You can take an in-kind distribution of the metals, but this will cost you. Not only will you incur processing fees assessed by the Custodian, but you will be responsible for paying shipping and handling costs for the depository to send your metals to you. Shipping costs alone can be astronomical and if you’ve drained the cash in your IRA account you will not have the funds necessary to pay the shipping costs associated with the investment, which costs are required by the IRS to come from the IRA. If you are under the age of 73 then you could contribute to the IRA to proceed with an in-kind distribution. If you are over the age of 73, the second option is your only option.

Option 2:

Option two involves selling a portion of your precious metals. This is probably the worst-case scenario since you may not be able to recoup the amount you paid for the precious metals – especially if you purchased them within a few years of needing to process an RMD. The saying continues to ring true today, do not put all your eggs in one basket. Having some liquidity in your IRA account when you have non-income generating investments can make a significant difference between your ability to build your retirement, taking a loss, or potentially disqualifying your IRA account.

These are great reminders that Precious Metals dealers are not custodians. They have nothing to do with the administration of your IRA. Reaching out to them to assist you in completing documents and forms related to a distribution is not a good idea. You should always contact the custodian directly. Custodians are trained and licensed to help you complete the correct forms and explain all your options.

Natural resources have many meanings. From water used for drinking, agriculture, and industrial processes. To forests that provide timber, paper, and habitat for wildlife. Moving to minerals such as coal, iron, and oil used in manufacturing and energy production. And finally renewable energy sources such as solar, wind, and hydropower for electricity generation. These are all vital aspects of our lives and investing in natural resources makes our beautiful world exist today. Have you ever considered investing in our ecosystem?

Natural Resources Education

Roles and Responsibilities of Oil and Gas Investments

Oil and gas investments in private funds typically provide a lower capital barrier to invest which makes it easier for investors to participate with a Self-Directed IRA. Click the image below to review the investment process for this type of investment.

Investment Sponsor

Due Diligence

With a Self-Directed IRA, you are solely responsible for performing due diligence and research on any investment or investment sponsor. There are a few important aspects of these types of investments you should take into consideration.

Private Placements:

  • Have minimal regulatory requirements and standards – they are not required to be registered with the SEC, provide a prospectus, undergo financial audits, or disclose detailed financial information.
  • Are often comprised of ZERO collateral, which means you have the potential to lose your entire investment.
  • Are often illiquid. Unless the offering provides a means for you to liquidate your interest, you may be required to retain the investment for an indefinite period of time.

Based on the factors listed above, you can see that investors are subject to the expertise, financial integrity, and good faith of the company. You are investing in the people of the company. This means that thorough research and due diligence should never be taken lightly; especially when you choose to invest the money that is supposed to last you through your golden years.

If you have never engaged in this type of investment, you may not know what steps you should take to perform in depth research and due diligence on a company. Take a look at our blog, “Private Placements: Not the Time or Place for Careless Due Diligence“, to learn more.

Preferred Trust was the first custodian to offer clients the opportunity to invest in digital currency in 2017. If you are interested in buying or selling your cryptocurrency through your self-directed IRA – give us a call to learn more.

Digital Currency Education

It has been and always will be important to us to stay true to protecting our clients. We have only ever offered investments in digital currency through cold storage wallet devices while maintaining the original crypto security standards established by the founders in the industry.

This has and will continue to be the only format in which Preferred Trust will hold investments in cryptocurrency as none of our clients have been subjected to hacking.

Investing in Digital Currency requires proper education and thorough due diligence. 

Digital Currency Investment Resources - View Live Pricing

Live digital currency pricing is provided by Trading View. Preferred Trust is not an affiliated company of Trading View. Preferred Trust is not compensated in any way by Trading View. The link provided should strictly be used to view live digital currency pricing at the viewer’s discretion. 

Digital Currency Investment Resources - Types of Digital Currency
Bitcoin
Bitcoin Cash
Cardano
Dogecoin
Ethereum
Ethereum Classic
Litecoin
Ripple
Solana
Stellar
TRON
ZCash
Digital Currency Investment Resources - Digital Currency Investment Process

Preferred Trust works with Coinbase as an exchange platform. Coinbase is one of the few exchange platforms that is licensed and regulated by the U.S. federal government.

