Three ways to increase your IRA

I like solutions that give me maximum choice and control. I repair my own motorcycles and guitars. I do my own basic electrical and plumbing repairs. I file my own taxes … unless they get really complicated, in which case I know where to draw the line and call in an expert.

Along the way, I have learned to avoid large and remote institutions, as they don’t give me many options. Retirement planning is one such example. For a few years I had a 403 (b) plan from a previous employer. Once I took the fees and costs into account, it became clear that it would be better to pay taxes on the salary that would have been used for contributions and invest it myself.

Many people are realizing that individual retirement accounts (IRAs) suffer from the same problem … but it’s one that you can solve by moving away from IRAs offered by large institutions and moving to a self-directed IRA.

The IRA released

Most retirement investment products are not designed with you in mind. Instead, they are designed to direct your retirement savings to the US stock markets. An entire “food chain” has grown up around the US retirement system, pumping money from Main Street to Wall Street. as if I need more.

The problem is the lack of investment options. Most institutional IRAs offer only a limited range of US stocks and bonds.

The truth is, your IRA can legally pursue just about any investment option imaginable – real estate, business start-ups, intellectual property, precious metals, you name it. A “self-directed” IRA is perfectly legal and can be as simple or complex as you are comfortable with.

Is that how it works. By law, all IRA accounts must have a “custodian” in the US who is responsible for custody of your IRA account, record keeping, transaction processing, filing IRS forms, and other administrative tasks. . Most of the large custodians keep things simple by offering a standard menu of US stocks and bonds. But there is nothing to stop an IRA custodian from offering offshore investments, real estate, private mortgages, precious metals … and much more. In essence, some custodians allow you to manage your own IRA.

A self-directed IRA is like a conventional IRA: tax deductible contributions; no income tax; distributions are taxed as ordinary income. The difference is that a specialist IRA investment custodian allows you to actively choose your investments.

For example, your self-directed IRA could buy a home that you plan to use when you retire, but rent in the meantime. Tax-deferred rental income is used to maintain the property and to finance other investments. You can select the property and negotiate the terms of the deal yourself. (However, the custodian must be the legal owner, so all documents are in your name, even if they refer to you as the owner of the IRA, as “Custodian of XXX company for the benefit of (your name) IRA “.

When you take title to the home upon retirement, you will pay ordinary income tax on the appreciation in the home’s value since the IRA bought it. For example, let’s say your self-directed IRA buys a home for $ 100,000. You rent it and it appreciates at an average annual rate of 8%. After 20 years, your $ 100,000 investment would be worth $ 215,890, and when you move out, you would pay income taxes on the $ 115,890.

The gold option

Thanks to the Taxpayer Relief Act of 1997, a self-directed IRA can hold gold, silver, platinum, platinum, and palladium, either as bullion or coins. In both cases, the metal or coin must be of a specific quality to qualify for an IRA. For example, an IRA may own American Gold Eagle coins, Canadian Gold Maple Leaf coins, American Silver Eagle coins, American Platinum Eagle coins, and gold and silver bars with a purity of 99.9% or higher. (Some known gold coins, including the South African Krugerrand, are prohibited, as are bullion bars that are not pure enough.)

To meet IRS requirements, the precious metals in an IRA must be in the custody of the custodian … sorry, you can’t keep it yourself. IRS Publication 590 specifies that “the trustee or custodian must be a bank, federally insured credit union, savings and loan association, or entity approved by the IRS to act as trustee or custodian.” Many trustees / custodians use private warehouses to store IRA metals. Alternatively, your IRA can invest in COMEX metal futures or exchange-traded funds (ETFs).

The last option on the high seas

There is another IRA “trick” that can really open up the world of investing for retirement. That’s getting your IRA custodian to create and own a limited liability company (LLC), either in the US or abroad, which in turn can make the required investments, including gold and other. metals. In this case, you can essentially manage the LLC yourself, bypassing the custodian for most matters.

However, the key to all of this is getting good advice from an experienced and knowledgeable tax attorney. IRS rules for IRAs are pretty strict and mistakes can lead to “early distributions” … with the tax implications that come with it.

So go ahead, overload your IRA … but get help. After all, DIY doesn’t mean going it alone.