Read some of the most frequently asked questions from clients and potential clients. This is a great way to start with your education about self directed accounts and the benefits of using CamaPlan as your administrator. It’s great to learn from your mistakes but it is better and less expensive to learn from other peoples mistakes. If you don’t get your questions answered please set up a complimentary phone call with one of our knowledgeable account executives 866-559-4430.
Disclaimer: These questions should be reviewed with your accountant or other professional tax advisor. More details are needed to accurately the answer questions you posed. The good news is not many IRAs are audited but that also means there are not a lot of precedents set, thus a fair amount of grey area exists.
What if I miss a Webinar I signed up to watch?
If for some reason you miss the live recording of a Webinar or you know in advance you will not be available to view, please have no fear! All webinars will be available within 48 hours of their original recording time, and since you signed up to watch via email, we will send you the link to view it as soon as it becomes available! If you did not sign up via email, please follow this link to the media library to view the recorded webinar you desire to watch.
**Please make sure you are accessing the recorded webinar at least 48 hours after the original debut, or it may not be available yet.
How do I sign up to view Webinars?
Webinars, first and foremost will always be sent to recipients of our email marketing. If you are not currently on our email list, please refer to our Events Page to choose the webinar you would like to be invited to. Once you have signed up, a unique link will be sent to the email address you have provided to connect you to the webinar. There will be an initial email, at the time you requested access to said webinar; an email reminder the day before, as well as an email reminder 1 hour before the webinar begins.
Once the webinar is over, it will be uploaded within 48 hours to view if missed, or to re-watch. A link will be sent via email for this as well.
**Please note: Once you have signed up for any webinar, we will continue to inform you of new webinars on the calendar moving forward, you can unsubscribe at any time.
Coronavirus-Related Distributions and Repayment
Q1: What is a Coronavirus-related Distribution?
Answer: A14 A Coronavirus-related Distribution (CRD) is a distribution made on or after January 1, 2020 and before December 30, 2020 to a qualified individual from an IRA, qualified plan, 403(b), or governmental 457(b) of up to $100,000 in the aggregate for any taxable year.
Q2: What defines a “qualified individual”?
Answer: A qualified individual is a person who meets one or more of the following conditions due to SARSCoV- 2 or COVID-19:
1) diagnosed with the virus (via test approved by CDC);
2) spouse or dependent is diagnosed with the virus (via test approved by CDC);
3) experiences adverse financial consequences as ©PenServ Plan Services, Inc. CARES Act Q&As (04-2020)(7-2020) 3 a result of one of the following factors: quarantine, furlough, layoff, or reduced hours due to COVID-
19; being unable to work due to lack of child care due to COVID-19; or closing or reducing hours of a
business that you own or operate due to COVID-19. Additional factors released in IRS Notice 2020-50 include:
4) the individual having a reduction in pay (or self-employment income) or having a job offer rescinded or start date for a job delayed due to COVID-19; 5) the individual’s spouse or a member of the individual’s household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; and 6) closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.
For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.
**Note: Notice 2020-50 also clarifies that the plan may rely on participant certification that those condition(s) are met unless the administrator has actual knowledge to the contrary.
Q3: Can you take a Coronavirus-related Distribution from a Roth IRA?
Answer: Roth IRAs were not listed as eligible plans for Coronavirus-related Distributions. However, under the ordering rules for distributions, unless the taxpayer also receives earnings, nothing is taxable or subject
to the 10% premature distribution penalty.
Q4: Can you take more than one CRD from the same plan if you do not exceed the aggregate amount of $100,000?
Answer: A participant may take multiple CRDs, but the total amount from all eligible sources cannot exceed $100,000.
Q5: Is there any special tax treatment applicable to a CRD?
Answer: The 10% additional tax on early distributions does not apply; the amount of the CRD can be included in income over a three-year period; and such amount can be repaid to an eligible plan within three years of the distribution.
Q6: Is self-certification for a CRD from an IRA required by the Trustee/Custodian/Issuer?
Answer: It is unclear at this time if IRA sponsors must collect this information. A best practice is to have the participant sign a form certifying they meet one or more of the conditions listed. For example, IRA distribution requests can be updated to reflect such certification, as permitted under Section 2202 of the Act.
Q7: Must plan administrators certify a CRD? If so, is an election form required to make it clear that the participant is requesting a CRD?
