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Turn Your Retirement Account into a Cash-Machine!

Introduction

Did you know you can have total control over your retirement? Did you know you

can invest in alternative assets outside of the choices provided by your financial

advisor? What if you can take your retirement money and help invest in your

nephew’s start-up business? Or buy that investment property by the beach? These

are just some examples of what you can do with a truly self-directed investment

account.

Self-Directed investing is not a brand new strategy. In fact, it has been around for

over 30 years. Over the past few years, we have seen a significant increase in the

amount of retirement funds (IRA) being moved to the self-directed investing arena.

So why are we seeing such a dramatic increase in the amount of retirement funds

being invested through self-directed investing? This phenomenon has often been

referred to as the “Perfect Storm”. Several factors that contribute to the Perfect

Storm are:

1) Significant decrease in value of traditional retirement investments such as

stocks, bonds, and mutual funds.

2) The opportunities which now exist in the market such as real estate, notes, and

start-up businesses.

3) Increased awareness: for the first time the public is becoming aware of this

opportunity that has been available for over 30 years.

The goal with retirement investing is to shift money that would otherwise go to the

IRS into your retirement account. You may be wondering just how exactly we can

accomplish this. Well, the answer is simple: with tax loopholes that are legally

allowed by the IRS. If you didn’t know what a tax loophole is - a loophole is a tax

incentive provided by our government as a way of encouraging the economy to

grow. It should come as no surprise that the majority of tax loopholes are found in

the areas the government would like us to concentrate on. Such as starting and

operating our own businesses and saving for retirement! It’s classic “carrot and

stick” psychology.

Many loopholes are quite well known. For example, you can make a $5,000

contribution to an IRA and save some taxes. Other loopholes are hidden little

treasures. They take a bit more looking to uncover, but like most treasures, they are

certainly worthwhile.

It’s not that our government doesn’t want you to find these loopholes; it’s just the

reality of our present IRS Tax Code - a multiple headed monster, growing larger

and more complex by the day. There are tons of loopholes that are available for all

of us to take advantage of.

In fact, there are so many that we have taken the time to carefully select some of

the most powerful tax loopholes specifically related to IRAs in our audio course:

17 Rules You Must Know and how to Capitalize on Them. If you’re serious

about taking advantage of all the loopholes that you are legally entitled to, then

visit our website at www.KeystoneCPA.com to find out more about this audio

course.

As we discussed earlier, tax savings is more than just minimizing your tax

liabilities. Tax savings means more cash flow for you to enjoy, grow and invest.

We will be sharing with you some strategies that you can use to turn your

retirement account into a cash machine.

Please note that the examples referenced to within this eBook are all based on

actual client cases. The strategies, details, and numbers all depict actual client

cases. As such, the names have been changed to protect the privacy of our clients

utilized in this eBook.

As a bonus item, we have also included a special report written by self-directed

investing expert Kaaren Hall on the 8 Best-Kept Secrets about Investing with Your

IRA.

http://www.keystonecpa.com/

Disclaimer

Information Only - Not Legal Advice

This publication is designed to provide general information regarding the subject

matter covered. It is not intended to serve as legal, tax, or other financial advice

related to individual situations. Because each individual's legal, tax, and financial

situation are different, specific advice should be tailored to their particular

circumstances. For this reason, you are advised to consult with your own attorney,

CPA, and/or other advisor regarding your specific situation.

The information and all accompanying material are for your use and convenience

only. We have taken reasonable precautions in the preparation of this material and

believe that the information presented in this material is accurate as of the date it

was written. However, we will assume no responsibility for any errors or

omissions. We specifically disclaim any liability resulting from the use or

application of the information contained in this eBook.

To ensure compliance with requirements imposed by the IRS, we inform you that

any US federal tax advice contained in this communication (including any

attachments) is not intended or written to be used, and it cannot be used for the

purpose of (i) avoiding penalties under the Internal Revenue Code or (ii)

promoting, marketing, or recommending to another party any transaction or matter

addressed herein. Always seek advice based on your particular circumstances from

an independent advisor.

Any disclosure, copying, or distribution of this material, or the taking of any action

based on it, is strictly prohibited.

Copyright

Turn Your Retirement Account into a Cash-Machine!

a Keystone CPA, Inc. Publication

Copyright 2012 by Keystone CPA, Inc. All rights reserved. No part of this

publication may be reproduced, stored in a retrieval system, or transmitted in any

form or by any means, electronic, mechanical, photocopied, recorded, or

otherwise, except in the case of brief quotations embodied in critical articles or

reviews, without the prior written permission of the publisher.

Table of Contents

How to Put Your Retirement Money to Work for You ............................ 6

The IRA Smack Down: Traditional vs. Roth ............................................ 7

Creating an Exit Strategy for Your Retirement Account .......................... 9

6 Do's and Don’ts of Self-Directed Retirement Investing ...................... 10

Retirement Planning Strategies for Small Businesses ............................ 12

Leverage Your Retirement Account to Get More Investing Power ....... 15

A Bad Piece of Advice That Cost $85,000 in Taxes .............................. 16

Bonus Report: 8 Best-Kept Secrets about Investing with Your IRA…..18

How to Put Your Retirement Money to Work for You

So why use retirement planning as a tax savings tool? Well here are the top two

reasons:

Benefit #1: Retirement accounts are great vehicles that you can use to

minimize your current taxes with contributions

When you make contributions on a pre-tax basis to your retirement account (IRA,

401K, SEP), you generally take a tax deduction on your tax return. So, for

example if you are in the 37% tax bracket, making a contribution of $19,000 to

your retirement account can save you $7,030 in taxes. Keep in mind that you now

have money that can be put to work for you by using benefit #2.

Benefit #2: Money in the retirement account allows you to supercharge your

investing power with Tax Deferred (or Tax Free) investments

You may know that a common way to invest tax efficiently is through your

retirement accounts. Generally, investments in a retirement account can grow tax

deferred for a number of years. For traditional retirement accounts, tax is typically

not due on that money until the funds are withdrawn or distributed out at

retirement age. The traditional retirement accounts allow you to grow your wealth

in a tax deferred manner. Tax deferred investing is great because it alleviates the

tax burden that typically slows down an individual’s wealth building potential.

