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Frequently Asked Questions about Self-Directed IRAs

Q. Who actually holds the money and/or assets of my Self-Directed IRA?

A. Cash, title to properties and all other assets of the IRA are held by a trustee or custodian. Unlike a qualified retirement plan, the law requires that the trustee or custodian be a bank, federally insured credit union, savings and loan association, or an entity approved by the IRS to act trustee of custodian.

Q. What is a Rollover?

A. If you receive an eligible rollover distribution from your employers qualified pension, profit-sharing or stock bonus plan, annuity plan, or tax-sheltered annuity plan, you may roll over all or part into an IRA. There are three categories of rollovers.

· A direct rollover from a qualified plan to another qualified plan or an IRA (to avoid 20% witholding).

· A rollover from a qualified plan to an employee, then redirected to another qualified plan, or IRA (must be accomplished within 60 days).

· A rollover from one IRA to another IRA or another plan (limited to one per year).

Q. What is a Transfer?

A. With a qualified retirement plan, you are limited to transfers only with the same trustee, usually within one mutual fund and usually no more often than quarterly. One of the most valuable features of an IRA is the ability to transfer investments from trustee to trustee without tax penalty. Transfers from one IRA to another are not subject to rollover rules, such as time and withholding.

Q. How many IRAs can I have?

A. As many as you want. You may want to keep your different investments in separate IRAs so you can readily see what each is doing.

Q. How is a Self-Directed IRA with an independent administrator different from the one I have with a traditional administrator?

A. IRAs held by your bank are normally directed by the bank into its mutual funds or CDs and provide minimal risk and minimal return.

IRAs held by your stock brokerage company are typically directed into mutual funds and stock portfolios that are sold by that brokerage, and you are limited to those products offered by that particular brokerage.

IRAs with an independent administrator allow you to self-direct your money to any investment allowed by law. Not only are you allowed to invest in all of the products offered by the traditional administrator, you are now allowed to invest in leveraged or unleveraged real estate, trust deeds, unsecured notes, improved or unimproved real estate limited partnerships (public and private) and more.

Q. Can I buy a house with my IRA?

A. Yes. If it is not for your personal use.

Q. Can I sell my house to my IRA?

A. No. You can sell it to your neighbors IRA though.

Q. Can I purchase a home with my IRA for future use after retirement?

A. Yes. You may want to purchase a home with your IRA now and rent it out until you retire. Assuming that you will retire after age 59 1/2, you need only to take a distribution of that asset at retirement. There will be no penalties. You may have tax to pay depending on the type of IRA you have.

Q. Can my wife receive compensation for managing assets, such as real estate, for the IRA?

A. Yes. As long as they are reasonable fees.

Q. What is an Account Administrator?

A. IRAs can be established and funded through the services of banks, mutual fund companies, savings and loan associations, insurance companies, regulated investment companies and other financial institutions.

The account administrator is the entity designated as such in the trust or custodial agreement. The account administrator has full responsibility for the operation of the account. The same entity may serve as both the plan administrator and the custodian or trustee. Account administrators typically have the following responsibilities:

· Trust or custodial agreement approval with the IRS.

· Filing of appropriate IRS forms.

· Review of documentation of investment vehicles.

· Accounting or IRA account.

Administrators typically do not accept the following responsibilities:

· Approval of investment, relating to type of viability.

· Reporting of UBI (unrelated business income).

They cannot offer any investment vehicles of their own or for which they are compensated.

Q. What transactions are prohibited?

The following are defined as prohibited transactions when they involve the accountholder:

· Borrowing money from the IRA.

· Selling property to the IRA.

· Receiving unreasonable compensation for managing assets for the IRA.

· Using the IRA as security for a loan.

· Buying property for personal use with the IRA.

Investment in collectibles or life insurance policies.

FAQ's about IRA's

FAQ's about Self Directed IRA's