When your IRA is held at Preferred Trust, you’re in the driver’s seat to choose the investments held by your IRA. You can select from a wide range of alternative assets as seen below, the only limitations are those in red.
Popular Investment Options:
As a passive custodian Preferred Trust does not endorse or offer investments. The popular investment options below are a reflection of the types of investment strategies used by our current clients.
A popular investment option is direct or indirect real estate investing.
With IRA real estate investing, you can invest in property for long-term appreciation, rental income, or a short-term ‘fix & flip’. The investment properties may include; single family and multi-unit homes, apartment buildings, condominiums, commercial property, and improved or unimproved land, just to name a few.
When seeking ways to diversify your retirement portfolio, real estate may be an option. It may provide recurring income and potential appreciation in value over time. However, real estate investing is not for the faint of heart, as you must consider allocation of your time, cost, and commitment before considering this type of investment.
If your IRA owns an asset that produces UBTI, your IRA may be subject to an UBIT pursuant to Section 511 of the Internal Revenue Code. Generally, IRA investments that can generate UBIT include any investment that incurs debt financing. Consult your tax advisor.
Asset diversification is crucial when it comes to selecting the investments that will create a strong and viable retirement portfolio. Precious metals are one type of asset that provides you with the opportunity to invest in something tangible that can weather a financial crisis. Investing in gold, silver, platinum and/or palladium minimizes your exposure to losses when other types of investments lose value. Unlike stocks and bonds, precious metals have inherent value and, metals can be held for an infinite amount of time. You control the ability to purchase and sell the metals in a tax-deferred or tax-free (Roth IRA) environment until which time you decide to withdraw your bullion or coins and take direct physical possession of them.
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 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. Below is a list of acceptable gold products.
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. Below is a list of acceptable silver products.
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. Below is a list of acceptable platinum products.
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. Below is a list of acceptable palladium products.
Selection of the metals dealer and the 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 dealer and the depository. Websites such as www.usmint.gov and www.money.org can help consumers research information about metals dealers. Specific factors to consider when selecting a dealer include pricing, fees and delivery time. You can also verify if the dealer is a member of any industry trade groups such as American Numismatic Association. The US Commodity Futures Trading Association issued the a report to help consumers identify fraud related to precious metals investments.
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.
Preferred Trust Company will work with any dealer and depository that the IRA owner selects. For additional information related to the dealers and depositories that Preferred Trust clients have worked with, please visit our Resource page.
Segregated vs. non-segregated. Some depositories only provide segregation storage options for certain types of coins and bullion. It is important to understand the different storage options based on depository availability.
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 store is more than the cost of non-segregated store. Account owners are guaranteed that they will receive the same exact bars or coins that were originally deposited upon distribution.
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.
Private equity, sometimes referred to as a private placement, consists of ownership interest in companies that are not publicly traded on a stock exchange. These alternative investments can be made in an existing business, a real estate venture, an investment partnership, and other areas.
Perhaps the best-known form of private equity investing is buying a stake in a new company with growth potential.
There are two primary ways in which your self-directed IRA can invest in private equity:
Your self-directed IRA can lend money to others in a secure or unsecure investment.
Whether the investment is secure or unsecure, a Promissory Note instrument must be used for any private lending and must include the following details:
Investors buy tax liens for the right to collect taxes and interest from a property owner, or to foreclose on the property. Investors seek out tax liens due to the relatively low capital required, as well as the possibility of large returns. Some states don’t offer tax liens, but instead offer tax deeds. A tax deed sale is a governmental sale of real estate to cover nonpayment of taxes. These offer investors an opportunity to buy a property deed at a discount.
Another option for those looking to invest in real estate without all the hassle, cost and time needed for investing in real property are private debt instruments. These include notes secured by deeds of trust and/or mortgages; contracts for deeds (taking over an existing loan); and corporate debt offerings. This alternative investment option matches quality real estate borrowers with investors seeking capital preservation in (at times) collateralized turn-key real estate. These investments offer diversification, control, double-digit returns and ease.
Trust deeds are often offered by a hard money lender. Hard money lenders are entities that provide funding for residential and commercial building. The economy and the strength of the financial market dictates the level in which banks and financial institutions are lending money. Hard money lenders fill the gap when a loan size is too large for a community bank and too small for large institution banks for short term financing for land acquisition or development. Reasons for considering trust deed investments:
Real Estate Investment Trust (REIT) allows an investor to diversify into many different real estate investments while earning a dividend of sort for the invested capital. Due to the unique nature of the tax structure, a REIT is required to pass 90% of its income each year on to the investors, so the yields tend to be high relative to other investments. There are many types of REITs however a self-directed IRA is only permitted to invest in privately held REITs.
When evaluating privately held REITs and real estate companies, conduct property due diligence by requesting a copy of the company’s annual report, prospectus and other financial information. Consider reviewing the following:
Unincorporated businesses in which certain partners are liable only to the extent of their investments. Limited partnerships are a popular method of raising capital from passive investors who prefer to not be involved in day-to-day business operations. There are traditionally two sets of partners 1) those with personal liability and 2) those not liable for debts.
Pass-through taxation. Tax burden is passed on to the partners instead of the partnership itself. Therefore profit earnings are passed on to the partners through Wages, income and profit and each partner pays tax proportionate to their individual share of profits.
Legal organization that provides the tax advantages of a partnership while limiting the legal liability of individual partners. An LLC is not a corporation but a legal form of a company that provides limited liability to its owners in many jurisdictions. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. Some know Single Member LLCs in an IRA as a Checkbook IRA and can be appealing for many investors. It is important to learn the rules that surround these types of investments. When your IRA owns interest in your LLC, you have complete control; there is no custodian between you and your investments or transactions. This can be positive or negative based on your investment experience.
In order for your LLC to invest in your IRA, follow these guidelines:
Beyond many of the popular alternative investments available for self-directed IRAs there are even more possibilities available for self-directed investors. Review the IRS guidelines to ensure you are accurately complying with them prior to purchasing alternative investments.