By combining the two benefits above with your ability to do self-directed

investing, you too can turn your retirement money into a cash-machine.

For retirement accounts that are set up as self-directed accounts, you as the

investor may have the ability to invest your money outside of the traditional stocks,

bonds, and mutual funds. For the most part, self-directed accounts can invest in

just about anything you can think of including real estate, precious metals, farms,

or your cousin’s start-up company!

The IRA Smack Down: Traditional vs. Roth

Before going into the smack down, we need to first have an overview of the

differences between Traditional IRAs versus Roth IRAs.

With the traditional IRA, you make pre-tax contributions to the retirement account

but pay taxes on the money once you withdraw upon retirement. What this means

is that you get a tax deduction when you put money into the traditional IRA. You

do not pay taxes on the income that is generated from the investments within that

retirement account so it is growing you for tax-deferred. When you take your

money out at retirement however, you must pay taxes on the amount that is

distributed.

Conversely, with a Roth IRA, you make after-tax contributions to the retirement

account, but the withdrawals upon retirement are tax free. What this means is that

there is no tax deduction when you put money into a Roth IRA. You still do not

pay taxes on the income that is generated from the investments within that

retirement account. With a Roth, there are no taxes due when you take your money

out at retirement.

So in summary, the traditional IRA allows for tax deferred growth while a Roth

IRA generally provides for tax-free growth.

Which one is best for you will depend on your own unique situation.

With taxes rising, the Roth IRA has become an essential strategy for those who are

interested in having a bucket of money to be permanently protected from taxes.

So the benefit of the strategy of converting your money from a traditional IRA into

a Roth IRA lies in the number of years to retirement and the number of years of

compounding growth that are left.

So if you can pay taxes now on a smaller amount and then let that money grow tax-

free, then you are able to accelerate your wealth building potential by eliminating

the tax drag on your investments.

In the past, the ability to have a Roth IRA and get that permanently tax-free benefit

was not available to those making higher income. Higher-income is defined as

someone making above $110,000 per year ($173,000 for married).

Today, although that limit still exists on paper, there are now strategies where an

individual can have a Roth IRA regardless of their income level. What this means

is that currently, someone who makes $1 million dollars or more can also have a

Roth IRA and receive tax free growth. So what exactly would be the benefit of

having a Roth IRA? The best way to demonstrate this would be to share an

example with you.

Tax-Free Income for Life

Bob is retired from the police force in Huntington Beach California. In addition to

being an outstanding cop and putting the bad guys behind bars, Bob is one of those

savvy investors with a keen eye when it comes to great opportunities in start-up

businesses. He invested in a company that does research on hand-gun parts for

safety and accuracy.

Bob used his Roth IRA money for this investment and just this year, the company

got their patent approved and has started to license out their product to some of the

major gun manufacturers. Now Bob is looking at receiving royalty income from

his investment of $30,000 per year.

Here is the quiz: how much tax does Bob have to pay on his income of $30,000?

ZERO.

Quiz question #2: Assuming Bob takes the money out to spend, how much tax

does Bob have to pay?

ZERO

Essentially for Bob, he will be able to receive this royalty income on his

investment completely tax-free for as long as he lives. Not a bad deal to get $2,500

per month tax free, right? That is $30,000 of tax-free income to him each year for

as long as he lives.

What we have also done is to help Bob put together a “Legacy Roth IRA” where

Bob can extend the tax free income from this account to even beyond his lifetime.

Once our strategy is complete, not only will Bob be able to receive tax free income

but his kids and grandkids will also be able to receive tax free income over part of

their lifetimes as well….now that is the power of tax planning when you can

receive Generational Tax Free income!

Creating an Exit Strategy for Your Retirement Account

First, I want to make it clear that when we speak of the Legacy Roth IRA, we are

not referring to the gifting of your retirement accounts to your future generations.

Rather, in a Legacy IRA, you are still in full control as the owner of the retirement

account. The power of the Legacy IRA only comes into effect when your

retirement funds outlive you (and your spouse). It is a way for the IRA to continue

to exist and provide tax deferred or tax free growth independent of you after you

are gone.

Simply put, a stretch IRA, if structured correctly, allows the funds of the IRA to

receive tax deferred or tax free growth beyond the life of the account holder. For

example, a correctly structured IRA can allow the assets within the retirement to

continue beyond the lifetime of the account holder. Would you like to leave a

rental property to your children and allow them to receive rental income tax free

and not have to pay taxes when they eventually sell the property? This is the power

of the Legacy Roth IRA.

If you have a Roth IRA, you must work with your tax strategist to investigate the

opportunities of a Legacy IRA. Since the funds in your Roth account have already

been taxed, your goal is to stretch that tax-free money for as long as allowable!

Stretching Roth IRA funds allows your future generations to benefit from TAX

FREE income and growth for a few years beyond your lifetime. If you are worried

about potential increases to the US tax rates, stretching your Roth account is a safe

bet to make against future tax rate hikes.

As with anything in investing or business, you need to have an exit strategy. The

stretch IRA is one of many exit strategies which come into play should you not

outlive your retirement funds. Now the question is: what is your exit strategy for

your retirement accounts? If you do not have one, then the IRS is likely to be your

#1 beneficiary!!

A good tax advisor asks the right questions to ensure you receive the most benefit

from your investments.

6 Do's and Don’ts of Self-Directed Retirement Investing

Investing in what you know best via self-directed accounts is one way to

accumulate massive amounts of wealth in a relatively short period of time. This is

what we mean when we talk about turning your retirement account into a cash

machine.

But you need to know the rules before you begin! There are things you can do, and

things you can't. Here's a quick run-down of the do's and don'ts of self-directed

retirement investing:

Do's

1. Make sure you have a truly self-directed retirement fund with an independent

trustee or custodian. Many plans sound self-directed--as long as you only choose

from the custodian's list of pre-approved investments.

2. If you're using a Roth IRA, make sure you keep it going for at least 5 years!

Holding a Roth IRA for less than that can result in paying tax on the distributions.

3. If you want almost complete control over your retirement investments, consider

using a special type of LLC, that we call an "IRA LLC" (although it applies to all

kinds of retirement plans), that allows you to manage your retirement funds. If you

go this route, make sure you understand how this LLC functions and how you fit

into the equation. You don't want to fall into the prohibited transaction trap!

