A complete Ira type and benefits summary
There is much clout and confusion about IRAs and their uses for purchasing precious metals and real estate among the truth, freedom, and self-reliance communities. In this article I aim to clarify the different options and the benefits and potential pitfalls of each, especially as it pertains to taking physical possession of IRA Gold & Silver.
Perhaps the biggest advantage of the IRA LLC to the precious metals investor is that the individual (as manager of the LLC) can take physical possession of Gold and Silver Eagle Coins with IRA funds and it is not a taxable distribution.
The concerns of retirement account confiscation or bail ins have been an increasing trend over the last few years. The fact is our government is broke and history, even recently in Poland and Cyprus, shows that pensions and other retirement accounts have become targets for looting. The financial website Zero Hedge recently wrote about Obama’s new Treasury IRA plan rollout that was just announced at a State of the Union address on 1/28/2014. The bottom line is that these risks are real, and there are ways to protect yourself and your hard earned money. Converting your IRA to an IRA LLC may be one solution.
What is a Traditional IRA?
Traditionally an IRA is a tax deferred growth account that allows one to save for retirement. An individual can contribute a portion (up to $5,500 – $6,500 for 2013 and 2014) of his or her annual income with that contribution reducing the individual’s taxable income. Then the money compounds (ideally) tax deferred. The individual pays taxes on the gains in the account later in life during the distribution stage, allowable at age 59.5 and mandatory at age 70.5. Some strategies for self-employed individuals, like a SEP account (which will be covered in depth in my next article) allow the individual to contribute much more– up to 25% of the individual’s total income, lowering the person’s adjusted gross income (AGI) even further. IRAs and like accounts are eligible for rollover to self-directed accounts, which offer more investment flexibility, greater control by the individual, and more layers of protection from bail ins via forced Treasury purchases.
What is the 401k plan?
The 401k is a type of group plan typically administered through an employer for its employees. Some employers contribute or match a portion of the employee’s contribution to his or her individual account within the plan. This additional contribution is a major advantage to this plan. The down side, unfortunately, is that few of these plans offer what are called ‘in service withdrawals’, or rollovers into an IRA or self-directed IRA platform. With most 401ks, the individual’s money is ‘locked up’ until retirement age or employment severance. However, an old 401k from a previous employer is eligible for rollover to a more flexible platform.
What is a self directed IRA?
Self directed IRAs encompass about $100 billion, yet still only about 2% of total IRA assets. Under this structure everything is the same as a traditional IRA, except that the custodian is one that allows and specializes in alternative investment classes for retirement accounts. The large financial institutions, when acting as custodians for IRAs, typically only allow investments into the piggybanks from which they profit the most, such as publically-traded stocks, bonds, mutual funds, and bank CDs. The custodian is the IRS-compliant trustee who houses the account that your IRA owns and ultimately approves its investments. Self directed IRA custodians allow investments into numerous desirable investment classes, including real estate, precious metals, private placements, and LLCs. These accounts differ in their setup fees, ongoing management fees, flexibility, and (most importantly to the precious metals investor) where the assets are held.
Let’s talk about fees…
Traditional IRAs and 401ks managed by broker dealers, investment advisors, and fund managers typically have some of the highest fee structures; this is another major reason the self-directed platforms are more favored. Many of these fees are hidden load fees that the investor never even sees. In recent years median expense ratios for mutual funds have been 1.27% plus 1.2% in trading fees. Thereby over time the average mutual fund has yielded a 7% return before fees, but only 4.5% after fees.
Fees for self directed IRAs…
The two main types of self directed IRA accounts are those that allow investments into precious metals and real estate. The precious metals IRA advantage is its low cost to setup and maintain. Setup fees range between $250 and $500, with annual maintenance and storage fees of $150-$500. The disadvantage here is control of storage. The bullion must be held by a third party depository. Self directed plans that are geared for real estate can differ in cost based on transaction frequency or the portfolio value. A $100,000 portfolio can expect about $500 in annual fees; annual fees for a $500,000 portfolio jump to about $1,600. A relatively small portfolio with limited transactions may only pay a few hundred dollars in annual fees.
The IRA LLC…
I must lead with a caveat here that I am biased to this concept. I am a ‘for profit’ consultant and facilitator of the IRA LLC. This platform has its pros and cons, just as any other. The upfront cost can range from $1,500 to $3,000 to have an attorney or professional facilitator set one of these up. The proper setup is crucial because there are numerous legal documents, affidavits, and compliance requirements that must be met. Once setup, the flexibility is great and the ongoing fee structure is very low– typically $115 to $200 per year. Within the structure the LLC acts as an investment company that is managed by the individual, whom is also the beneficiary of the IRA. As long as there are no prohibited transactions the investor can invest in literally anything except collectibles and life insurance contracts. Many include investment real estate, bug out property, private placements, oil and gas leases, loans, currencies, Bitcoin, and other LLCs in their portfolio. The LLC also adds another layer of protection against potential government pillaging of retirement accounts, as referenced above.
Perhaps the biggest advantage of the IRA LLC to the precious metals investor is that the individual (manager of the LLC) can take physical possession of Gold and Silver Eagle Coins with IRA funds without it being considered a taxable distribution. The metal does not have to be held at a depository. For folks that have considered cashing out their IRAs or 401ks (thus paying taxes and penalties for early withdrawal), this can be a much cheaper alternative to physically holding precious metals. There are no additional IRS reporting requirements, merely an annual dollar asset valuation reported to the custodian.
If you want more information or if you simply have questions, feel free to visit our website and contact us anytime. At the least, educate yourself!