Mountain West IRA - Frequently Asked Questions
If your question isn’t addressed here, please contact our office.
- Is it legal to purchase nontraditional assets using my IRA?
- Why haven't I heard about this?
- Are there a lot of people who have self-directed individual retirement accounts?
- My (CPA, attorney, broker, friend, other person), said that buying and selling real estate in my self-directed retirement plan is illegal. Why?
- How do I open a self-directed retirement account?
- How much should I have in my account to get started?
- Can I transfer the funds in my retirement plan to Mountain West IRA?
- Can I consolidate my IRAs?
- Are there different tax rules for self-directed IRAs?
- I have a 401k plan with my current employer. Can I self-direct the funds?
- What type of services does Mountain West IRA provide?
- What are the fees and costs involved?
- What kinds of investments can I make?
- What is a prohibited transaction?
- Why do I need an administrator like Mountain West IRA?
- How do I determine which retirement plan is best for me?
- What happens to the funds that aren’t invested in assets?
- How often do I receive a statement on my retirement account?
- I own a small business. Can I have a self-directed IRA?
- How do I find out what the current contribution limits are for my retirement plan?
- Where do I find more information on your workshops and seminars?
- What is Unrelated Business Income Tax (UBIT), Unrelated Debt Financed Income Tax (UDFI)?
- Can I use my 401(k) funds with my current employer to purchase self-directed assets?
- What are Required Minimum Distributions (RMD)?
- Can my IRA be sued?
- Can I borrow money from my retirement account?
- What if I don’t have enough cash to buy real estate in my IRA?
- Where can I get a loan for real estate purchases using my IRA?
- Can my IRA take a loan to enhance the purchasing power of the IRA?
- What are the limits to the investments I can make?
1. Is it legal to purchase non-traditional assets using my IRA?
The answer is yes! The Employee Retirement Income Security Act (ERISA) of 1974 passed the responsibility of retirement saving from the employer to the employee. Created in 1975, IRAs provide individuals a chance to direct where their retirement funds are invested.
The IRS code, instead of distinguishing which investments are allowed, identifies which investments are not permitted under these laws. Under both ERISA and IRS Codes, there are only two types of investments excluded: life insurance contracts and collectibles such as works of art, rugs, jewelry, etc. Refer to Internal Revenue Code Section 401 (IRC § 408(a) (3)).
2. Why haven't I heard about this?
It’s a common misconception that the only investments allowed in a retirement account are stocks, CD’s, and mutual funds. The truth is that broader investment options have been available to the public since the inception of the IRA in 1975.
The retirement industry has been dominated by large transaction-driven custodians who have focused on a narrow universe of investments. While these kinds of accounts may be right for some, they don’t offer the kind of freedom that a Mountain West self-directed retirement plan offers.
To fully maximize your investment options, you need to have a retirement plan that allows you to select your own investments. A truly self-directed retirement plan allows you the freedom to invest in many types of assets that are not prohibited by the Treasury Department regulations and the Internal Revenue Service code.
3. Are there a lot of people who have self-directed IRA accounts?
The self-directed industry is growing very strong with trillions of dollars invested in IRAs that are non-tradtional assets. There are over 50 million retirement account holders, and less than 4% of those are held in non-traditional assets. This number is expected to grow significantly over the next five years as more individuals and their financial advisors attain a greater awareness of self-directed IRAs.
4. My (CPA/attorney/broker/friend/other person) said that buying and selling real estate in my self-directed retirement plan was illegal. Why?
This has been a long-lived myth. Neither the IRS nor the Department of Labor has ever published a list of legal investments. However, there is a list of Prohibited Transactions and Disqualified Persons that deal with what is not permitted. Real estate and other investments are permitted provided you follow the rules.
5. How do I open a self-directed IRA ?
You can open a self-directed IRA by contacting our office. You’ll be asked a few questions regarding the type of account that you’d like to open. Then, we’ll provide you with the account application documents.
6. How much should I have in my account to get started?
While there is no minimum amount, the amount you should start with depends on the nature of the investment you plan to make. Most experts believe you should have at least 10% over the amount you are investing in the IRA or qualified plan for items such as property taxes, repairs or other variables that may arise.
