Email a copy of 'Utilizing a Self-Directed IRA: A Case Study in Investing Outside of Wall Street- Part 2, by J.J.' to a friend
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Excellent article, I personally love the economics and investing segment, and its nice to see a full writeup dedicated to finance self sufficiency.
FYI – I believe the owner of an SD-IRA is not allowed to contribute even labor to rentals they hold in their IRA.
While general oversight and general management of rental property held in a self directed IRA is fine, doing actual repairs and making improvements yourself are considered prohibited transactions. The idea is that you are adding “contributions” to your IRA value by working on the property youself. The danger is that any “prohibited “ transaction could cause the entire value of the IRA to be judged by the taxing authority as a distribution, and if you are younger than 59 1/2 that also means a 10% penalty on top of the taxes due on the entire sum. Not a good scenario. Get educated so you know the rules of engagement. A very good resource on this topic is “The Self Directed IRA Handbook” by Mat Sorensen.
This is why, in 30 years of being a CPA, I have never. never. seen anyone successfully hold rental property in a SDIRA without running afoul of the rules. And the penalties for getting it wrong can be catastrophic. Especially if the SDIRA incurs debt (mortgage) to purchase the property.
How do you plan to satisfy RMD at age 70 and1/2? Also, is wife well enough versed on this complicated setup in the event something happened to you? Thank you
She is, and we will start taking distributions of rental income as needed. You are right in that I may need to sell a property in order to hit mandatory distribution, but then the cash goes into the acct. On another note, we do our charitable giving from an inherited IRA, bypassing any tax ramifications of the distribution. The charity nets more money this way.
Thank you so much for your response. It sounds like you have your “ducks in a row” and good for you! It is not easy to keep up with all of the ins and outs of our ever changing tax code. It is a wise person who can manage their hard earned money without the government taking more than its share. Well done!
Does the bank report the possession of the gold and silver in the safe deposit box?
Yes
I wonder why the author placed so much money into gold and silver. I have read the gold hawks like Jim Rickards, Bill Bonner, & Peter Shiff and 10% seems to be a good threshold.
Gold has so many problems right now with government manipulation, Comex changing rules, to the strong dollar with no end in sight.
Also, gold needs a 3rd party to sell it to and they take their cut.
Just today gold is down going to $1070 per ounce. It has not broken the $1370 high in 5 years, bad news.
I agree gold has its place but the next run up I will sell 50% of my holdings. Property either rental or your home “earns” at least apprection. I have “earned” $1200 month in equity alone, gold has never been close.
This week Turkey saw its currency fall 35%. This means that if you had savings in a Turkish bank, the *purchasing power* of your savings just dropped 35%.
If the Turk had gold, which is a store of value, the price of his gold, in Lira, went up 35%. The purchasing power of his gold remained the same.
The price of your gold goes up and down as the value of the dollar rises and falls. The purchasing power of your gold largely remains the same.
This emphasizes the desire to have financial assets that are not dollars, and not in the bank where they are also subject to bail-in. Gold has no counterparty risk.
Another good comment. Thanks.
I agree – 10% precious metal allocation is a good standard. The investments in the s-IRA are only a portion of our total investments, which include farmland and equities in my standard IRA.
The article is about defending what you have saved and creating income that does not come from appreciation. Gold and silver are great stores of value, wealth. The word is “store”. What else he has done is create income if to do nothing else but pay property tax as he is otherwise self sufficient in his retirement on his homestead.
I have not put property in an SD IRA but I do have property. My view was and is that my effort went into the property instead of into a paycheck, a paycheck where taxes came out of it. Surely I earn a paycheck at my business. You must pay Caesar. However that effort on my Saturdays has appreciated without taxes taking a percentage. In my scenario I was building not defending.
My answer to many of the comments on labor is don’t tell the irs you caulked the tub. In working on my properties I have often felt like a bird building a nest a blade of grass or twig at a time. You just cannot do permitted work yourself unless the value of your work is lower than the annual contribution limit but I would ask my tax oracle before I even did that.
For me, at 59 1/2 the end game is to payoff the banks because they wait like vultures for shtf. Principal reductions are after tax transactions. It is a tough pill to swallow.
JWR talks about investing in gold, silver and useful items. Don’t forget he has a publishing business that makes him money (I hope). The useful items and skills help you create cash. For taxes (joy). Making it and defending it are two different things.
Just watch what would happen to the global economy if the US Dollar dropped 35% It would crack wide open and who are you going to sell your gold or silver to in that event?
The average American does not know the value of gold or silver. Not a clue.
And does anyone think that if gold hit $5000 per ounce the government would not want their cut beyond the 39% Feds and whatever the State wants to take.
Lastly the US is not a 3rd rate nation, not even close. We have the world reserve currency and it’s huge in scope and dominance.
The average American may not know the value of gold and silver, but they should. How can we as a nation be so detached from history? My grandfather who was born in 1913, only finished the fourth grade because he and his siblings were needed to work the farm. Neither he or his father turned any gold into the gov’t at FDR’s request. Just because the gov’t may want their cut doesn’t mean they’ll get it. In today’s current society you can still pay/barter for work with precious metals. I had a portion of our house renovated and YES the contractor was very happy to take payment in silver. If the US Dollar drops 35% I’ll be delighted to have gold and silver on hand along with canned food, dried food, toiletries, repair kits, firearms, ammo and the list goes on. Part of what’s missing today is a common sense frame of mind. No one should put all of their financial eggs in one basket, that’s stupid. I am a strong believer in 10%-15% being in gold and silver. Do I love this country, absolutely. Do I think the USA will be #1 forever, no way. Enjoy the good of today and prepare for the tough times which will inevitably come.