Self Directed IRAs and Solo 401(k)s allow you to save on taxes. Learn how to maximize these accounts with six 6 IRA ideas. From contributions to beneficiaries, these tips are not well known.
#1 Avoid High Mortgage Rates
Do you have a family member who wants to buy a home but cannot because of today’s high mortgage rates?
IRA Club Tip: Your IRA may loan a family member funds below the current mortgage rates. The IRS permits loans to family members for as low as 1 over prime.
I understand some may say, “That’s my money. I can loan it for 0% interest if I want.” However, Congress established IRAs as a vehicle to grow your money for your future. By charging an unreasonably low interest rate, you would violate the core premise of the IRA. The bargain interest rate above is only available for qualified family members. Qualified family member includes your siblings, cousins, aunts, and uncles. If the family member is not a Disqualified Person, your IRA can make the loan.
An IRA administrator such as IRA Club can help you make this loan a reality for a qualified family member.
#2 Multiple IRAs
There is no limit to the number of IRA accounts you can have.
IRA Club Tip: Why might you want more than one IRA account?
- This can be a very good idea as you get older. Splitting your IRA when you have multiple beneficiaries allows you to craft an IRA asset mix that is best for each individual.
- Some IRA owners like to place different types of investments in separate accounts. For example, Single Family Homes in one, Mobile Homes in another, Syndications in the third, etc.
- Others like to cap the size of their IRA account. Let’s say at $250,000. When an account reaches that value, they simply start another IRA account.
Caution: No matter how many IRA accounts you may have, the annual contribution limit still applies. That is because the annual contribution limit applies to the individual, not the account.
#3 Spousal Contributions
My spouse has zero earned income. Can he contribute to an IRA?
IRA Club Tip: YES, if you are legally married and filing a joint return. This rule applies to all legal marriages.
I am 74 years old and have a Traditional Self Directed IRA for my Real Estate investment at IRA Club and a Traditional Equities IRA for those risky stocks somewhere else. This year my Self Directed IRA has a Required Minimum Distribution (RMD) of $2,800 and the other IRA has an RMD of $1,900. Do I need to draw these amounts from each account separately? I don’t want to disturb the assets in my Real Estate Self Directed IRA.
IRA Club Tip: No problem. The amount of RMD is $4,700 ($2,800 + $1,900). That is all IRS cares about. The IRS says as long as you take a total RMD of $4,700, they do not care which account you draw it from. Take it from any account (or accounts) and you have satisfied the requirement.
Extra Note: You can consider converting to a Roth IRA so in the coming years, you will have no RMD.
#5 Pension Plans
I know I can:
- Roll an existing IRA at a brokerage firm into a Self Directed IRA.
- Roll my 401(k) from a former employer into a Self Directed IRA.
However, my former employer was the State and they did not have a 401(k) but instead, a Pension Plan. Can I convert a Pension to a Self Directed IRA?
IRA Club Tip: Yes, the only requirement is that the Pension Plan was a “Qualified Plan” (which most are). This means the Pension Plan treated everyone fairly based on a set of rules known as ERISA.
Aunt Cindy was a wise investor. During her life, she built a $3,000,000 IRA. Cindy’s husband had passed away some time ago and they had no children. After her husband’s death, Cindy listed three nephews as the beneficiaries to her IRA account. However, the three siblings were very different people, with various goals.
- Jerry was a planner and saver. He reviewed the IRA account holdings and believed the investments had substantial growth possibilities. He wanted to leave as much in the IRA as long as possible so it could grow.
- Ron was a spendthrift. He had a long list of things he wanted to buy ASAP. He wanted to cash out Aunt Cindy’s IRA right now so he could get to the Lamborghini dealership before they closed.
- Tim could not make up his mind. Each day changed from letting it grow to taking it all out.
IRA Club Tip: A good IRA administrator can help.
Even after the death of the IRA account owner, Aunt Cindy, the Beneficiary percentage can be changed (with the written agreement of the named Beneficiaries and for good purpose). In this case, the administrator could (with the written agreement of the named beneficiaries) change the beneficiaries and split the account into three equal accounts giving each Beneficiary independent control over their 1/3. Please note, that this change must be completed before any funds or assets are distributed but no later than October 31st of the year following the death of the account owner.
Isn’t that a neat trick? But, wait a minute. There was a fourth nephew. His name was Charlie. He wants to be added to the split so the account would be divided four ways AND the other three agree in writing to a four-way split. SORRY CHARLIE, Aunt Cindy did not name you. We can only assume she had her reasons. You do not get any of her big fat IRA. Maybe Ron will let you ride in his Lamborghini.
For information about a Self Directed IRAs, Solo 401(k)s, or alternative investments,
call IRA Club at 312-795-0988 or click here to schedule a call.
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