4. If you buy property with your retirement funds, you can't live in it! Neither can

your children, parents or grandparents. However, you can rent that property to your

non-lineal family members, including brothers, sisters and cousins.

5. You are not limited to only purchase houses with your retirement plan. Raw land,

condos, commercial properties, franchise businesses, start-ups and notes are all

permitted purchases with retirement funds.

6. When in doubt - even just a tiny doubt - check a proposed transaction out with

your CPA and IRA custodian first! If you self-direct, YOU are solely responsible

for avoiding a prohibited transaction. A good CPA or custodian will try to offer

their input if they see you heading for a prohibited transaction, but at the end of the

day it's your responsibility.

That's the best way to stay safe that we can think of. Your IRA custodian is a

crucial part of your investing team!

Don'ts

1. Your retirement fund can't buy real estate, directly or indirectly, from you, your

spouse, your kids, your parents, your grandparents, or your retirement account’s

trustee or custodian. You can't get around this by using your spouse's IRA instead,

either.

2. You can't use business structures to get around #1above. If you own 50 percent or

more of a business structure, that structure can't sell real estate to your IRA. The

same goes for officers, directors and key employees who own 10 percent or more

of a business structure that wants to sell property to your IRA.

3. You can’t use “others” to get around #1 above. For example, lending IRA money

to your friend and having that friend lend it back to you is not allowed. The IRS

looks at where the money started and where the money ended. In this case, the

money ultimately went from the retirement account back to you and thus it is a

prohibited transaction.

4. You can't personally guarantee a loan for your IRA, or vice-versa.

5. If you are using the IRA LLC to manage your IRA, you can't also be a member of

that LLC. It may ONLY be owned by your IRA.

6. Do not co-mingle retirement funds with other money. Be sure to keep retirement

money separate from your personal or business funds so that the IRS does not try

to classify these as distributions or prohibited transactions.

Retirement Planning Strategies for Small Businesses

“If you are a business owner and you are not currently using retirement

investing strategies, you are overpaying your taxes!”

You may already know that the IRS favors businesses by providing some great

loopholes for businesses that are not available for individuals. The same inequality

applies when it comes to retirement accounts. There are a tremendous amount of

opportunities in retirement planning related to businesses.

First, please note there are several key items to take into consideration when

determining which type of retirement account is best for your business. When we

talk to clients about this exact subject, there are 4 items we like to keep in mind,

and they are:

1) the type of plan that is best suited for your business,

2) the deadlines for creating the plan,

3) the timing rules for making contributions to the plan, and

4) the tax benefits generally available for the plan.

You and your tax strategists should work together to evaluate your situation and

determine what type of retirement plan is best for your scenario. There are SEP

IRA’s, SIMPLE IRA’s, Defined Benefit Plans, and Defined Contribution Plans to

name a few. Some things to keep in mind when making this decision are:

• Do you have any employees?

• What are your goals for the business?

• What kind of vesting requirements do you want to have?

• Would you like to be able to borrow from the plan?

After you determine the best plan for your business, you and your advisors need to

determine what the deadline is for creating the plans. Some plans have to be set up

by October 1st or December 31st, so it is vitally important to incorporate this

analysis in your tax planning as soon as possible.

Even though there are certain deadlines in terms of when retirement accounts need

to be set-up, you typically have additional time to actually fund the retirement

accounts. On a handful of plans, the contributions may not have to be made until

the following April 15th or possibly even later to still be a tax benefit for the

previous tax year.

For example, there are retirement plans where you can take a deduction for 2012

even though the actual retirement contribution is not made until October 15, 2013.

So why are retirement plans for businesses so much more powerful than retirement

plans for individuals?

Well, as a business owner, you can generally deduct the contributions you make on

behalf of your employees. This can help reduce your business and personal

adjusted gross income on your tax returns. There are plans available where you

could stock away $50,000 or more each year in your retirement account. This

could result in significant tax savings over time. How great would it be to write a

check towards your retirement account rather than writing a check to the IRS?

A Solo 401(k), commonly referred to as a Solo K, is a retirement plan designed for

the small business owner. How small is small you may be wondering? You qualify

if you are a self-employed individual with no full time employees other than a

spouse. One thing to note is that employing independent contractors in your

business does not disqualify you from establishing a Solo 401k. Sole proprietors,

independent contractors, C corporations, S corporations, partnerships and LLCs

can qualify for this plan if the above requirement is met. This means that as long as

you have an active business, you do not need to have a legal entity to have a

Solo(k)!

One Powerful Strategy

Take the example of a one of our clients Megan. Megan owns a successful

marketing business. Her clients are some of the big restaurant chains like Carl’s Jr.,

Taco Bell, and Cold Stone. Megan had a great year netting $300k in her business

last year. Instead of losing half of that to taxes, we helped Megan to contribute

$40k towards her retirement account which allowed Megan to take a write-off for

the entire amount. Instead of losing this money to the IRS, this saved Megan close

to $18k in taxes that year alone!

Even though Megan took a $40k tax deduction on her contribution…did she lose

that money? No! Instead, now that $40k is in her retirement account and she can

use it to invest and put that money to work for her. With the $40k in her retirement

account, Megan put that money to work by investing in real estate trust deeds that

are expected to provide her with 10% annual returns. The best part of this is that

her returns on the trust deed investing are now protected from taxes!

This is great because had Megan invested in these real estate trust deeds with her

personal cash, she would have had to pay taxes on her 10% return per year. But

because she is investing now with the money in her retirement account, her returns

are protected from taxes until she reaches retirement age.

What a powerful concept it is to be able to create a huge tax deduction immediately

by shifting your money that would otherwise go to the IRS into your own

retirement account and at the same time shift taxable money into a bucket where

you can invest and defer the tax on your earnings! With this one strategy, Megan

got a huge tax savings of $18k that year and instead of losing her money, she still

has $40k of that money that is now invested and working for her, free from current

taxation!

Leverage Your Retirement Account to Get More Investing Power

If you plan on using your retirement money to invest in Real Estate, then you may

want to supercharge your earning potential by using “leverage”. The great news is

that you can also do it with your self-directed money! There is however, a tax trap

associated with self-directed IRA investing.

