Self-Directed IRA Terms Every Investor Needs to Know
Estimated reading time: 4 minutes
Medicine. Sports. Engineering. Academics. Pretty much every industry has its own vocabulary, and the retirement saving sector is no exception. But that specialized vocabulary shouldn’t be an excuse to confuse people. At Entrust, we believe in giving you the information you need to make investments decisions in your own best interest.
That includes talking in plain English as much as possible. Our Learning Center is a rich resource of articles, videos, FAQs, and seminars that will improve your knowledge of Self-Directed IRA investments. And, they are written so you can understand them easily.
To get you started, here is a short glossary of 16 terms, from A to U that are essential for every Self-Directed IRA investor to know.
The person who is identified in the plan document as being responsible for running the plan. This could be an employer, a committee of employees, a company executive, or a third party hired for that purpose.
The inheritor of a Traditional IRA. IRA owners can choose any person or entity to be the beneficiary of the IRA after they die. Beneficiaries of a Traditional IRA must include any taxable distributions they receive in their gross income.
Checkbook control indicates that an account holder has complete signing authority for an LLC owned by the IRA, and its bank accounts.
A person who is not permitted to have any involvement with IRA or Plan transactions. Disqualified persons include yourself, your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).
An excess contribution is one that exceeds the annual limits defined by the IRS. It could be the result of your contribution, your spouse’s contribution, your employer’s contribution, or an improper rollover contribution. If your employer makes contributions on your behalf to a SEP IRA, see Publication 560.
A fiduciary includes anyone who does any of the following:
- Exercises any discretionary authority or discretionary control in managing your IRA or exercises any authority or control in managing or disposing of its assets
- Provides investment advice to your IRA for a fee, or has any authority or responsibility to do so
- Has any discretionary authority or discretionary responsibility in administering your IRA
A self-directed IRA that invests primarily in precious metals.
Health Savings Account (HSA)
A tax-advantaged medical savings account for people who are enrolled in a high-deductible health plan. You can use the funds for medical expenses, such as prescriptions, eye care, dental, and some over-the counter medications. The funds contributed to your HSA are tax-deductible, reducing your taxable income.
An asset contributed to a 401(k) account. The contribution must be at fair market value and stay within contribution limits.
Limited Liability Company (LLC)
A type of business structure allowed by state statute. Limited Liability Companies (LLCs) are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Owners of an LLC are called members. Because most states do not restrict LLC ownership, members may include individuals, corporations, other LLCs, and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.
A few types of businesses typically cannot be LLCs, such as banks and insurance companies. There are special rules for foreign LLCs. Check your state’s requirements and the federal tax regulations for further information.
A signed document containing a written promise to pay a stated sum to a specified person or to the bearer at a specified date or on demand.
Retirement plans established by an employer for the benefit of the company’s employees. There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits.
When a participant directs the transfer of the money in his or her retirement account or IRA to a new plan or individual retirement account.
An individual in business for himself or herself, and whose business is not incorporated. For examples, sole proprietors and partners are self-employed. Self-employment can include part-time work.
The economic bonus which applies to accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. Governments establish tax advantages to encourage individuals to contribute money when it is considered to be in the public interest.
Unrelated Business Taxable Income (UBTI)
The gross income derived from any unrelated trade or business regularly conducted by the exempt organization, minus the deductions directly connected to carrying on the trade or business.
This list is just a small sampling of the kind of straightforward investor education available in the Entrust Learning Center. We invite you to explore and profit from all of the articles, videos, reports, and webinars you’ll find there.