Answer: Administrators must know that a distribution is a CRD, but the participant will self-certify that information. Otherwise, it would be necessary for the payer to withhold, provide the withholding notice, etc.
Q8: Is a CRD mandatory or optional?
Answer: CRDs are optional from employer plans, but they are automatically permitted from IRAs
Q9: If an employer plan permits CRDs, is it possible that the plan’s terms will preclude the distribution?
Answer: The plan sponsor can lift in-service distribution restrictions to make way for a CRD. The CARES Act eliminated restrictions that normally apply to elective deferrals, QNECs, QMACs and ADP test safe harbor contributions. However, pension plans (e.g. Money Purchase plans, Defined Benefit plans) still may not permit in-service distributions.
Q10: Are CRDs available to terminated participants?
Answer: Subject to employer approval, terminated participants who qualify may treat a distribution as a CRD and utilize the special tax treatment affordable to these payments.
Q11: Can defaulted loans be considered as Coronavirus-related Distributions?
Answer: A qualified individual is permitted to treat a qualified plan loan offset in 2020 as a CRD, and the CRD repayment and deferred taxation options would be available to them. The taxpayer will need to ensure that the 1099-R does not report the transaction using a Code L. Caution: This is not the same as an actual defaulted loan that causes a “deemed distribution” as described under § 1.72(p)-1 Q&A 10. Non-qualified individuals, can also apply the qualified loan offset distribution rules. In this case, the individual has until the due date to file their tax return (April 15, 2021) plus extensions (October 15, 2021) to complete a rollover of the defaulted amount.
Q12: Can a participant take both a CRD and a loan from the same employer’s plan?
Answer: Yes. Since a CRD is not considered a hardship distribution, it does not interfere with the ability to also take a loan from the same plan.
Q13: Aparticipant, who is a qualified individual, is currently on a Substantially Equal Periodic Payment (“72(t) distribution”) schedule to avoid the 10% premature distribution penalty. Will an additional amount distributed that is a CRD from the same account hinder the SEPP?
Answer: No. IRS Notice 2020-23 makes it clear (and IRS Notice 2020-50 clarifies) that the restrictions under 72(t)(2)(A)(iv) do not apply.
Q14: Can a non-qualified individual taking SEPPs either take additional amounts from the same account or
miss taking a payment without incurring a penalty?
Answer: Non-qualified individuals have relief from the restrictions under 72(t) that preclude modification, but only for the period between April 1 and July 15, 2020.
Q15: When both spouses are plan participants, but only one is a qualified individual, can they choose to take
a CRD only from the account of the non-qualified spouse?
Answer: The criteria states that the participant “Experienced an adverse financial consequence as a result of being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19 or SARS-CoV- 2”. However, in the case of a married couple filing a joint return, one could argue that they are jointly
experiencing an adverse financial consequence. IRS must clarify if this is applicable.
Q1: What are the options to repay a CRD?
Answer: A CRD can be directly repaid (i.e., rolled over) to any IRA or other eligible plan that accepts rollovers. Unlike a regular eligible rollover distribution, however, a plan is not required to offer a participant receiving a CRD with a direct rollover option. While an employer plan has the ability to disallow
repayment to the same plan, the participant could then repay to an IRA or other eligible plan.
Q2: If a participant took a Required Minimum Distribution in 2020 that is beyond the 60-day rollover window, could it be treated as a CRD and therefore be repaid within three years?
Answer: If the participant meets the requirements to receive a CRD, then the RMD can be treated as a CRD in all respects, including the 3-year repayment periods.
Q3:Can a CRD from a pre-tax account be repaid to a Roth IRA and have the transaction treated as a
conversion for purposes of the 3-year tax spread?
Answer: Notice 2020-50 states that “an individual who is a qualified individual as a result of experiencing adverse financial consequences as described above, coronavirus-related distributions are permitted without ©PenServ Plan Services, Inc. CARES Act Q&As (04-2020)(7-2020) 5 regard to the qualified individual’s need for funds, and the amount of the distribution is not required to correspond to the extent of the adverse financial consequences experienced by the qualified
individual.” This can be interpreted to mean that the participant does not need to take constructive receipt of the funds, rather convert them directly into a Roth. Absent further guidance, this seems to be permissible, but since it seems contrary to the purpose of a CRD, proceed with caution.
Q4:For recordkeeping purposes, how is the repayment of a CRD characterized?
