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Getting Control Of Your Retirement The Basics Of The Self Directed Ira

Two years ago, most Americans and financial planners did not recognize or prepare for the coming drop in the stock market. Many families lost significant chunks for their savings and retirement. And many think that our economy is approaching that same storm again. What will the Average American do to ensure their financial future?

Most of the time, the average person hires a financial adviser (who will pick the fund based off the highest commission plan for the adviser, not the best return for you) to invest your funds into Corporations (many of which the average person couldn't even identify) run by CEOs, (who the average person couldn't even name), betting on that corporation's 5 year plan (which the average person has idea of what it is nor its outcome) being successful to create their plan for riches.

Seems like a lot of wishing and hoping rather than a quantifiable plan, doesn't it? 5% of Americans are considered â"wealthy' and 95% are not. Yet, about 95% of Americans follow the scenario listed above. This is no coincidence.

If you go online and visit sites like Yahoo Business, Forbes, Money, etc… there is a consistent message being sent about our economic conditions, and the message is not good. There is talk that the U.S. is in a double dip recession, and the summer of 2010 is the beginning of the second dip downwards. Unemployment is near double digits, and not even the optimistic Obama Administration is saying we'll ever get those jobs back. The U.S. isn't producing much and our trade deficits are horribly negative. Many believe that the stimulus money is the main reason for the stock market resurgence, and those funds are coming to an end. With all the evidence listed above, many believe that the stock market is poised to drop like it did 2 years ago.
What are you going to do this time? Sadly, many families will still rely on the same system that lost them money 2 years ago. Because the average American family doesn't know what other options they have. The purpose of this article is to define what a Self-Directed IRA is, provide you with an avenue for you to take back control of your retirement funds, and learn how to invest in assets other than stocks and bonds, or even just invest in a savings account that can earn you a guaranteed rate of return.

What is a Self Directed IRA
A self directed individual retirement account, or self directed IRA, is an individual retirement account that allows the owner of the account to make investment decisions on behalf of the retirement plan.
IRAs were created in 1975 to provide individuals the opportunity to direct where their retirement funds were invested, whether it is stocks, bonds, or loans to businesses, or even purchasing hard assets, like silver, gold, or real estate. Rather than distinguishing which investments are allowed, the IRS code instead identifies which investments are not permitted under these laws. Only two types of investments are excluded under ERISA and IRS Codes (IRS Code Sec. 401 IRC 408(a) (3)):
 Life Insurance Contracts
 Collectibles such as works of art, rugs, jewelry, etc.
The self directed individual retirement account is not limited to a particular asset type. Some investors may opt for an IRA LLC structure, under which the account owner directs the IRA custodian to invest into a limited liability firm that the owner himself manages. It is mandatory, according to IRA regulations, for a qualified trustee or custodian to hold the IRA assets on behalf of the owner.

Types of Self Directed IRA (Traditional and Roth)
The Traditional IRA: Created in 1974, the Traditional IRA is a tax-deferred account in which contributions are made with pre-tax dollars subject to certain conditions pertaining to active participation in a qualified plan and provided certain contribution limits are not exceeded. This allows the money contributed to the Traditional IRA to compound tax-free until funds are withdrawn. The contribution limit for Traditional IRAs is $5,000 in 2009 and 2010 ($6,000 if you're age 50 or older).

The main concern with the Traditional IRA is that you are â"taxing the harvest rather than the seed'. For example, would you rather be taxed on a seed of corn or on the entire plant? Obviously paying taxes early on reduced your tax payment and ensures more money for you in the end.
The Roth IRA: Therefore, in 1997, Senator Roth of Delaware created an alternative to the Traditional IRA which allowed the owner to be taxed on the seed rather than the cop. The Roth IRA is a tax-free savings plan where the contributions are made with after-tax dollars, and therefore, are NOT tax deductible. All funds within the Roth IRA compound tax-free and all withdrawals from the account are also tax free (as long as the account owner is 59½ and the account has been opened for five years).

One of the main benefits of a Roth IRA is that there's no required mandatory distribution (RMD) at age 70½. Individuals can continue to contribute as long as they like, and all withdrawals continue to be tax free (if the account has been open for at least five years). Anyone who has earned income and falls within the MAGI (Modified Adjusted Gross Income) limits can establish a Roth IRA. The contribution limit for a Roth IRA is $5,000 in 2009 and 2010 ($6,000 if you're age 50 or older).

Who Manages a Self Directed IRA?
Self directed IRAs are similar to regular IRAs but different in one fundamental way; they provide you as the owner of the account with freedom to make nontraditional investment choices, balance the account, write checks, and manage the investment choices for yourself directed IRA.

IRS regulations require that either a qualified trustee or custodian hold the IRA assets on behalf of the IRA owner. Generally the trustee or custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner for the life of the IRA account.

The trustee or custodian is a bank or savings and loan association, as defined in IRC 408(n), or any other entity that has the approval of the IRS to act as Custodian. In order to have a self-directed IRA, it needs to be held with a Custodian who will allow investments into non-traditional investments. There are very few of these types of custodians.

