With the advent of the Internet, more information has become available for investors on the concepts and strategies that can be deployed within self-directed IRAs. Unfortunately, the growing popularity has also led to a lot of misinformation, myths, half-truths and flat-out wrong statements about self-directed IRAs.
To combat some of the biggest misstatements about self-directed IRAs, and in order to help investors avoid penalties here are three of the most common misconceptions about self-directed IRAs and the truth regarding them:
Taxes and penalties are associated with rolling funds over into IRA accounts for real estate purchases
This is a common issue when consulting with many CPAs or financial advisors. Accountants will often say that by rolling over your account into a self-directed IRA in order to purchase real estate, you’re going to create a taxable situation. The truth is that due to the Employee Retirement Income Security Act of 1974, your IRA is considered a tax-free environment. This means that as long as you’re using your self-directed IRA correctly and investing in the proper vehicles, all profits generated are tax-free.
You must have an LLC in order to invest in an alternative investment with an IRA
You do not need an LLC to invest with a self-directed IRA. The notion that you do is associated with the marketing of product by companies that offer to set-up the LLC for investors. Also called a “checkbook-controlled IRA”, certain providers with set-up a single-member LLC is created, funded by an IRA and the managing member is the owner of the IRA. This is not necessary and can potentially cause problems for an investor – for details, access “10 Myths about Checkbook Control – Exposed.”
Reporting IRA activity to the IRS requires special paperwork when investing with real estate
Quite simply, according to Federal Law you’re not required to report any income or loss associated with your self-directed IRA on an annual basis. There are only two times you need to report information associated with your self-directed IRA:
When you file your personal return, you show how much you contributed to that IRA.
When you distribute the funds associated with your IRA for non-investment purposes, you report this on your personal return.
If you’ve run into one or all of these situations or are intimidated by the idea of getting started with your self-directed IRA, we have an online webinar training you have to attend.
On Thursday, February 7, Equity Trust is offering a free webinar titled: “5 Real Estate IRA Myths Busted.” National Education Specialist John Bowens will help debunk many of the more common misconceptions around real estate and your IRA so you can have the confidence to jump into that first self-directed deal.
This hour-long presentation is jam-packed with insights that may have kept you from investing using a self-directed IRA. Let the professionals at Equity University set you straight so you can start making money today!
Sign up for this informative webinar now!