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The Entrust Group does not offer investment, tax, financial or legal advce to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.
If your question isn’t addressed here, please contact your nearest local office.
1. Is it legal to purchase non-traditional assets using my IRA?
The answer is yes! The Employee Retirement Income Security Act (ERISA) of 1974 passed the responsibility of retirement saving from the employer to the employee. Created in 1975, IRAs provide individuals a chance to direct where their retirement funds are invested.
The IRS code, instead of distinguishing which investments are allowed, identifies which investments are not permitted under these laws. Under both ERISA and IRS Codes, there are only two types of investments excluded: life insurance contracts and collectibles such as works of art, rugs, jewelry, etc. Refer to Internal Revenue Code Section 401 (IRC § 408(a) (3)).
2. How come I haven't known about this?
It’s a common misconception that the only investments allowed in a retirement account are stocks, CD’s, and mutual funds. The truth is that broader investment options have been available to the public since the inception of the IRA in 1975.
The retirement industry has been dominated by large transaction-driven custodians who have focused on a narrow universe of investments. While these kinds of accounts may be right for some, they don’t offer the kind of freedom that a self-directed qualified retirement plan offers.
To fully maximize your investment options, you need to have a retirement plan that allows you to select your own investments. A truly self-directed retirement plan allows you the freedom to invest in many types of assets -- assets that are not prohibited by the Treasury Department regulations and the Internal Revenue code.
3. Are there a lot of people who have self directed IRA accounts?
The self-directed industry is growing very strong and is expected to see around $2 trillion enter the market in the next two years. There are over 45 million retirement account holders, and less than 4% of those are held in nontraditional assets. This number is expected to grow significantly over the next five years as more individuals and their financial advisers attain a greater awareness of self-directed IRAs.
4. My (CPA, attorney, broker, friend, other person) said that buying and selling real estate in my self-directed retirement plan was illegal. Why?
This has been a long-lived myth. Neither the IRS nor the Department of Labor has ever published a list of legal investments. However, there is a list of Prohibited Transactions and Disqualified Persons that deal with what is not permitted. Real estate and other investments are permitted provided you follow the rules.
5. How do I open a self directed IRA ?
You can open a self directed IRA account by contacting a local Entrust office. You’ll be asked a few questions regarding the type of account that you’d like to open. Then, we’ll provide you with the account application form. Simply fill out the form, sign it, and mail it to the Entrust office closest to you.
6. How much should I have in my account to get started?
While there is no minimum amount, the amount you should start with depends on the nature of the deal or investment you plan to make. Keep in mind that if you make a cash contribution to your account, check the contribution limits for that account type.
Your local Entrust office is happy to assist you in determining how much money you’ll need in your account or with the purchase of your investment.
7. Can I transfer my current retirement funds to Entrust?
Yes, our application kit contains documents that assists you in transferring or rolling over your funds to Entrust. To obtain an application kit, please contact your local office.
8. Can I consolidate my IRAs?
Yes. You can consolidate:
Complete this process simply by filling out a funding form.
9. Are there different tax rules for self-directed IRAs?
The unique thing with IRAs and 401ks are the tax advantages. Most contributions are either tax deductible as is the case of a Traditional IRA or 401k, or the distributions are tax free as in the case of a Roth IRA or Roth 401k. There are no unique rules for self-direction.
10. I have a 401k plan with my former employer. How can I self-direct the funds?
You can self-direct the funds by rolling over your account into a Traditional IRA or a qualified plan (if you are eligible to have a qualified plan) that permits complete self-direction, such as an Entrust self directed IRAs. Contact your former employer's plan administrator or benefits department to determine what, if any, special procedures may be required. Use Entrust's funding form to carry out the rollover from your former employer's plan, as well as any other special forms required.
You may roll over the assets you have in your old plan to your Entrust IRA "in kind." "In kind" means that the assets you held in your old qualified plan, 401k, or other plan are rolled as is into your IRA. There may be restrictions from the fund provider, broker, or annuity company about "in kind" rollovers or transfers. Your former employer will advise you about any restrictions.
If you are still employed, check with your current plan administrator to determine if self-direction is currently allowed within your plan or if this option can be added.
11. What type of services does Entrust provide?
The Entrust Group is a retirement plan record keeper for self directed IRAs. We offer the same retirement plans as other plan administrators with one exception – we show you how to purchase the investments that you choose with your IRA funds.
Your local Entrust representative will help you ensure that your investment is purchased quickly, safely, and accurately. As your account administrator, we don’t tell you what to invest in, rather, we guide you in your transaction purchases.
12. What are the fees and costs involved?
Our fees are described in two sections of our web site. Our fees page provides a general overview of our fee structure. For specific fees on each type of retirement account that we offer, visit the forms section of our site, after you select a location. The downloads and forms link is located in the left side navigation. Click on the fee disclosure for the type of account you are interested in.
13. What kinds of investments can I make?
You may purchase real estate, notes, options, private placements, accounts receivable, timber deeds, crops, cattle, stock, bonds, precious metals, mutual funds, certificates of deposit, anything which is not prohibited or collectible as defined by the Internal Revenue code. For a list of investment options, please visit the investments section of the site or the Entrust Learning Center.
14. What is a prohibited transaction?
There are some transactions that are prohibited by the IRS. There are basic requirements and procedures needed to apply for exemptions from the prohibited transaction rules (includes ERISA and non-ERISA plans and Individual Retirement Arrangements). If you are considering this, please contact one of our local offices.
15. Why do I need an administrator like Entrust?
The Internal Revenue Service requires a custodian to hold the IRA assets and the custodian is required to report transactions on the account. Due to some of the nuances with self-directed accounts, a majority of custodians do not accept these types of assets. The Entrust Group performs these requirements in an effective and efficient manner.
