Yes, you can. However, you need to make sure that you actually make the contribution for that tax year (e.g., contribution by April 15).
Your IRA contributions can be made at any time during the tax year. In addition, you can make contributions to your Traditional IRA contributions up through April 15 (for most individuals) of the following tax year and count it back to an IRA contribution for the previous tax year.
Or course. You are not required to contribute the total maximum for the year. For 2014, the maximum contributions to a Traditional IRA are $5,500 if you are under the age of 50 and $6,500 if you are over the age of 50.
The only limitations on who can establish a Traditional IRA is based on age and compensation. You can establish a Traditional IRA if:
- You or your spouse (if filing a joint return) received taxable income during the respective tax year for which you want to establish your IRA; and,
- You did not reach the age of 70 and 1/2 by the end of the tax year.
You can now, but you never used to be. Once the Modified Adjusted Gross Income (MAGI) filing status requirements for converting a Traditional IRA to a Roth IRA were eliminated, you have been able to do such conversions. As a result, there are no longer income restrictions which would prohibit you from executing a Roth conversion.
No. One may question why a Roth 401(k) could be rolled over to an IRA but not vice-versa. Good question! While there are some complex factors involved, please note that you cannot currently rollover Roth IRA funds into any 401(k) plan. This is important if you are planning on establishing or converting current funds in an IRA to Roth as it may affect your ability to potentially rollover those assets at a later date.
Yes. Unlike someone who wants to rollover a Roth IRA to a self-directed Roth 401(k), this activity is permissible.
Yes, of course…with some exceptions. Generally speaking, there are two types of funds that you cannot rollover into your 401(k) plan. The first being is that Roth IRAs cannot be rolled over into any 401(k), regardless of whether the plan permits Roth contributions and Roth conversions. Secondly, in most cases, you will not be able to rollover funds from a current employer’s 401(k) plan (where you are still an active participant). There are exceptions to this (e.g., in-service distributions being over the age of 59 1/2), so you will always want to review this with us or your tax professional.
Can your self-directed 401(k) invest into foreign real estate?
Your Self-Directed 401(k) can invest outside of the U.S. States into real estate as it is not a Prohibited Transaction. There are certainly many great investment opportunities in other countries, and as long as a Prohibited Transaction is not otherwise triggered, this is a permissible investment of the plan.
No, that is the reason why you are establishing this type of plan. As long as the plan is established or administered correctly, you will not pay taxes and penalties because you DO NOT take money out of your plan to purchase the real estate! Your 401(k) or IRA LLC will be the entity on record for purchasing the property. As they are either tax-deferred or tax-free entities, no taxes or penalties will be due. Of course, if either plan is making investments with pre-tax funds, taxes will be due on the distribution from your plan…whether the distribution is in cash or through a non-liquid asset.
Think of it this way, if you IRA or 401(k) plan purchased 100 shares of Apple, you do not pay taxes or penalties on that investment. Think of real estate, from an asset in the plan standpoint, as being the same transaction as your stock. The method of doing so is different but the tax ramifications are the same.
Only and solely by the plan. You cannot personally pay for repairs and renovations, as the plan owns the property, not you. Think of it in common sense terms. The plan owns the property which means that all rental income, sales income, etc. must be returned to the plan. The opposite end of the spectrum is that all expenses associated with the property must be paid from the plan as well.
It is important for the self-directed account owner to keep this in mind when purchasing property. It is wise to anticipate future and unexpected expenses that may arise in ownership of the property.
Yes, the actual transaction of your IRA or 401(k) co-investing with others is not, in and of itself, a prohibited transaction. However, one must be careful to ensure that co-investing does not violate any Prohibited Transaction (e.g., co-investing with a disqualified party). Further, one should ensure that full due diligence to the transaction is carefully reviewed to legally protect the plan and its assets when co-investing with others.