Some of you may have heard of the term Unrelated Debt Financed Income Tax

(UDFI). Essentially, this is a tax imposed in certain instances when you self-direct

your retirement funds into real estate and use leverage at the same time.

For example, if you purchase real estate using your self-directed IRA with 50%

debt and the investment earns $50,000 of income, 50% of that income is generally

subject to the UDFI tax of 35% resulting in a tax bill of close to $9,000 for the

year.

Before you get discouraged, there is a loophole around this and it is very simple.

Rather than using a self-directed IRA to invest in leveraged real estate, instead use

a self-directed 401(k) to invest in real estate. One of the biggest benefits of

investing in real estate with your self-directed 401(K) is that this vehicle actually

allows you to use your retirement funds to invest in leveraged real estate without

the taxes potentially associated with UDFI!!

With leverage being one of the preferred ways to invest, real estate investors need

to tap into the benefits of this loophole. To continue with the example above, if you

make the same purchase under your 401(K) rather than your IRA, you can avoid

the UDFI tax all together which saves close to $9,000 in taxes each year! This is a

great advantage that the Solo 401(K) plans have above most other types of

retirement plans.

A Bad Piece of Advice That Cost $85,000 in Taxes

A recent report revealed that less than 4% percent of CPAs (not just tax preparers

or enrolled agents but the top of the rank CPAs) are not up to par on understanding

the tax strategies relating to retirement investing. This is extremely sad and

unacceptable since these are the people who are advising you. Make sure you are

working with someone who understands retirement planning strategies and self-

directed investing. We recently came across a gentleman who wanted to have more

control of his money by moving it out of the stock market and using it to do fix-n-

flip real estate. So what did his tax advisor tell him? The CPA told him the only

way he can do that is to take a $200k distribution from his IRA and then use it to

do fix-n-flips. As part of this BAD advice, this gentleman ended up having to pay

federal income taxes, state income taxes, and early distribution penalties…totaling

$85k!

At the end of the day, this person lost $85k of hard earned money due to this bad

advice. Had he sought out a tax expert who was well versed in self-directed

investing, he could have used that entire $200k to invest in real estate without

paying any current taxes.

Having bad tax advisors cost this person over $85k in unnecessary taxes…ouch!

This example is clearly an indication that as a profession, we as CPAs need to

make sure our skills remain sharp so we can advise our clients appropriately. As a

consumer, it is your responsibility to ensure your tax advisor is part of the 4% who

actually understand the power of retirement investing to help you achieve your

wealth goals.

Does it ever seem to you that CPAs and Attorneys have their own language? They

do! The better you can speak their “secret language” the better the results you will

have.

Keystone CPA, Inc. was founded to “de-mystify” tax laws and explain strategies in

simple language so that anyone can take advantage of the wealth building

techniques of the rich. We provide powerful tax strategies and the latest strategies

in tax planning.

Are you ready to pay less tax?

The average Keystone CPA client saved over $18,000 a year in taxes using our

strategies. Please visit our website at www.KeystoneCPA.com or call 1-877-975-

0975 for more information.

http://www.keystonecpa.com/

uDirect IRA Services(866) 538-3539info@udirec�ra.com

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The Eight Best Kept Secrets About Investing with your IRA

(866) 538-3539

(877) 975-0975


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Dear Reader,

Thank you for responding to our offer for a special report. At this �me next year, you will be richer for the informa�on you are about to read!

In this report, we will look at how you can build wealth with strategic yet simple use of self directed IRAs.

There are many reasons why you should consider a self-directed IRA for your re�rement. We will not only discuss the reasons, we will also educate you on what makes a self-directed IRA, why you should con-sider one, and why they are so important for your re�rement future.

I hope you enjoy this report.

Please feel free to call me with any ques�ons or comments you may have!

Kaaren HallPresidentuDirect IRA Services(866) 538-3539

2010 uDirect IRA Services, LLC. All rights reserved. This publication is intended to provide general information in regard to the subject matter covered. It is presented with the understanding that uDirect IRA Services, LLC is not rendering legal or accounting advice or financial advice.

(877) 975-0975


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Table of Contents

What is a self-directed IRA? 4

How did self-directed IRAs evolve? 4

Why do I need a self-directed IRA? 4

What can I invest in with a self-directed IRA? 5

Real estate 61.

Commercial real estate 92.

Foreign real estate 103.

Notes 114.

Partnerships and Private Stock Offerings 135.

Foreign Currency 146.

Precious Metals 157.

Tax Liens and Tax Deeds 178.

Conclusion 18

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What is a self-directed IRA?

Most IRAs are typically invested in stocks, bonds and mutual funds. With a self-directed IRA from uDirect IRA Services, as the name implies, you make the invest-ment choices. The types of investments are almost limitless. With the self- direct-ed IRA account, “uDirect” acts simply as an independent administrator handling the investment transac�ons you dictate.

With a self-directed account from “uDirect”, you can invest your re�rement dol-lars in non-tradi�onal investments including: Real estate, private placements, life se�lements, trust deeds, oil-gas-energy and thinly traded or limited offering investments, both public and private.

“Self-Directed” means you or your investment advisor make all the buy and sell decisions. We only engage in investments, transac�ons and sell orders which you or your investment advisor dictate to us.

For a large number of people, the self-directed approach makes the most sense because you aren’t locked into the narrow choices and self-serving interests of a mutual fund, bank, brokerage or life insurance company custodian. Take the reins and direct your own re�rement future today! Give us a call and ask us how at (866) 538-3539.

How did self-directed IRAs evolve?

The concept of self-direc�on was created by Congress through the Internal Rev-enue Code Sec�on 4975 and other sec�ons. Congress only dictates what invest-ments are NOT allowed. Since investments with a self-directed IRA are not on that list, you have a great opportunity to grow re�rement plan assets. In fact, knowl-edge of this IRS code may provide you with a strategy that allows you to accumu-late tax-free wealth throughout your life�me, provided you know how to use it.

Most do not realize the full power of self-direc�on, even financial professionals. Self-direc�ng investments in re�rement plans is not new. It was part of the gov-ernment’s plan in the 70’s to help all of us save for our increasingly expensive and long re�rement years.