7. Can I transfer my current retirement funds to Mountain West IRA?
Yes, our application kit contains documents that assist you in transferring or rolling over your funds to Mountain West IRA. To obtain an application kit, please contact our office or click here.
8. Can I consolidate my IRAs?
Yes. You can consolidate:
- Your Traditional IRA and SEP IRAs into a single Traditional IRA.
- A SIMPLE IRA that you have had at least 2 years to a Traditional IRA.
- Multiple Roth IRAs to a single Roth IRA.
Complete this process simply by filling out a funding form.
9. Are there different tax rules for self-directed IRAs?
The unique thing with IRAs and 401(k) are the tax advantages. Most contributions are either tax deductible as is the case of a Traditional IRA or 401(k) or the distributions are tax free as in the case of a Roth IRA or Roth 401(k). There are no unique rules for self-direction.
10. I have a 401(k) plan with my former employer. How can I self-direct the funds?
You can self-direct the funds by rolling over your account into a Traditional IRA or a 401(k) plan (if you are eligible to have a qualified plan) that permits complete self-direction, such as a Mountain West self-directed IRA. Contact your former employer's plan administrator or benefits department to determine what, if any, special procedures may be required. Use our funding form to carry out the rollover from your former employer's plan, as well as any other special forms required.
If you are still employed, check with your current plan administrator to determine if self-direction is currently allowed within your plan or if this option can be added.
11. What type of services does Mountain West IRA provide?
Mountain West IRA is a retirement plan record keeper for self-directed IRAs. We offer the same retirement plans as other plan administrators with one exception – we walk you through and explain the process of how to purchase the investments that you choose with your IRA funds.
Our office will help you ensure that your investment is purchased quickly, safely, and accurately. As your account administrator, we don’t tell you what to invest in; rather, we guide you in your transaction purchases.
12. What are the fees and costs involved?
For a list of our fees, please see our Self Directed IRA Fee Schedule.
13. What kinds of investments can I make?
You may invest in anything which is not prohibited or collectible as defined by the Internal Revenue code. For a list of investment options, please visit the investment options section of the site.
14. What is a prohibited transaction?
There are some transactions that are prohibited by the Department of Labor EIRSA division and the IRS. There are basic requirements and procedures needed to apply for exemptions from the prohibited transaction rules (includes ERISA and non-ERISA plans and Individual Retirement Arrangements). If you are considering this, please contact us.
15. Why do I need an administrator like Mountain West IRA?
The Internal Revenue Service requires a custodian to hold the IRA assets and the custodian is required to report transactions on the account. Due to some of the nuances with self-directed accounts, a majority of custodians do not accept these types of assets. Mountain West IRA performs the record keeping as a nominee of our custodian Sterling Bank. We handle these requirements in an effective and efficient manner.
16. How do I determine which retirement plan is best for me?
The factors to consider are:
- Your age
- Your contribution and deferral capability
- Whether you have common-law employees
- When you wish to retire
- Your tax situation
Seek to make the highest contribution to your retirement plan that you can. Then choose the plan that will give you the most flexibility.
You can review our retirement plans section for more information regarding plan types and contribution comparisons.
You should also seek the services of a tax professional to assist you in the proper selection of the plan best suited for you.
17. What happens to the money that isn't invested in assets?
All undirected cash is held for your benefit in our 100% FDIC-insured custodial bank account at Sterling Bank.
18. How often do I receive a statement on my accounts?
Normal cycles are quarterly, although you may receive a statement at any time you wish. If you elect to enroll in online statements, you can view your account at any time.
19. I own a small business. Can I offer self-directed IRAs to my employees?
If you have no common-law employees, employees who are not spouses, owners or partners, the best plan may be the Individual 401(k), which permits the highest aggregate percentage of contributions and flexibility. The administration is straightforward and you are the trustee, custodian and administrator, unlike IRA plans.
Plans that we act as record keeper on where an employer could invest for employees are SEP Simplified Employee Plans.
Plans that we act as record keeper on where employers and employees can contribute include a Simple Plan.