Yes, your IRA or 401(k) can use funds as the down payment with the plan getting a loan for the remaining balance. Of course, only the plan can secure the non-recourse loan and a disqualified individual (e.g., you, the account owner) cannot personally guarantee the loan or assist in securing more favorable aspects (e.g., interest) for the loan. The non-recourse type of loan which means that if your plan fails to make payments, the only recourse the lender has is against the property itself. Finally, UDFI (Unrelated Debt Financed Income) taxes may apply, so you will want to confer with your tax professional about what taxes may be applicable to you.
Any and all income generated by the IRA or 401(k) owned property goes directly back to the plan. By doing so, you retain the tax-deferred or tax-free status of your plan. If you choose to distribute funds from the plan (e.g., for personal use), the distribution must come from the plan and appropriate taxes/penalties are applicable.
Your IRA LLC account will have its own banking account for the IRA LLC. Similarly, your 401(k) plan will be established with checkbook control as well. As such, you will simply write a check from either account as signor of the account…..as the LLC account manager for your IRA LLC or as Trustee of your 401(k). The property or asset will always be titled in the name of the plan or entity that holds the asset. For example, a property purchased by the IRA LLC will be titled in the name of the LLC, while a property purchased by a 401(k) plan will be titled in the name of the 401(k) plan or a 401(k) LLC (if established for the 401(k)).
Likely because your current broker won’t let you invest in real estate or other non-traditional assets through their custodian. Remember, just because the IRS and DOL permit investments into non-traditional assets (e.g., real estate), does not mean that IRA and 401(k) custodians must permit it. By establishing your IRA or 401(k) through Fulcrum Self-Directed, your plan and its documents will permit such investment opportunities.
Remember any limitation to invest in otherwise-permitted assets by the IRS and DOL is tied back to your current custodian limiting your freedom and flexibility to make such investments.
No, and there is no reason to even expand on this. Such a transaction would clearly be a Prohibited Transaction per IRC 4975 and you must not even consider this type of transaction. There are many cases where individuals have done this type of transaction…..much to their chagrin.
Absolutely. While probably no more than 3% of retirement accounts are invested into non-traditional investments such as real estate, that is changing. It is important to remember that when an IRA LLC or 401(k) or 401(k) LLC invests into the property, the property is titled in the name of the retirement plan (and, possibly, LLC), never in your personal name.
More and more individuals are becoming more and more frustrated with the options offered by their current custodians. Further, even if you enjoy your current investment options, most people would agree that it makes sense to a single retirement plan where they can combine their retirement plan accounts (if possible) and have one account where they can invest into both traditional AND non-traditional investments.
Within the broad category or Real Estate there are many options for investment:
- Residential Rentals
- Commercial Properties
- Mobile Homes
- Raw Land
- Real Estate in Foreign Countries
- Trust Deeds / Mortgages, and Mortgage Pools
With limited and noted exceptions, yes. One major exception is that a Roth IRA cannot be rolled over into a 401(k) plan, EVEN if the 401(k) permits Roth contributions and Roth conversions. However, many people unfortunately believe that an IRA can only be transferred/rolled over into another IRA…even when they qualify for the self-directed 401(k) plan.
Please note that there is also a restriction on the number of rollovers one can execute from an IRA in any given 12 month period of time. While this rule will become effective in 2015, it is important to keep in mind that while practically any IRA can be rolled over into a 401(k), there will be numerical limitations on the number of rollovers you can execute in one year, regardless of how many IRA accounts you have.
Similar to the ‘ole Tom Cruise movie “A Few Good Men”, the question that is asked is “can you handle the truth?”
Well, bluntly speaking, the primary reason the investment community has no interest in losing control of the control they have over you and their ability to earn commissions. I mean, honestly, why would they want to. Think of it from another angle, if you were speaking to a real estate agent, they would probably always encourage you to purchase investment property vs. investing into mutual funds. Why? Because they would earn a commission. So, why would we expect our financial planners (if they are receiving commissions) to recommend that we invest in assets outside of their control?
Bottom line: why not have a plan where you can do both?!
- Traditional IRAs
- Sep IRAs
- Roth IRAs
- Coverdell Education Savings (ESA)
- Qualified Annuities
- Profit Sharing Plans
- Money Purchase Plans
- Government Eligible Deferred Compensation Plans