Answer: The repayment of a CRD is regarded in the same way as a direct rollover.
REQUIRED MINIMUM DISTRIBUTION WAIVER
Q1: Are all Required Minimum Distributions (RMDs) waived for 2020?
Answer: All RMDs are waived for the calendar year 2020, including for a participant whose required beginning date is in 2020 (e.g. initial year 2019 RMDs due by April 1, 2020).
Q2: Does the RMD waiver apply to employer plans as well as IRAs?
Answer: In addition to IRAs, for calendar year 2020, any RMD required under a 403(b), qualified plan, and governmental 457(b) is also waived. However, Defined Benefit and Cash Balance plans are not included in the temporary waiver. Also, employers have the opportunity to allow the waiver to apply to all participants/beneficiaries, to continue to distribute minimums, or to let each participant/beneficiary make the decision.
Q3: Does the RMD waiver include beneficiaries with inherited accounts? What about if the beneficiary is a
non-designated beneficiary such as an estate or trust?
Answer: Inherited accounts, regardless of whether the beneficiary is a designated or a non-designated beneficiary, are exempt from taking a required distribution for 2020.
Q4:If a beneficiary has already received the 2020 RMD, but meets the criteria of a qualified individual, can
they treat the RMD as a CRD?
Answer: A beneficiary can treat the RMD as a CRD for purposes of the 3-year tax spread. However, only a spouse beneficiary can roll back the payment within the 3-year period. Non-spouse beneficiaries cannot unless future guidance states otherwise.
Q5: Is the provision to waive the 2020 RMD only available to persons affected by the COVID-19 epidemic?
Answer: This does not apply only to qualified individuals affected by COVID-19, rather for all participants.
Q6: Will IRA plans need to be amended to reflect the 2020 RMD waiver?
Answer: IRA plans cannot be amended until IRS updates their model IRA forms.
Q7: Should employer plans be amended in connection with the decision regarding the RMD waiver?
Answer: The language in the plan relative to RMDs will dictate the necessity of an amendment. The plan must coordinate with what occurred operationally in 2020. Employer plan amendments will generally be required by December 31, 2022 (December 31, 2024 for governmental plans). IRS Notice 2020-51
provides guidance on the 2020 RMD waiver, including sample amendments.
Q8: In employer plans, does the RMD waiver apply equally for owner and non-owner employees?
Answer: The 5% owner rule has no bearing on the moratorium. Owners are not precluded from the waiver.
Q9:Is there a requirement to carry over the 2020 RMD to a subsequent year?
Answer: The 2020 RMD does not need to be made up in any future year.
Q10: How is a 5 or 10 year payout schedule for a beneficiary affected by the 2020 RMD waiver?
Answer: Only the 5 year payout schedule was included in the Act, essentially extending it by one year. However, the 10 year period created under the SECURE Act was not mentioned. This may be addressed later.
Q11:Can RMD amounts already taken be rolled back to the plan or IRA?
Answer: RMDs taken at any point during 2020 can be rolled back into an eligible plan. IRS Notice 2020-51 provides an extension to roll back any RMD taken on or after January 1, 2020 by August 31, 2020 without regard to the 60-day deadline that applies to IRA to IRA rollovers. RMD amounts that are received after August 31st are still eligible for rollover, but are subject to the normal rollover restrictions. Employer plans must permit the rollover. Otherwise, the RMD can be rolled over into an IRA.
Q12: If a 2020 RMD from an IRA is rolled back to the same or a different IRA, will that action count toward
the rule that prohibits more than one IRA to IRA rollover in a 12-month period?
Answer: IRS Notice 2020-51 waives the 12-month rollover restriction that applies to IRA to IRA rollovers.
Q13: If an RMD was already paid out to a beneficiary, is it eligible to roll back into the inherited IRA account?
Answer: Typically, nonspouse beneficiaries cannot perform a rollover back into the inherited IRA, but Notice 2020-51 also provides an exception to that rule.
Q14: Does the RMD suspension for 2020 affect Qualified Charitable Distributions in any way?
Answer: QCDs are not affected by the CARES Act. As it related to the change in RMD age under the SECURE Act, the participant can still request a QCD at age 72 even if they do not have an RMD.
What is an accredited investor?
Click here for more information.
What is Earned Income?
What to do if debtor doesn’t repay a loan to your IRA?