16. How do I determine which retirement plan is best for me?
The factors to consider are:
Seek to make the highest contribution to your retirement plan that you can. Then choose the plan that will give you the most flexibility.
You can review our retirement plans section for more information regarding plan types and contribution comparisons. You should also seek the services of a tax professional to assist you in the proper selection of the plan best suited for you.
17. What happens to the money that isn't invested in assets?
Because all plans are self-directed, you may direct your money anywhere you wish. All money is held for your benefit in FDIC-insured accounts. Or you can direct us to deposit the funds in any financial institution.
18. How often do I receive a statement on my accounts?
Normal cycles are quarterly, although you may receive a statement at any time you wish. If you elect to enroll in online statements, you can view your account at any time.
19. I own a small business. Can I offer self directed IRAs to my employees?
If you have no common-law employees, that is those are not spouses, owners or partners, the best plan may be the Individual(k), which permits the highest aggregate percentage of contributions and flexibility. The administration is straightforward and you are the trustee, custodian and administrator, unlike any IRA plans.
For more information on the types of retirement plans for small businesses, please check the Retirement Plans section of this site.
20. How do I find out what the current contribution limits are for my retirement plan?
You can find out the contribution limits for your age and retirement plan in the Retirement Plans section and the Entrust Learning Center. You can also check out the contribution limits at www.irs.gov.
21. Where do I find more information on your workshops and seminars?
Visit our Event Center.
22. Where are you local offices?
Click here for a complete list of our local offices.
23. What is Unrelated Business Income Tax?
UBIT comes in two forms. Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income Tax (UDFI).
UBIT applies to IRAs invested in entities that do not pay taxes (such as many LLCs) that are an operating entity of a business that produces in excess of $1,000 per year in income.
UDFI relates to an individual retirement account that is debt financed provided that the net gain is more than $1,000 in a year.
UBIT is applied to profits made on the sale of a debt financed property.
Preparation of the 990-T tax forms is performed by you. The trustee or
custodian or appropriate agent will file such taxes and sign the tax forms
on behalf of your plan.
24. What are the different funds I can use I can use to open a self-directed account with Entrust?
Most employer-sponsored plans, like 401k do not let you roll your account into a new vehicle while you are still employed. Some employers, however, do allow you to roll a portion of your funds. To be certain, contact your current 401k provider.
If you can roll your funds into a new account, here is a list of the types of accounts that are eligible:
25. Can I use my 401k funds with my current employer to purchase non-standard assets?
Possibly. If the company has a self-directed 401k, you may have the ability to self-direct your 401k into these types of investments. To be certain, contact your current 401k administrator and/or the Entrust office near you. We can work with your Plan Administrator regarding these plans.
26. What is the deadline to contribute to an IRA or Qualified Plan?
Qualified plans must be established by the last day of your fiscal year if contributions are to be made for that year. If you have a calendar year end, you need to establish the plan on or before the last day to contribute for that year. The contributions may be made until your company tax year deadline including extensions. 401k deferrals must be made no later than 30 days after which the contributions are received. For 12/31/2008, that deadline would be 30 days later.
SEP IRA and SIMPLE IRA contributions may be made by the company tax deadline plus extensions, except for defaults, which follow the above rules.
IRA contributions must be made by April 15 with no extensions.
27. What are required minimum distributions?
Required minimum distributions are the minimum amounts that must be distributed to you from your retirement account(s) after you reach age 70 ½ (with the exception of the Roth IRA).
Your IRA may be subject to legal action. Individual retirement accounts are not always exempt from creditor claims, and are never exempt from federal or state taxing authorities; however, some states do not permit creditors to collect from IRAs.
29. Can I borrow money from my IRA?
You may not borrow funds personally from your IRA under any circumstances. This is a prohibited transaction. You may lend to any person other than disqualified persons or companies.
30. What do I do if I don’t have enough money to buy real estate in my IRA?
You may partner with yourself or others; you make allowable contributions; you may obtain debt financing through private sources or financial institutions on a non-recourse basis; You may arrange a seller carry back loan; you may sell other assets in your IRA to raise cash to make the purchase; you may transfer funds from other IRAs or rollover funds from qualified plans, such as 401k, 403(b) or government 457 plans you may have had at employers where you no longer work; If you have a profit sharing of 401k plan where you currently work, you may be able to make in-service withdrawals and roll those to the IRA within 60 days.
31. Where can I get a loan for real estate purchases using my IRA?
Normally private lenders, seller carry backs, and mortgage companies may lend to your IRA on a non-recourse basis. Sometimes banks and credit unions may make non-recourse portfolio loans to IRAs.
32. Can my IRA take a loan to enhance the purchasing power of the IRA?
Yes you can. However the loan must be a non-recourse loan. Non-recourse
against the IRA and the IRA holder.
33. What are the limits to the investments I can make?
You cannot invest in Collectibles or Life Insurance Contracts. There are also certain transactions in which you cannot participate when using IRA funds. These transactions are referred to as “prohibited transactions”. Prohibited Transactions are defined in IRC § 4975(c)(1) and IRS Publication 590. These transactions were established to maintain that everything the IRA engages in is for the exclusive benefit of the retirement plan. Sometimes professionals refer to these as “self-dealing” transactions. Self-dealing happens when an IRA owner uses their individual retirement funds for their personal benefit instead of benefiting the IRA. If you violate these rules, your entire IRA could loose its tax-deferred or tax-free status. It is important that you work with a competent Retirement Account Facilitator to avoid violating these rules.
Attend seminars, workshops and classes on self-directed IRAs in your area.
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