The topic of self directed IRAs has been one of great popularity on SurvivalBlog– especially the LLC IRA, whereby the individual can take home delivery of precious metals owned by the IRA and/or invest in almost anything he wants without approval or oversight.
We offer this piece to provide clarification on the taxable nature of distributions as expressed in this recent letter. It often makes sense for an individual to setup an LLC IRA to take his assets off grid, rather than take an often 50% tax hit on the entire account. However, when retirement age is reached, how does one take distributions of these assets from the self-directed IRA?
Just to recap, a self-directed IRA is established when an individual wants to take control of the assets in his retirement account. An LLC IRA is a type of self-directed IRA that adds another series of benefits to the account. A few of the benefits include: legal asset protection, investment flexibility without approval from a trustee, and the framework allowing at home storage of certain precious metals.
Once setup, the individual manages the LLC IRA investment company, including investment direction and storage of assets. The trustee acts as a silent custodian, and the individual maintains complete checkbook control of the account. At this point there is neither government oversight nor control of the assets. It is up to the individual to stay within the law and ultimately report taxable distributions once they come due at retirement.
Upon attaining age 59.5 taxable (assuming non-ROTH) distributions are allowable from the account, and at age 70.5 they become mandatory. At either age the individual will begin taking assets out of the IRA and claiming them as personal property. Typically, this is done in a schedule whereby a percentage of the account value or a fixed dollar value amount is withdrawn each year. This is simple to plan, if the distributions will be in cash, but what if the LLC IRA owns real estate, physical precious metals under the mattress, or other tangible assets?
The important aspect to grasp here is title ownership. Contrary to common belief, one can own a percentage of an asset shared with his IRA. Think of it like this: Before distributions, the IRA owns 100% of the account. Let’s say one plans to draw down the account by 10% per year. After the first distribution, the individual owns 10% and the IRA maintains ownership of 90%. After the second annual distribution, the individual owns 20% and the IRA owns 80%, and so on. If the asset is a piece of real estate, the individual is merely changing the percentage of title ownership with each annual distribution. The individual will claim each annual distribution as a taxable withdrawal of a dollar amount matching the percentage value of property which has changed hands. In this example, the ownership of the account itself (or property) is changed each year via percentage distributions.
Precious metals can be distributed in a slightly different manner. Let’s assume that Mary has 10,000 ounces of silver buried in her garden, all of which are owned by her LLC IRA. She just turned 70.5 and is now forced to take taxable distributions from her account. At this point she must follow a schedule of annual distributions of a dollar amount, based on the value of her account each year at the time of distribution. She will simply take the dollar amount of her required distribution and divide by the per-ounce spot price of silver and remove that many ounces from her LLC IRA stack and move them to her personal stack. She has effectively changed the title ownership of those ounces she removed. In this case, her IRA still owns 100% of the stack in her garden, only the stack will get smaller every year.
People pursue the LLC IRA not for greater tax advantages, but for more control and flexibility with their retirement account. If the fiat dollar system completely collapses, some argue that taxes will be the last thing of concern. If government tyranny rises to a level never seen on our soil and IRA account confiscation begins, some say they’d rather be able to fight for what’s legally theirs rather than watch it be taken away with the click of a mouse. – Will Lehr of Perpetual Assets