Any amount of money that your IRA may loan to an individual or business and do not receive back qualifies as an un-collectible debt because it was once included in your income. When you write off a bad loan in your Roth IRA you may be able to recover some tax deduction, however in a traditional IRA it is less likely you will recover any tax deduction because you never paid tax on the loaned money..
- Make a copy of the original loan agreement between yourself and the debtor. You must demonstrate to the IRS that you fully expected the debtor to repay the amount borrowed.
- Make copies of any proof that demonstrates that the debt is worthless. Although proof is not required, it supports your claim that the debt was once valid. An example of proof is a certified copy of a court judgment against the debtor for the unpaid loan balance.
- Subtract any funds the debtor has already paid you from the total amount you originally loaned him. The resulting number is the amount of your bad debt deduction.
- Write a statement to the IRS that includes any details about the loan that were not included in the original loan contract. If you do not have written proof that the loan debt is worthless, you may use the letter to notify the IRS of the reasons why you believe the loan is uncollectible.
- Send the debtor and IRS a Form 1099-C, Cancellation of Income form, if the loan balance totals $600 or more. Once the debtor receives the Form 1099-C, debtor must include the unpaid balance of the loan in the debtor’s annual income when debtor files the annual tax return.
The IRS then assumes the responsibility of collecting the remainder of the loan and or tax from the debtor.
Provide this information to your administrator/custodian and your asset should be re-valued or removed from the account.
- You do not have to wait until the debt becomes worthless to claim it as worthless. If you have a legitimate reason to believe that the debtor will not be able to make payments on the debt, such as if the debtor files for bankruptcy, is convicted of a felony, you may assume the debt is worthless and claim it as uncollectible debt. Verify with a tax professional to determine the extent of possible tax deductions.
Why we don’t pay interest on cash balance?
This is self-direction , where clients can put their money anywhere they want it. The money has to be available to make a purchase at a moment’s notice. The interest the banks are paying is very low and we must maintain funds in FDIC insured institutions. If interest rates rise significantly, we may consider providing interest. This is covered in the account application documentation. Most of our clients find it better to find another investment that provides a significant yield improvement.
What to do with an account when the account holder passes away?
When the account holder passes away, the beneficiary needs to send us an original copy of the account holders death certificate. Then the account needs to be changed into the beneficiary’s name. They must open an account with us to formally inherit the IRA.
Spouses who inherit an account are not required to open a beneficiary/ inherited account, whereas non- spousal beneficiaries (children, siblings or others) would open up a beneficiary account which is subject to Required Minimum Distributions (RMD’s).
If there are alternative assets in the account, such as property, notes or private placements, they can be moved over into the inheritors account while any retitling documents are being processed. Once the retitling of the asset is finished, CamaPlan requires copies of the documentation.
How do I open a fund and account?
Can I transfer or rollover a Roth IRA to a Roth 401k?
No, a Roth IRA can only be transferred or rolled into another Roth IRA. IRS Publication 590 states that a Roth IRA cannot be transferred/ rolled over to an employer retirement plan. For more information click here.
What happens to your HSA when you die?
It’s up to you to decide .When you open an HSA, you will be asked to designate a beneficiary who will receive the account at the time of your death. You can change the beneficiary or beneficiaries any time during your lifetime, though some states require your to have your spouse’s consent. Find out more.
What is the difference between a Transfer and a Rollover?
Transfer – This is a trustee-to-trustee exchange of funds. You have an unlimited number of transfers. This is a transfer between like accounts such as an IRA to IRA or Roth to Roth. This is not for a 401(k) to IRA.
- A transfer request is submitted from the custodian/administrator when you would like to bring your money. It is required to have a signed acceptance letter from the accepting custodian/administrator.
- Some custodian/administrators require a Medallion Signature Guarantee Stamp in order to process a transfer request. This is to provide security for the client. You can get a Medallion Signature Guarantee Stamp from most national banks. They will need to watch you sign the form and verify your identity (like a notary would).
- Some custodian/administrators require a mailed original form, so they have the best version of your signature to compare to your signatures on file.
- Some custodian/administrators require both the Medallion signature guarantee stamp and original forms, while some do not require either.
- For an efficient transfer process in the shortest amount of time, it is best for the client who would like to have funds transferred, to ask their current custodian/administrator what they require to transfer the funds.