Why do I need a Self-Directed IRA?

You can build wealth and secure your future more effec�vely.•

Combining the tax advantages of a re�rement account with access to a larger range of investment choices offered, a self-directed IRA can help you build more wealth for your re�rement.

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With a self-directed IRA, you choose your investments, such as homes, apart-ments, raw land, co-ops, condos, and commercial property and more. A self-di-rected IRA enables you to invest in what you know best.

You can create passive income for your re�rement.•

Passive income is an income stream where money is received usually on a regular basis, without con�nuing effort, such as income from a rental or property. Crea�ng passive income is easy with a self-directed IRA. Give us a call at uDirect IRA Services and ask us how at (866) 538-3539.

Life Expectancy is Climbing!•

According to Stanford University, medical advances in an�-aging technologies could increase average life expectancy from just less than 80 years to 100. How long will your re�rement savings last? How can you make sure?

Social Security is Not Guaranteed •

CNN Money reports that the Social Security trust fund will be exhausted in 2040. Are you depending on Social Security as part of your re�rement income?

Economic Changes Within Society are More Prevalent Than Ever.•

The cost of 9/11 has been es�mated at $28 billion, including the effect to the stock market. Are you prepared for these types of unforeseen cost increases and market fluctua�ons?

Soaring Health Care Costs are Pu�ng Seniors into Debt•

Employee Benefit Research Ins�tute reports that the debt load of seniors grew from 1992 to 2004, the percentage of households 55 and older with overall debt grew faster than the rate of the overall popula�on. Those 75 and older packed it on most quickly. Are you prepared for your long-term health care costs?The professionals uDirect IRA Services would be happy to assist you with any ques-�ons you may have, or help you to open an IRA account.

Ge�ng started is as easy as 1, 2, 3:1. Open an account2. Fund your account3. Invest

Give us a call and ask us how at (866) 538-3539.

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What can I invest in with a self-directed IRA?

You can buy real estate with the money in your 1. IRA.

Not many people know, but it is absolutely legal to buy real estate in your IRA. The Internal Revenue Code does not tell you what you can do with your IRA, only what you can’t do. Besides restric�ons on purchasing life insurance, capital stock in an “S” corpora�on and most collec�bles in your IRA, nearly everything else is fair game.

Unless your IRA is self-directed, however, your custodian may not allow invest-ments in real estate.

Examples of real estate related investments made by individuals self-direc�ng their individual re�rement accounts includes:

Raw land• Farms• Pre-construc�on investments• Residen�al property• Condominiums• Mul�-family units• Commercial property• Resort property• Real estate development companies• Private real estate investment funds•

Things to Consider

Your IRA can even partner with other people’s IRAs to purchase property. Keep in mind that if you are considering this, you may be asked to provide evidence prov-ing that you did not receive any immediate benefit from your IRA’s par�cipa�on in the investment if the IRS ques�ons the transac�on. The transac�on s�ll must be an arms-length transac�on, and the investment remains subject to the same restric�ons as if the en�re investment were in your IRA. It is just a be�er idea to separate your IRA’s investments from your own investments.

You may also purchase debt-financed property with your IRA. The debt must be financed by a non-recourse loan and any disqualified person may not supply the funds. Also, the IRA may have to pay UBIT (unrelated business income tax) or UDFI (unrelated debt financed Income tax) on the profit from debt-financed property. Generally speaking, taxes must be paid on profits from an IRA-owned property that is debt-financed, including profits from the sale or disposi�on of the property, in the same propor�on that it had debt.

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While purchasing real estate with the money in your IRA is permi�ed, there are some important things to keep in mind:

You may not collect a fee for managing property owned within your IRA. This is • considered a prohibited transac�on. You may not collect a commission for any property sold to your IRA. This is also • considered a prohibited transac�on.You may not sell property that you currently own to your IRA. There is a list of • “disqualified persons” who are prohibited from dealing with your IRA or ben-efi�ng from its investments. The list of disqualified persons includes you, your spouse, your parents, your children, their spouses, certain business partners and key employees and persons providing services to your plan, among others. Your IRA owns the asset. Many people think the money is distributed and is • taxable first; this is not true. Real estate can be purchased 100% by the IRA account or just a percentage in-• terest in real estate as Tenants in Common (i.e. Robert J. Jones 50% Undivided Interest and “The Custodian” FBO William Bush IRA #12345 50% Undivided Interest)You may not buy/sell/lease your real estate from a disqualified person. This is • considered self -dealing and is strictly prohibited.All income (rents or sales proceeds) that is produced by the Real Estate IRA • must be returned to the IRA cash account. Expenses are treated the same way; all expenses must be paid by the IRA account. If the real estate were owned as a percentage, the IRA would pay the applicable percentage of the expenses.If there is financing involved with an IRA asset, it must be nonrecourse financ-• ing (IRA owner cannot personally guarantee the note.) Typically, lenders will require larger down payments on nonrecourse loans. The lender can be the seller.Real Estate owned inside an IRA account must be for investment purposes with • no personal use. Also, if you visit that IRA property, you cannot write off the trip nor can you stay in the unit to do maintenance.

Arms Length Transac�on

IRA owners must make sure they do not engage in prohibited transac�ons when inves�ng their IRA assets in real estate. They must make sure the real estate transac�ons are “arm’s length” or third-party transac�ons. This means that an IRA owner cannot invest in property he or she, a rela�ve, or his or her business, already owns.

In order to prevent a prohibited transac�on, the individual should not have access to or use of the property while a por�on of the real estate is held within their IRA. Also, while frac�onal interests in real property may be purchased or sold, such in-terests may not be bought from the IRA owner or members of family or business, except siblings.

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All income and expense related to the property needs to be divided and/or paid according to ownership percentage. In such cases, it is wise to have a third-party property manager handle these ac�vi�es to ensure that no self-dealing transac-�on occurs.

