IRAs for Bugout Property, Precious Metals & More
“Perhaps the biggest advantage of the IRA LLC to the PM investor is that the individual (manager of the LLC) can take physical possession of Gold and Silver Eagle Coins with IRA funds and it is not a taxable distribution. The metal does not have to be held at a depository.”
Nothing says Govt intervention like “Pension, IRA, or 401k”. I must admit it was well played by the State to offer a “tax deferred” or “tax advantaged” way to save, thereby enticing investors to shave off a piece of their income each year to stash away in a Govt controlled slush fund. History warns when Govts go broke they are quick to tap into state controlled pension funds. After all Mr. Investor we have allowed tax free investment so we get to dictate how these funds are allocated. Before I go on a tangent lets give a brief overview.
What is an IRA?
Traditionally an IRA is a tax deferred growth account that allows one to save for retirement. An individual can contribute a portion (up to $5,500 – $6,500 for 2013 & 2014) of his or her income and that contribution comes off the individual’s taxable income. Then the money compounds (ideally) tax deferred. The individual pays taxes on the gains in the account later in life during distribution stage, allowable at age 59.5 and mandatory at 70.5. Some strategies like a SEP account allow the individual to contribute much more, up to 25% of total income, lowering the person’s AGI (adjusted gross income) even further. IRAs and like accounts are eligible for rollover to a self directed account which offers more investment flexibility and greater control by the individual.
What is the 401k plan?
The 401k is a type of group plan typically administered through an employer for its employees. Some employers contribute or match a portion of the employee’s contribution to his or her individual account within the plan. This additional contribution is a major pro to this plan. The con unfortunately is that few of these plans offer what are called ‘in service withdrawals’, or rollovers into an IRA or self directed IRA platform. With most 401ks the individual’s money is ‘locked up’ until retirement age or employment severance. That said, an old 401k from a previous employer is eligible for rollover to a more flexible platform.
What is a self directed IRA?
Self directed IRAs encompass about $100 billion, still only about 2% of total IRA assets. Under this structure everything is the same as a traditional IRA except the custodian used is one that allows and specializes in alternative investment classes for retirement accounts. The large financial institutions when acting as custodians for IRAs typically only allow investments into the piggybanks from which they profit the most, i.e. publically traded stocks, bonds, mutual funds, and bank CDs. The custodian is the IRS compliant trustee that houses the account that your IRA owns and ultimately approves its investments. Self directed IRA custodians allow investments into numerous desirable investment classes including real estate, precious metals, private placements, and LLCs. These accounts differ in their setup fees, ongoing management fees, flexibility, and most importantly to the precious metals investor, where the assets are held.
Let’s talk about fees…
Traditional IRAs and 401ks managed by broker dealers, investment advisors, and fund managers typically have some of the highest fee structures, another major reason the self-directed platforms are desired. Many of these fees are hidden load fees that the investor never even sees. In recent years median expense ratios for mutual funds have been 1.27% plus 1.2% in trading fees. Thereby over time the average mutual fund has yielded a 7% return before fees, but only 4.5% after fees.
Fees for self directed IRAs…
The main 2 types of accounts we will address here are the self directed IRAs that allow investment into precious metals and real estate. The precious metals IRA advantage is its low cost to setup and maintain. Setup fees range $250 – $500 with annual maintenance and storage fees of $150-$500. The disadvantage here is control of storage. The bullion must be held by a third party depository. Self directed plans that are geared for real estate can differ in cost based on transaction frequency or the portfolio value. A $100,000 portfolio can expect about $500 in annual fees, for $500,00 it jumps to $1,600 annually. A small portfolio with limited transactions may only pay a few hundred dollars in annual fees.
The IRA LLC…
I must lead with a caveat here that I am biased to this concept. I am a ‘for profit’ consultant and facilitator of the IRA LLC. This platform has its pros and cons as any other. The upfront cost can range from $1,500 to $3,000 to have an attorney or professional facilitator set one of these up, and the proper setup is crucial. Involved are numerous legal documents, affidavits, and compliance requirements that must be met. Once setup the flexibility is great and the ongoing fee structure is very low, typically $115 to $200 per year. Within the structure the LLC acts as an investment company that is managed by the individual, whom is also the beneficiary of the IRA. As long as there are no prohibited transactions the investor can invest in literally anything except collectibles and life insurance contracts. Many include: investment real estate, bug out property, private placements, oil & gas leases, loans, Bitcoin, other LLCs, etc. The LLC also adds another layer of protection from potential Govt pillaging of retirement accounts.
Perhaps the biggest advantage of the IRA LLC to the PM investor is that the individual (manager of the LLC) can take physical possession of Gold and Silver Eagle Coins with IRA funds and it is not a taxable distribution. The metal does not have to be held at a depository. For folks that have considered cashing out their IRAS or 401ks thus paying taxes and penalties, this can be a much cheaper alternative to physically holding precious metals. There are no additional IRS reporting requirements, merely an annual dollar asset valuation reported to the custodian.
If you want more information or if you simply have questions, feel free to visit our website and contact us anytime.