Rollover – A process when funds are moved from one account to another. This is a recordable event and can be sent to either the client or another custodian/administrator. This is best suited for moving funds from a qualified plan (401(k), 403B, Profit Sharing Plan…Etc) to an IRA or vice versa. It can also be done for an IRA to IRA transaction. You must initiate a rollover with your current custodian/ administrators.
- Direct Rollover – This is a rollover trustee to trustee. You would provide your current custodian/administrator with your new account number and request the funds be directly sent to the new custodian/administrator. You may need wiring instructions or check/mailing instructions.
- Indirect Rollover – This is the process when your current custodian/administrator send you funds personally. You then have 60 days to deposit the money in a retirement account. If you do not have the money in a retirement account before 60 days, you may be responsible for taxes on the funds. You can only do one of these per year.
Do I need an EIN/ TIN, and why?
Yes, it is best to have an EIN/TIN for real estate primarily because more and more utility companies require it for services, local governments need them for privilege tax, occupational licenses for rentals, use and occupancy licenses, water and sewer, etc. This has been getting worse and worse in the last decade.
We would use the CamaPlan companies TIN years ago but then it started to create problems. Example: A client would not pay a water bill and another client would be harassed when buying a property or selling property because of another clients’ outstanding balance.
In addition, if you ever get a non recourse loan you will also need the TIN for reporting on 990T IRS form.
I also believe it better protects your FDIC insurance by not confusing it with your social security number.
When applying for the number make sure the IRS is not expecting an IRA tax return.
Does the new DOL rule change anything for my CamaPlan account?
The new DOL rules going into effect 6/9/17 does not affect CamaPlan-CamaPlan has always had all the fees identified on 1 or 2 sheet and signed by the client at the opening of their account. We applaud the new rules because we saw so many people being duped by the “FREE” account scenario many brokerage houses were espousing. We are record keepers and give no advice and thus do not have any fiduciary responsibility for any investments. Our clients are coached to do their own due diligence.
Do I need to file state or local tax returns for property owned by my self-directed IRA or 401(k)?
Traditionally, entities exempt from having to file federal tax returns were also exempt from having to file state and local returns. But some local jurisdictions, including the cities of Philadelphia and Detroit, among others, now require returns as they seek to account for income generated within their borders. This may become more prevalent as city budgets and associated deficits continue to grow. The tax or filing requirement will have different names depending upon jurisdiction similar to the ‘business privilege tax’.
So we recommend contacting municipal authorities where your properties are located for information about requirements, and then consulting your accounting and tax advisors. This is a good time to get a separate Taxpayer Identification Number (TIN) for your account in case you need to file.
Can I use borrowed money to purchase property within my Roth IRA?
Yes, we have many clients that do this type of investing. You can use borrowed money if your Roth IRA is the borrower (not you personally) and your Roth is also the owner of the property purchased. When an IRA borrows money to purchase real estate it most likely will be subject to taxation of a percentage of the borrowed amount –again this would be done through IRS form 990T and called Unrelated Debt Financed Income (UDFI), subject to taxation at trust rates. Many clients structure deals in different ways to minimize taxes, as an example instead of borrowing money in the above example– sell part of the deal and UDFI may not apply.
If I flip in my IRA, does anything need to go on my 1040?
Not necessarily on your 1040 but you may have to fill out a tax return for your IRA, Form 990T. I suggest you read the IRS 990T instructions. The IRS gives the IRAs exemption for owning real estate as an investment, but your real estate may instead be classified as inventory in a business because you flip it. Questions like how many houses constitute a business, how to establish intent to own real estate and what time frame for holding property appropriate to avoid having it classified as inventory is best discussed with your professional tax advisors and we would be happy to assist you in any way. If you are at the top of IRS tax bracket these concerns are most likely moot. If you don’t need the additional income to live on then it probably makes sense as a rule of thumb.
How long does it take to set up a Roth IRA?
A Roth IRA can be established in 48 hours and we usually see money transferred in 2-4 weeks from your existing custodian.
Why does CamaPlan require so much personal information to open an account?
- Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. This is to minimize money laundering, terrorist funding , and other goals of the government laws such as the Patriot Act.
- When you open an account, we will ask for your name, residence address, social security number, date of birth, occupation, and other information that will allow us to identify you.
- We will ask for copies of your passport, driver’s license, social security card and other identifying documents. Your account name needs to match your social security card otherwise you may be fined (presently $100).
