Benefit From the Tax Advantages Now and in the Long Run
Is a self-directed IRA for you? Answer these four easy questions and find out.
- Are you looking for a way to use your long-time business expertise to make wise investments to save for your retirement?
- Are you hoping to get a tax advantage on contributions you make in early 2019 that you can deduct on your 2018 taxes?
- Are you a hands-on kind of person who likes to make your own investments grow?
- Do you have an existing Individual Retirement Account (IRA), Roth IRA or 401K that you wish you could use to make other smart investments?
If you answered yes to these four questions, then let me tell you a little bit more about the advantages of investing in a self-directed IRA.
First, I want you to understand how traditional IRAs work. You can walk into Bank of Utah any time, quickly set up an IRA, and then allocate money from your monthly paycheck to go into that account. You won’t be taxed on the money you invest or the interest that is accrued until you withdraw the funds. You can also allocate gains from traditional investments such as stocks, bonds and mutual funds into a traditional IRA. After reaching age 59 and a half, you can begin withdrawing funds from the account. Distributions are taxed at your regular income tax rate without the additional 10% early withdrawal penalty.
A ROTH IRA works in the opposite way, in that you make annual contributions to the account with after-tax funds. When you retire or need additional income, you can begin withdrawing funds after age 59 and a half, tax-free.
OK, now that you have that basic information, here’s the fun part. You can roll one or more of your existing IRAs into a self-directed IRA and grow your money using some very creative, non-traditional investment strategies. Even if you set it up right now in 2019, you have until April 15 of this year to fund it and have it count as a 2018 contribution. Also, depending on your income bracket, your contribution may be tax deductible. Pretty neat!
With a self-directed IRA, you, the owner, have full discretion to choose the investments in your account (following the regulations, of course). Self-directed IRAs let you diversify your investments with options such as CDs, stocks, bonds, mutual funds, real estate, notes receivable, Trust Deed Notes, private company stock, LLCs and partnerships.
If you’re nervous about investing in stocks right now, you might feel safer investing in something in which you have expertise, such as real estate. With a self-directed IRA, you can buy property, a house or a rental, and rent it out or fix it up and sell it for a profit.
If you know someone with a private company or an LLC, and you think it’s a worthy investment, you can loan them money from your self-directed IRA and make a return on your investment through the interest they will pay on their loan.
Here’s a tip, if you send money directly from your IRA to a business for your transaction, you will likely not have to pay capital gains taxes. You only pay taxes when you pull money out of the IRA account for your personal use.
Here’s an example of an unusual investment that paid off for one of my clients: They used some of their self-directed IRA savings to purchase restaurant equipment for a company they knew well. The owners paid my client back for the equipment with interest. Another client with a self-directed IRA bought a semi-truck for the purpose of renting it out.
Investing your self-directed IRA savings in a variety of options is completely your choice, but you will also need to partner with a Bank of Utah Trust Officer who specializes in self-directed IRAs. A Bank of Utah professional can help you through the processes by managing your investments according to your wishes, filing reports in compliance with IRA regulations, issuing bank statements and providing expert advice to help you benefit from all of the tax advantages!
If you’d like to get started in investing your IRA savings through a self-directed IRA, please reach out.
With a little help from Bank of Utah's experts, you can reap the benefits of your smart investments using a self-directed IRA when you’re ready to retire.