For more information on the types of retirement plans for small businesses, please check the Retirement Plans section of this site.
20. How do I find out what the current contribution limits are for my retirement plan?
You can find out the contribution limits for your age and retirement plan in the Retirement Plans section. You can also find the contribution limits at www.irs.gov.
21. Where do I find more information on your workshops and seminars?
Visit our Event Center.
22. What is Unrelated Business Income Tax (UBIT), Unrelated Debt Financed Income Tax (UDFI)?
UBIT comes in two forms. Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income Tax (UDFI).
UBIT applies to IRAs invested in entities that do not pay taxes (such as many LLCs) that are an operating entity of a business that produces in excess of $1,000 per year in income.
UDFI relates to an individual retirement account that has a debt financed portion. The UDFI tax is based on income from the Debt Financed portion provided that the net gain is more than $1,000 in a year.
Preparation of the 990-T tax forms is performed by you. The trustee or custodian or appropriate agent will file such taxes and sign the tax forms on behalf of your plan.
23. Can I use my 401(k) funds with my current employer to purchase self-directed assets?
Possibly. If the company has a self-directed 401(k), you may have the ability to self-direct your 401(k) into these types of investments. If not, you can check to see if your plan allows for in-service distributions to a self-directed IRA. To be certain, contact your current 401(k) administrator.
24. What are required minimum distributions?
Required minimum distributions (RMD) are the minimum amounts that must be distributed to you from your retirement account(s) after you reach age 70 ½ (with the exception of the Roth IRA).
25. Can my IRA be sued?
Your IRA may be subject to legal action. Individual retirement accounts are not always exempt from creditor claims, and are never exempt from federal or state taxing authorities; however, most states do not permit creditors to collect from IRAs.
26. Can I borrow money from my IRA?
You may not borrow funds personally from your IRA under any circumstances. This is a prohibited transaction. You may lend to any person other than disqualified persons or companies.
27. What if I don’t have enough cash to buy real estate in my IRA?
You may partner with yourself or others; you make allowable contributions; you may obtain debt financing through private sources or financial institutions on a non-recourse basis; You may arrange a seller carry back loan; you may sell other assets in your IRA to raise cash to make the purchase; you may transfer funds from other IRAs or rollover funds from qualified plans, such as 401k, 403(b) or 457(b) plans you may have at employers where you no longer work; If you have a profit sharing portion of 401(k) plan where you currently work, you may be able to make in-service rollover distributions to a My Wealth IRA.
28. Where can I get a loan for real estate purchases using my IRA?
Normally private lenders, seller carry backs, and mortgage companies may lend to your IRA on a non-recourse basis. Sometimes banks and credit unions may make non-recourse portfolio loans to IRAs.
29. Can my IRA take a loan to enhance the purchasing power of the IRA?
Yes the IRA can. However, the loan must be a non-recourse; which means no personal guarantee by the IRA holder or any other disqualified persons.
30. What are the limits to the investments I can make?
You cannot invest in Collectibles or Life Insurance Contracts. There are also certain transactions in which you cannot participate when using IRA funds. These transactions are referred to as “prohibited transactions”. Prohibited Transactions are defined in IRC § 4975(c)(1) and IRS Publication 590. These transactions were established to maintain that everything the IRA engages in is for the exclusive benefit of the retirement plan.
Sometimes professionals refer to these as “self-dealing” transactions. Self-dealing happens when an IRA owner uses their individual retirement funds for their personal benefit instead of benefiting the IRA. If you violate these rules, your entire IRA could lose its tax-deferred or tax-free status. It is important that you work with a competent Retirement Account Facilitator such as Mountain West IRA to avoid violating these rules.
As an IRA record keeper, Mountain West IRA does not affiliate itself or make any recommendations to any person or entity associated with investments of any type (including financial representatives, investment promoters or companies, or employees, agents or representatives associated with these firms). Mountain West IRA is not responsible for and is not bound by any statements, representations, warranties or agreements made by any such person or entity and does not provide any recommendation on the quality, profitability or reputability of any investment, individual or firm. In this statement, the terms "we" and "us" refer to Mountain West IRA.