Some Essen�al Facts

The regula�ons include:

When purchased, the property becomes an asset of the IRA.• Neither the IRA owner, spouse, nor family members (other than siblings) may • have owned the property prior to its purchase by the IRA.Neither the IRA owner nor family members (other than siblings) may have ac-• cess to or use of the property while it’s in the IRA.The IRA owner cannot manage the property; however, he or she can hire a • third party -- a real estate broker or local manager -- to collect rents and main-tain or improve the property.Property related expenses cannot be paid with personal funds and then be • reimbursed by the IRA.The IRA owner’s business may not lease or be located in or on any part of the • property while it’s in the IRA.All rental profits must be returned directly to the IRA.• The IRA owner can not earn a commission or fee on any transac�ons involving • the re�rement account.Property owned within an IRA will not be able to take advantage of write-offs, • such as deprecia�on or other property related expenses.The property must remain in the IRA un�l distributed or sold to a third party.•

Examples of a Self-Dealing Transac�on

Here are a few examples of what the IRS or DOL may consider self-dealing with IRA funds:

Borrowing money from an IRA – IRAs are prohibited from making loans to IRA • owners and any disqualified person.Using the IRA as a security for a loan – IRA owners are not allowed to use • the IRA as collateral for a loan, as the amount they pledge as security will be deemed a distribu�on by the IRS.Selling assets to an IRA - If the IRA owner sells property to their IRA, the sale is • a prohibited transac�on.Buying property for personal use (either by the IRA owner and/or a family • member), such as a lake cabin or a condo in the mountains, is strictly prohib-ited.Purchasing property from a rela�ve.• Issuing a mortgage on a rela�ve’s new residence.•

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2. That also includes commercial real estate!

Here is an example:

John Smith buys an apartment building.

John Smith located a 15-unit apartment for an investment property in his IRA and for his partner Sam Frank. The asking price for the building was $800,000.

John made an offer of $720,000 and it was accepted. John funded half of the purchase with funds from his partner and half his own IRA. To complete the pur-chase, John completed an Investment Direc�on Form for his IRA.

Escrow was opened. Collingwood Escrow accepted a $72,000 deposit on the prop-erty in two checks:

• One check from uDirect IRA (on behalf of John’s IRA) for $36,000.• One check from Sam Frank for $36,000.

USA Title provided a preliminary �tle report to the buyers (John and his IRA and Sam).

The deed was recorded in the purchasers’ names: 50% undivided interest in the name of Sam Frank; 50% in the name “The Custodian” FBO: John Smith IRA.

The se�lement statement provided a breakdown of the cost and charges allocated among the buyers and sellers. John made a check to escrow for the amount need-ed for the remainder of his 50% or $324,000. The uDirect IRA funded $324,000 for the other 50%.

Assignment of Rental Agreement

Rental agreements were assigned to John and his plan equally. John hired a prop-erty management service to collect the rent on the units. The property manage-ment agreement was signed by the Custodian of the IRA.

When making payments to John, the property management made 50% of the net receipts out to “The Custodian” FBO John Smith IRA and the other 50% to Sam Frank. In the case of co-ownership by an IRA or other persons or en��es, it is ad-visable to employ the services of a property manager or outside bookkeeper.

The opera�ng income looked like this:

Ini�al deposits from new tenants $40,000

Maintained in account for poten�al expenditures $20,000

Monthly income $20,000

TOTAL $80,000

$20,000 stays in the account for repairs and maintenance.$60,000 is split between Sam & John’s IRA

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3. You can purchase foreign real estate.

As long as it is investment property, a real estate IRA can purchase investments outside of United States. And, the Internal Revenue Service allows incorpora�ng a foreign-based real estate property into a self-directed IRA.

Here are some items to consider if you are thinking about inves�ng in foreign real estate:

Make sure that you understand the country’s economic and poli�cal climate as 1. this can affect the price of the real estate.Make sure that you understand the country’s taxa�on laws.2. Understand what you are buying. Make sure that you have seen the asset. 3. Understand who you are dealing with. Make sure that the real estate profes-4. sional is the person qualified to make the sale.Keep in mind that the IRA cannot purchase property that you want to use as 5. your primary residence, vaca�on rental or as your business office. However, at 59.5 years or older, you can withdraw your real estate from your IRA to use it as a primary or second home without a penalty. Depending on the type of IRA that held the real estate, there may be taxes associated with the process.

A self-directed IRA real estate account can offer a wider-based global area for foreign real estate, if properly set up. There are pockets and clusters of geographi-cal en��es worldwide such as Central America, some Arab countries and the Asia Pacific regions where real estate property inves�ng is going at a feverish pace.

Millions of Europeans have, for a long �me, looked outside their own borders, scooping up ski resorts in places like Spain and Portugal, Bulgaria, and Costa Rica. These countries have become so popular among foreign investors that proper�es have increased in value tremendously. Real estate developers and promoters are now on a scavenger hunt in less well-known countries so they can offer projects to interested investors including investors with self-directed IRA accounts.

Ge�ng Started

To get started inves�ng in real estate with a self-directed IRA, you’ll first have to open a self-directed IRA account with uDirect IRA Services. Transferring funds from your old IRA account can take some �me. So, prior to looking for a property, make sure that you have your account open and ready to invest.

Next, locate a property. It’s best to work with a qualified real estate professional to do this.

Finally, contact uDirect IRA Services to obtain a Investment Direc�on le�er. Com-plete the Investment Direc�on form and send it to uDirect. UDirect will purchase the property in the name of your IRA account.

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4. Tax-Free And Tax-Deferred Inves�ng with Notes

In this �me of economic uncertainty, purchasing discounted notes can provide excellent investment opportuni�es. Inves�ng in notes becomes par�cularly a�rac-�ve using tax-deferred funds in your IRA or other re�rement plan. The payment streams come into your IRA and in the final analysis, on a first trust deed, the worst case is that you own the property.

The simplest part about using IRAs as a source for funds to invest in real estate and notes is that it is like any real estate transac�on that uses a third-party en�ty as the owner. Think of it like this – your company buys a note or piece of property. A company officer or designee signs and approves documents and authorizes events to go forward. It works the same way for your IRA.

Here are some basic rules that you need to keep in mind:

You cannot receive a current benefit from the IRA or it’s assets. That means:• - No living on the property at all. - No receiving rent or income directly. You can only receive income (and

pay those expenses) propor�onate to your investment. - The IRA can’t deal with you or members of your family who are ascen-

dants or descendants or their spouses. This means that parents and children, their spouses and you and your spouse may not be included.

