As a CPA, you’re dedicated to the financial health of your clients. Be it an individual or a business, you want to see them make sound financial decisions that benefit them not only today but, in the future, as well.
However, many CPAs are not utilizing an important retirement tool that can support their clients — leveraging the flexibility of a self-directed IRA.
Here are a few need-to-know basics about self-directed accounts and how they can help your clients and your practice.
A look at the make-up of a self-directed IRA
A self-directed IRA or other self-directed account provides investors additional control over their retirement plan and its options. Self-directed accounts are available in several formats, including HSA and CESA, Roth or traditional IRA, SEP or SIMPLE, and they are generally administered by firms specializing in self-directed accounts.
However, while the firm administers the plan, the investor is responsible for all decisions related to the plan’s health and growth. This includes the investment types utilized to power the account.
Video: More Information for CPAs
This model provides both tax-free and tax-deferred solutions that can offer flexibility over other retirement plan options, and investors can use their self-directed account to invest in things like:
Real estate
This includes commercial and residential properties. You can also invest in real estate debt financing.
Business investments
This can include private stock or partnerships and joint ventures.
Precious metals
This is provided the metals are held offsite and not in the IRA holder’s possession, and that they meet the fineness requirements. Read more about the requirements here.
Other options to match a person’s passion, knowledge, or skill set
Hedge funds, royalties, equipment, leases, commodities, and commercial notes and paper are all potential investment options as well. More information can be found in IRS Publication 590.
How self-directed IRAs impact you
Now that we’ve talked briefly about how a self-directed IRA operates, let’s look at how a self-directed account could impact your business.
It’s a matter of advice and options.
While clients will still be responsible for their own investments under the self-directed IRA model, you should expect they will come to you in search of advice. Clients may have questions surrounding which nontraditional investments will be allowed by the IRS or how the rollover of their 401(k) or IRA could affect their taxes.
This leaves an expert CPA in the best position to offer evaluation and guidance on the tax impact of an investor’s portfolio.
As a CPA, enhancing your education surrounding self-directed accounts will allow you to better service clients interested in pursuing this retirement investment avenue and allow you the ability to better guide their strategy and grow your portfolio.
Here are a few ways you can provide value and improve investor loyalty:
Partnership filings. This includes filings for C corporations, LLCs, and Limited Partnerships
State and federal returns on the IRA
Preparing K-1s for applicable LLCs
Reviewing potentially prohibited transactions
Meeting valuation and 990-T requirements
Handling the C filings schedule
Facilitating other applicable investment aspects
Video: Understanding UBIT
Finding the partner to support your self-directed accounts
As we said earlier, self-directed IRAs and other accounts are administered by neutral third-party firms. If you’re looking to grow your portfolio through the offering of self-directed accounts, Equity Trust can help your business by offering this administration.
As a directed custodian, Equity Trust enables you and your clients to invest their IRAs in a wide array of assets, including the difficult-to-value assets we discussed above. So, contact us today to learn more about how a partnership with Equity Trust can expand your offerings portfolio and benefit your clients.
1
How is Equity Trust regulated?
The Internal Revenue Code sets high standards for being a qualified custodian of IRA accounts, which includes banks, trust companies and approved brokerage firms. Equity Trust Company and its affiliates have operated as a qualified IRA custodian since 1983.
Equity Trust Company operates as a trust company under authority granted by the state of South Dakota.
Equity Trust meets the state trust company capital requirements and complies with all applicable state statutes and regulations. By law, our governing bodies are mandated to conduct regular audits of trust companies performed by state auditors.
2
Are there any retirement accounts that are excluded from UBIT?
Solo 401(k) accounts are not subject to UBIT from debt-financed real estate but are subject to UBIT from an LLC or LP investment.
The UBTI amount from an LLC or LP investment is shown on the K-1 tax form sent to the IRA investor.
3
Can my IRA invest in a newly formed entity that will invest in real estate?
Yes. Investments in newly formed private entities, such as limited partnerships, limited liability companies, C corporations or land trusts, are permissible under the Internal Revenue Code, with the exceptions of subchapter S corporations.
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