Investment process with Coinbase:

  1. Client completes the Digital Currency Investment Purchase Authorization and Direction form.
  2. The purchase will be completed within one (1) business day from receipt of the executed form.
  3. Preferred Trust assigns a unique wallet address to the IRA for the purchase of the specific type of digital currency, i.e., Bitcoin. The wallet address is provided to the trading platform.
  4. Preferred Trust sends funds from the IRA to the trading platform and the trading platform sends the digital currency to the specified wallet.
  5. Preferred Trust verifies the wallet address received the digital currency and a confirmation email is sent to the client.
Digital Currency Investment Resources - IRA Online Account Portal - Digital Currency Values

To see what the value of the digital currency;

  • You can view your digital currency assets with pricing through the Preferred Trust online account portal. The value of the digital assets are updated each evening, excluding weekends.
  • Should you want to view your digital currency on the blockchain, Preferred Trust provides you with your unique wallet address upon the completion of your purchase. Your wallet is viewable through any blockchain explorer.

Below is an example of the information you will see through the online account portal.

Digital Currency Investment Resources - IRA LLC - Pros and Cons

IRA LLC’s are a great option for investors that are confident in their ability to manage their retirement account with a thorough knowledge of SD IRA prohibited transactions and, in general, IRS regulations regarding IRA accounts. There are advantages and pitfalls to this level of responsibility that individuals should seriously consider before moving forward.

Pros

  • Increased speed of investment:

    Complete signing authority and direct access to qualified funds means that the IRA owner can move in-and-out of investments more quickly. For example, this can be pivotal for investments in digital currency, where the price of the asset is dependent on the ability to purchase and sell at a certain time.

  • Personal asset protection:

    LLCs in general provide personal asset protection by keeping your retirement assets and your personal finances separate.

  • Fewer fees:

    Since the IRA LLC investment activities are independent of the custodian, investment transaction fees do not apply. However, the custodian is still responsible for administrative activities, such as reporting to the IRS, processing contributions and distributions, etc., which means that administrative fees will still apply.

  • Invest in both alternative and publicly traded assets:

    An IRA LLC gives you the flexibility to invest in alternative assets and publicly traded assets without having to rollover or transfer qualified funds between two different accounts.

Cons

  • Formation and ongoing expenses of having an LLC.
  • Increased responsibility:

    This autonomy places greater responsibility on the IRA owner to ensure that the IRA LLC’s activities remain compliant with IRS rules and regulations. Familiarizing yourself with the IRS prohibited investments and transactions will be pivotal to ensuring that your account does not lose its qualified tax protected IRA status.

  • Sole protector:

    You are your own last line of defense, which means that proper research and due diligence will be essential for protecting your retirement account from fraud. This includes protecting yourself from fraudulent digital currency exchange platforms and storage options.

Digital Currency Investment Resources - Tax Consequences in an IRA

In 2019, the IRS issued IRS Rev. Rule 2019-24 to establish tax implications for when digital currency investors participate in an “airdrop” of new digital currency derived from a “hard fork.” Below is a direct excerpt from the ruling:

  • A taxpayer does not have gross income under § 61 as a result of a hard fork of cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency.
  • A taxpayer has gross income, ordinary in character, under § 61 as a result of an airdrop of a new digital currency following a hard fork if the taxpayer receives units of new digital currency

If you participate in digital currency investments with a Self-Directed IRA, you may be thinking that your tax advantaged account will shelter your investment returns from any tax consequences. Unfortunately, this is not an insulated event for an IRA account.

To learn more about this type of transaction and your options, read our blog.

Digital Currency Investment Resources - Required Minimum Distribution (RMD) with Digital Currency

At some point in your lifetime, you will be required to distribute the assets in your retirement account if you have a Traditional IRA. Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that they reach age 73.

So what happens if you’ve invested 100% of your retirement dollars in digital currency?
You have two options:

Option 1:

You can take an in-kind distribution of the digital currency, but this will cost you. You will incur processing fees assessed by the IRA custodian. If you’ve drained the cash in your IRA account you will not have the funds necessary to pay the costs associated with selling the investment, which costs are required by the IRS to come from the IRA. If you are under the age of 73 then you could contribute to the IRA to proceed with an in-kind distribution. If you are over the age of 73, the second option is your only option.

Option 2:

Option two involves selling a portion of your digital currency. This is probably the worst-case scenario since you may not be able to recoup the amount you paid for the digital currency – especially if you purchased them within a few years of needing to process an RMD. The saying continues to ring true today, do not put all your eggs in one basket. Having some liquidity in your IRA account when you have non-income generating investments can make a significant difference between your ability to build your retirement, taking a loss, or potentially disqualifying your IRA account.

Investment Resources are provided for general information. Preferred Trust does not provide tax or legal advice. We strongly recommend you seek professional advice from a legal, accounting, and/or tax professional prior to making any investment decision. Selection of the investments listed on our website and the performance of those investments are the sole responsibility of the investor and not Preferred Trust.

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