Qualified plans assets, such as an office building invested in by a plan, can have • a certain part allocated to having you rent space for the purposes of the plan.

Ge�ng Started

To get started inves�ng in notes with a self-directed IRA, you’ll first have to open a self-directed IRA account with uDirect IRA Services. Next, find a note investment.

Purchasing a trust deed or mortgage requires you to complete an investment direc�on form for real estate notes. It is important to closely follow the guidelines provided on these forms to ensure �mely and efficient transac�ons.

When �tle and/or escrow companies are involved, ensure that proper instruc�ons are provided for all documents for your account. Local �tle or escrow companies may have addi�onal requirements other than those we provide so make sure to check with them.

uDirect must receive all loan documenta�on before the funding of any loan. We cannot fund without a complete loan package. This package includes a trust deed and note, �tle insurance (when applicable), and appropriate ves�ng.

If you have selected a third-party servicer, a servicing agreement must be pro-vided to “uDirect” describing the note in accordance with the documents we have received. Your servicer may retain the original note documents.

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While we are not licensed as a mortgage servicer, as record keeper we can receive payments directly from your payer, as well as process loan payments and other informa�on for your loan. All original documents will be maintained in safekeeping and eventual reconveyance.

As part of your arrangement with a payer, you may receive all payments for your note(s) for personal inspec�on. However, we must receive such payments intact. uDirect cannot apply personal checks from you as an account holder to pay for obliga�ons of notes in your account, as this violates IRS rules.

In all cases, all note informa�on is required before funding can take place. This informa�on includes the name, address, and Social Security number of the payer.

If the payer is different from the one described by other documents provided, such informa�on needs to be supplied so that proper credit can be applied. All payments must contain your account and loan number. If this informa�on is not supplied, there may be a delay in pos�ng funds to your account.

All payments are promptly deposited in your IRA.

If note payments are not made when due, and a third party is servicing your note, all collec�on ac�vity becomes the responsibility of you and your servicer. uDi-rect does not provide any collec�on services for past-due notes other than those agreed to at the �me of funding of the loan. In addi�on, any foreclosure op�ons that may be required are your responsibility. Our role is solely to provide informa-�on to the outside foreclosure service of your choice. You may obtain transac�on history on your account online at any �me. You may also receive this history online via fax or phone by calling uDirect at (866) 538-3539.

Regulatory repor�ng

All regulatory repor�ng for mortgage income is made by the servicer. If “uDirect” provides mortgage record-keeping services, the 1098 forms will be sent to the payer, as required.

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5. Inves�ng in Partnerships and Private Stock Offerings

PartnershipsRegistered and unregistered interests in Limited Partnerships may be purchased and sold by IRAs and Qualified Plans.

The general rules regarding acceptability of partnership investments in your ac-count are:

The partnership agreement must permit an IRA or a Qualified Plan to be a • partner.The partnership interest purchased by your account cannot have any manage-• ment responsibility; liability from any cause cannot exceed the amount of your investment; and a vo�ng majority is not permi�ed.The partnership en�ty must comply with the appropriate state law, have a • determinate life, and be assignable.The partnership subscrip�on agreement must be signed by you as having been • read and approved and will be executed by us for your benefit. In addi�on, you will need to complete and send us a Buy Direc�on Le�er. The investment amount must be stated or funding cannot take place.

Note: Partnerships may be subject to unrelated business income and other taxes. Consult your tax advisor for direc�on.

Limited Liability Corpora�onsLimited Liability Corpora�ons (LLCs) are considered securi�es in many states and may be required to meet the standards of securi�es offerings. Offering memoran-da, circulars and subscrip�on and investor suitability informa�on are provided by the managers of LLCs. The rules and procedures regarding inves�ng IRA or Quali-fied Plan Funds in LLCs are the same as those for partnerships.

Private or Closed Corpora�on StockPrivate or Closed Corpora�on Stock Offerings are those stock offerings not avail-able to the general public. Normally, they will be made to pre-qualified individu-als. These offerings must comply with the securi�es Blue Sky Laws in the states in which the offering will be made. The number of individuals included in the offering cannot exceed the maximum s�pulated by those states’ laws.

Offerings, usually made by corpora�ons looking for capitaliza�on, may be in any class of stock described in their prospectus. Many corpora�ons act as their own registrar as well as transfer agent. They may or may not have market makers for their offerings. Purchases and sales are described in their offering materials.Purchases and sales of private or closed corpora�on stock are accomplished by comple�ng either a Buy or Sell Direc�on Le�er which specifies the number of shares, the price per share, and the total dollar amount of the transac�on. Al-though you will read and approve the necessary subscrip�on documents, we will execute the actual subscrip�on for your benefit.

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6. Invest in Foreign Currency with a Self-Directed IRA

Self-directed IRAs allow a myriad of investment opportuni�es including futures, commodi�es and Forex. If you already have futures, commodi�es or Forex in your regular por�olio, take advantage of your knowledge and experience and diversify your re�rement funds. Or, if you are ready to expand your investment op�ons, futures, commodi�es or Forex may meet for your financial objec�ves.

It’s important to consult with a tax accountant, a�orney and investment advisor to determine whether inves�ng in Futures and Commodi�es would be suitable for your investment por�olio.

A self-directed IRA (or other self-directed account) may be used to purchase any products sold by na�onal futures companies, such as Broker Assisted Accounts, Fully Self-Directed Accounts, Automated Accounts, Managed Futures Accounts, Foreign Futures or Forex Accounts.

If you are considering one of these complex trading accounts, consult with an experienced company that is seated on a Board of Trade or in good standing with the Commodity Futures Trading Commission and the Na�onal Futures Associa�on. Like any investment, be aware of the risk and assess whether this type of account suits your personal investment objec�ves.

Ge�ng Started

Like all assets held within a re�rement plan, the offering will be vested in the name of the your IRA (custodian/administrator for the benefit of Your Name, IRA#). This way, any income that is generated will be return to your re�rement account tax-deferred or tax-free. And there are no restric�ons on the type of cur-rency that may be bought or sold within your IRA.