An Administrator can set up the legal structure such as an LLC that allows for checkbook control of the funds. The Administrator, unlike the Custodian, does not hold the funds, but usually contracts with a Custodian to hold the funds as part of the services provided.

In an effort to reduce fees, paperwork, and processing delays, some self-directed IRA investors choose to employ a Limited Liability Company (LLC) IRA structure. In such a structure the account holder directs his IRA custodian to invest into a limited liability company that he manages himself. The account holder can then execute transactions on the LLC level without the involvement of the IRA custodian, thus reducing fees and eliminating custodian transactional fees and delays. The profits of the LLC pass through to the IRA with nearly identical tax favorable treatment. Some refer to this structure as "checkbook control" because the IRA account holder often has sole signing authority for the LLC and its bank accounts. Similar checkbook control for a self-directed 401(k) plan would not require an LLC because Internal Revenue Code Section 401 does not mandate the use of a custodian.

What Is Prohibited
As stated above, there are limits into what you can or cannot invest in with your SDIRA. Don't try adding antiques or artwork to your self directed IRA because Title 26 Sections 408 & 4975 of the IRS code strictly prohibits these types of investments. And when it comes to real estate, keep your transactions at arm's length. This means that certain family members and associates cannot actually reside in a property held by your IRA nor can they be involved in an investment.

Specifically, what are prohibited transactions?
IRC 4975(c) (1), identifies prohibited transactions to include any direct or indirect:
 Selling, exchanging, or leasing, any property between a plan and a disqualified person. For example, your IRA cannot buy property you currently own from you.
 Lending money or other extension of credit between a plan and a disqualified person. For example, you cannot personally guarantee a loan for a real estate purchase by your IRA.
 Furnishing goods, services, or facilities between a plan and a disqualified person. For example, you cannot use personal furniture to furnish your IRAs rental property.
 Transferring or using by or for the benefit of, a disqualified person the income or assets of a plan. For example, your IRA cannot buy a vacation property you or your family intends to use.
 Dealing with income or assets of a plan by a disqualified person who is a fiduciary acting in his own interest or for his own account. For example, you should not loan money to your CPA.
 Specific Collectibles include: Artworks, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and certain other tangible personal property

If you participate in a transaction which does not fit within these guidelines, the IRS will analyze the specific facts and circumstances in order to decide whether you have engaged in a prohibited transaction.

Specifically, who are disqualified persons?
A disqualified person (IRC 4975(e) (2)) is defined as:
 The IRA owner
 The IRA owner's spouse
 Ancestors (Mom, Dad, Grandparents)
 Lineal Descendents (daughters, sons, grandchildren)
 Spouses of Lineal Descendents (son or daughter-in-law)
 Investment advisors
 Fiduciaries - those providing services to the plan
 Any business entity i.e., LLC, Corp, Trust or Partnership in which any of the disqualified persons mentioned above has a 50% or greater interest.

If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA's assets on the first day of the year in which the prohibited transaction occurred.

SAFE Investing with your SDIRA - Earn a Guaranteed Return
Many people like the idea of having control of their retirement but don't know where to invest. Real estate is tempting, but what if you make the wrong decision? Currencies? Gold or silver? While there are several options available, many people do want to have a guaranteed interest rate in return. A SAFE Savings Account will accomplish this goal by providing the investor with a guaranteed 8% interest rate on their money.
When you deposit money with banks, they pay you a guaranteed interest of about 1%. Then they then pool yours and everybody else's money and lend it out at 6-12%. In this arrangement, the banks receive both the collateral and the "Lion's Share" and pay you a puny 1% return.
A SAFE Savings account provides you with a guaranteed, higher return. While banks give you an insurance policy in the form of an FDIC certificate to secure your deposits, SAFE savings accounts provide you with collateral in the form of real hard assets, i.e., real estate.
Having control of your own money and knowing exactly what your interest rate is, is the safest way to really plan your retirement. How could anyone plan for their retirement if they don't know what their return will be?
4 Simple Steps To A Safe Self Directed IRA
1. Find a company to set up a Safe Self Directed IRA
2. Set up an IRA account with a Self-Directed Custodian who will contact your old custodian and transfer your IRA to this new Custodian. All or part of your IRA can be moved as well as other retirement plans. Because the IRS rules are followed this "roll over" is not a taxable event. Other types of plans may be combined with your IRA into one Safe Self Directed IRA if you wish. It is very important that it is done correctly.
3. Call your old custodian and request that the money be wired into your new Self Directed Account so it can start it guaranteed return right away. If they mail a check, the banks can hold your money for 11 business days.
4. Start sleeping better knowing you now have your money in a place where it makes 8% guaranteed interest no matter what the market does.
From start to finish it will take between 2 and 3 weeks for you to be up and running. This process must be done correctly in order to get you on your way to making the kinds of investments that will allow you to enjoy the retirement of which you've been dreaming.

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