- We are required to compare your identity to lists of persons and organizations maintained by federal agencies designated by the Department of the Treasury and/or Homeland Security(such as OFAC). If your name appears on any of these lists, we must refuse to open your account, close your account if it is already open, notify federal authorities, and follow all federal directives.
- If you attempt to falsify or conceal your identity, we may be required to file documents such as a Suspicious Activity Report.
Are there income limitations for contributing to a SIMPLE IRA?
Yes — if you choose nonelective contributions. Instead of matching contributions, an employer can choose to make nonelective contributions of 2% of each eligible employee’s compensation. If the employer makes this choice, it must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. An employee’s compensation up to $250,000 (for 2012; $255,000 for 2013) is taken into account to figure the contribution limit.
If the employer chooses this 2% contribution formula, it must notify the employees within a reasonable period before the 60-day election period for the calendar year.
What is a self-directed IRA?
Who is CamaPlan?
Where are you located?
What kind of IRAs, 401(k)s, or other types of plans can be self-directed?
What can a self-directed IRA invest in?
What does the IRS prohibit?
How long have self-directed IRAs been able to invest in non-traditional assets?
Why haven’t more people heard about this and is it legal?
- Most professional advisors, financial planners and/or accountants are not taught this for whatever reasons. In many cases, when CamaPlan conducts education courses for these professionals, it’s the first they’ve heard of it. We provide education credits for attorneys, CPA’s, CFP’s and realtors.
- If an advisor is selling products like mutual funds and life insurance, in many cases they are getting commission on those products. They would not have an incentive to encourage a client to invest in non-traditional assets such as real estate unless they were acting as real estate agents or real estate brokers. Quite simply, there may be a conflict of interest.
- Many realtors are unaware of the benefits for their clients looking for investment properties. Realtors should be telling their clients about this because it could mean buying a higher priced property or multiple properties, which ultimately leads to higher commissions for them.
How do I open and fund an account?
What are the fees to open an account?
What happens to my un-invested funds?
How do I buy a piece of property in my IRA/401(k)?
Can I consolidate my IRAs?
Are there any special rules required by the IRS when you make these investments?
Who in my family is considered a disqualified person?
What about Unrelated Business Income Tax?
I’ve heard of people putting more than the annual contribution into their Roth IRAs in a year – how is that possible?
Why do people say tax-free or tax-deferred investments build wealth?
Are non-traditional investments right for everyone?
Why would an investor want to use their IRA or 401(k) plan to buy real estate?
Many clients already know the benefits and risks of investing in real estate, especially income-producing properties. There are a few key benefits for the investor using an IRA or 401(k). The investors are in total control, they dictate the rate of return, they feel they have less risky investments, and have less anxiety as opposed to the “hope is my strategy” approach.
- The investment gains from that property will go directly back into their IRA or 401(k) on a tax-deferred basis. Every year, the gains will compound or grow in a tax-free environment, which leads to tremendous wealth accumulation over time.
- Successful real estate investors can apply the same great returns they’re getting with their cash investments to their retirement savings plans.
- Many new investors can actually get started in this market by tapping into this money they’ve saved over time. In many cases it allows investors to buy properties they weren’t considering before, especially if they partner their IRA or 401(k) funds with more knowledgeable investors.
Do you sell any non-traditional investments? Are you going to be calling me with a deal every week?
No – we are a neutral third party. We do not sell any products, nor give investment advice to our clients. We specialize in the use of tax-free and tax-deferred retirement and savings plans, and only provide that service, along with bookkeeping and required IRS reporting.
We take the privacy of our clients seriously, and we will never give away or sell your information to outside sources.
I have a self-directed account with my broker – can I use it to buy real estate or other non-traditional assets?
Most likely not, but you can always ask. Most brokers allow you to “self-direct”, but only in products they sell. You can transfer all or part of your account funds to a CamaPlan account that allows for true self-direction, and then invest.
Is it true that you need less money in retirement then when you are working?
That is a personal choice. The majority of our clients think that the opposite is true. In fact, you will most likely need more money. You will only need less money when you retire if you are lowering your standard of living. Real estate taxes, income taxes, cars, gas, medical expenses, clothes, food, medicine, and insurance seem to always be increasing. Has anything gone down in price in recent years?
What is the difference between the 401(k) Roth and the Roth IRA?