A self-directed IRA does provide access to futures, op�ons and commodi�es in-ves�ng, but we do not determine the suitability of any investment. It’s important to consult with your broker or financial professional to determine whether the investment will suit your objec�ves.

You may work with any foreign currency trader. We do not make recommenda-�ons for outside vendors or investment suppliers.

Once the investment is purchased, the investment will be �tled in the name of your IRA. The IRA will be the applicant and the owner of the investment. In addi-�on, you must find an account manager or manage the account yourself.

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7. Inves�ng in Precious Metals

Most people purchase gold and other precious metals as a hedge against infla�on. As long as you have gold, it will retain its fundamental value. Therefore, people will always be willing to exchange goods or services for gold because it’s viewed as “real money”.In addi�on, many professionals suggest the purchase of precious metals as a means to diversify investments among securi�es or asset classes.

When purchasing gold, one type of currency (paper money) is exchanged for anoth-er (gold). Of course, you have to find a place to store the gold, such as a bank or pre-cious metals depository. Keeping the gold in your home poses too much of a risk. If your home is destroyed by fire or any natural disaster, that money is gone forever. If you deposit the metal with a bank or depository, there is insurance for it.

Therefore, if you have knowledge and experience inves�ng in precious metals, then capitalize on your exper�se to generate re�rement wealth, tax-deferred or tax-free. Use your self-directed IRA to drive your own level of success, since you control your investments.

Ge�ng Started

As the IRA holder, you are responsible for choosing the previous metals dealer and the type of product. Once purchased, the precious metals OR cer�ficates of own-ership must be held by the IRA or the IRA depository.

To direct the investment into precious metals with your IRA, complete an invest-ment direc�on form. Within the instruc�ons, please provide the detail on the investment, such as the type, quan�ty, form, grade, price and dealer. Next, you’ll submit the investment direc�on form to uDirect IRA Services. uDirect will pur-chase the investment with your IRA funds. The precious metals OR cer�ficates of ownership must be held by the Custodian or the Custodian’s depository.

Permissible Precious Metals:

Gold: American Eagle CoinsUS Buffalo Uncirculated Gold Coins Bars and Rounds, Manufactured by NYMEX or •COMEX approved refiner/assayer or na�onal government mine, and mee�ng mini-mum fineness requirements.

Silver: American Eagle CoinsBars and Rounds, Manufactured by NYMEX or COMEX approved refiner/assayer or na�onal government mine, and mee�ng mini-mum fineness requirements.

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Pla�num:American Eagle CoinsBars and Rounds, Manufactured by NYMEX or COMEX approved refiner/assayer or na�onal government mine, and mee�ng mini-mum fineness requirements.

Palladium:American Eagle CoinsBars and Rounds, Manufactured by NYMEX or COMEX approved refiner/assayer or na�onal government mine, and mee�ng mini-mum fineness requirements.

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8. Inves�ng in Tax Deeds and Tax Liens

Another investment possibility is to purchase tax deeds or tax liens.

A tax lien is a lien imposed on property by law to secure payment of real estate taxes. Tax liens may be imposed for delinquent taxes owed on a real property, personal property and/or the failure to pay income taxes or other taxes such as federal income tax.

A tax deed sale is the forced sale conducted by a governmental agency of real estate for nonpayment of taxes. It is one of the two methods used by government agencies to collect delinquent taxes owed on real estate.

County governments differ on how they handle proper�es on which real estate taxes are owed. Some sell tax liens and some sell tax deeds. Generally, the re-demp�on period for a tax deed is shorter than for a tax lien. The government agency owning the tax deed gives the property owner a set period of �me in which to pay the taxes owed on the property. If the property owner hasn’t paid the taxes within that �me, the investor who bought the tax deed can proceed with judicial foreclosure to acquire the property.

When buying tax liens and tax deeds, it’s important to take the �me to research the collateral behind the lien or deed. You may end up owning the property.

Reasons to consider tax liens or tax deeds as a re�rement plan investment:

Higher than average returns.• Inves�ng in tax liens and deeds typically provide a much higher interest rate than inves�ng in stocks or bonds.Allows for small investments.• Liens and deeds are good if you only have small amount of money to invest.Provides security. • The collateral on the lien or deed secures the investmentIt’s another way to acquire property.• If the tax lien is not redeemed (i.e.paid off), the lien holder has the right to foreclose on the tax lien and take �tle to the property.

Ge�ng Started

Once you establish an account, you would determine the county in which you would like to bid on tax liens. You would then contact uDirect. We can walk you through the investment step-by-step and assist you in comple�ng any necessary paperwork to fund your investment.

To purchase tax lien auc�ons, some county auc�ons can be found online or in the newspaper. You also can contact the county in which you would like to purchase tax liens.

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To request the appropriate amount of funds for tax lien auc�ons if the exact amount required to purchase the lien is not known in advance, you can request cashier’s checks made out to the county for more than the amount that you might actually pay for the tax lien. Prior to the auc�on, check with the county to make sure it will issue a refund check for the overage amount. The overage amount can be re-deposited into your IRA, as long as the appropriate procedure is followed.

Conclusion

Thanks so much for reading this special report. We hope that the knowledge that you’ve gained will assist you in becoming an informed, self-directed IRA investor.

We highly recommend reviewing your investment strategies with your tax pro-fessional and financial advisor. Just because it is tax-free or tax-deferred doesn’t always mean that it is be�er than other strategies, so make sure to run the num-bers.

Check in regularly to make sure that you avoid prohibited transac�ons (self deal-ing), perform your due diligence on any asset you wish to purchase and making sure you have con�ngency funds in your IRA or plan. Always read every document before you invest. If there is some document that you are expec�ng or was prom-ised, and was not delivered, don’t invest un�l you are sa�sfied. When in doubt ask your professional, not theirs.

By being an informed investor, knowing what the rules and regula�ons regarding your investment strategy are, and how this relates to your financial future is em-powering. You’ll know what your buying before you purchase.

The professionals uDirect IRA Services would be happy to assist you with any ques�ons you may have, or help you to open an IRA account.

Give us a call at (866) 538-3539 or visit us at www.uDirect.com.

Kaaren HallPresidentuDirect IRA Services

(877) 975-0975

turn your retirement account into a cash machine!keystone/images/turn... · investing expert kaaren...

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