Income limits apply to the Roth IRA, but not the Roth-like 401(k). Contributions for the Roth IRA are significantly less than for the 401(k). Retirement age for the 401(k) can be 55 years, while the IRA is 59.5 years. UBIT/UDFI may not apply in some cases with a 401(k), but would with respect to a Roth IRA. Also, RMD’s are required with a Roth-like 401(k) but not a Roth IRA for the plan owner.
What is the difference between a Traditional IRA and a Roth IRA?
Income deduction may apply with traditional IRA contributions, but not with Roth contributions. Both have earnings that are tax-deferred. Roth earnings and contributions are tax-free with qualified distributions, whereas Traditional IRA distributions are taxed at the owner’s tax rate as ordinary income. Roth contributions can be withdrawn at any time without penalty or taxation. Traditional IRA’s require mandatory distributions at 72 years of age; the Roth IRA does not. A person can contribute after 72 years old to a Roth, but not a Traditional.
What is the difference between 1031 exchanges and self-directed IRAs?
Both are tax-saving, wealth-building tools. 1031 exchanges have time constraints that are sometimes a problem. They are not mutually exclusive, so you may use them both. 1031 exchanges are used for properties an entity already owns and wants to sell and defer taxes. IRAs are used to defer earnings and build retirement wealth, and are used for ongoing investments.
What do you think about Health Savings Accounts? Can they be invested in notes, mortgages, real estate, etc?
HSAs are great – there is a tax deduction going in, and the money is tax-free coming out; it doesn’t get much better than that! You can spend that cash on eye glasses, dental procedures, etc. HSAs can be self-directed and can be used at any time. Most of our clients keep their contributions to build wealth more quickly and pay any deductibles from other available funds. You should discuss the merits of an HSA with your professional advisors in the tax and insurance fields.
What is an ESA or Coverdell account?
An Educational Savings Account is a tax-free vehicle used to save for educational purposes. Contributions can be made up until the age of 18 and must be used prior to the beneficiary reaching age 30. ESAs may be transferred to other relatives as circumstances warrant.
Can your IRA invest in foreign properties or entities?
Yes, if they are not considered terrorist or disallowed countries. We have many clients with investments outside of the US, including Mexico, Canada, Europe, the Caribbean, etc.
Can my IRA buy a house and rent it? Who gets the rent and who pays the bills/expenses?
Yes – your IRA gets the rent and is responsible for all expenses. CamaPlan will help you set everything up.
I have a 401(k) where I currently work. I would like to use those funds to invest in real estate on a tax-deferred basis. How do I proceed?
The 401(k) Plan Document or Summary Plan Description will specify whether you have complete self-direction (including real estate and notes). You should ask your plan administrator or Benefits Department at your place of employment about the investment options available. If you have a profit sharing, money purchase or defined benefit plan, the same applies.
Your plan may permit you to roll eligible funds from your 401(k) or other qualified plan account to a self-directed plan that permits complete investment flexibility. Again, your plan administrator or Benefits Department can provide you guidance.
CamaPlan would be glad to talk to your Benefits Department or the CEO to discuss the merits of incorporating true self-direction.
May I have a company that I own fix up the property that I have in my IRA/401(k)?
The IRS code on prohibited transactions precludes such an activity by an owner. This would mean providing a service and receiving a benefit from your plan or account to which you are not entitled, and are specifically prohibited. There are specific rules regarding ownership and what is a party in interest transaction, and who may or may not provide such services.
There are private letter rulings which have been obtained in the past permitting latitude under certain circumstances. Private letter rulings may be obtained by application to the IRS.
There are specific rules regarding taxation of prohibited transactions, which include a 100% tax if a prohibited transaction is not corrected in a taxable period, and a 15% tax on the amount of the prohibited transaction. Additional rules apply to IRAs established by employers, which disqualify the entire IRA. See IRS code section 4975 for more information.
What about Required Minimum Distributions (RMD’s)?
RMD’s are required from all Traditional or tax-deferred accounts. Beneficiary IRA’s will also have RMD’s. Roth IRA’s do not have RMD’s for the primary account holder. Please contact your accountant or financial advisor to help you determine the amount of your RMD.
Can I convert an Inherited IRA?
Conversions are not permitted for an IRA you inherit from a person other than your spouse. When you inherit a Traditional IRA from your spouse, you’re permitted to elect to treat this IRA as your own. If you make this election, you can convert the IRA to a Roth IRA.