Why Does Wallstreet Control Your IRA?
Not all IRAs are Alike
What do these eight Americans, who have never met each other, have in common?
Bill bought an ocean front Condo in Belize.
Dennis lost $100,000 of equity in his IRA held mutual funds.
Arthur and Sally bought a five acre vineyard in Argentina.
After twenty-five years at the same company Virginia and Ed lost $250,000 in their respective Company 401(k)s.
Jim bought a 60’ Charter fishing boat in Cabo San Lucas, Mexico.
And Ralph, whose IRA held stocks plummeted, panicked and invaded (sold) the principal of his IRA and in the process was forced to pay a 10% early withdrawal penalty on the amount withdrawn and an additional hefty ordinary income tax for a combined tax bite of over 38%. Ouch!
What do these eight Americans have in common? They all have retirement plans that made their purchases.
Make No Mistake about It – Not all IRAs Are Alike
Bill, Arthur, Sally and Jim enjoy 100% control over their IRA funds and retirement futures and all used a Self-Directed IRA or Individual 401(k) funds to fulfill their dreams, e.g. buying a Condo, or a vineyard or a commercial charter fishing boat.
Conversely Dennis, Virginia and Ed and Ralph trusted their IRAs and Company 401(k) retirement futures to someone else, their friendly Stock Broker, Mutual Fund sales person or Financial Planner, all of whom failed miserably at their jobs and vaporized much of the hard earned wages Dennis, Virginia and Ed and Ralph spent years accumulating.
Who Controls Your IRA Funds?
For decades Wall Street and its affiliate IRA Custodians have enjoyed total dominance and control over 97% of the five trillion IRA dollars held by 45,000,000 IRAs. There were eight trillion IRA dollars until the stock market debacle of 1999/2000 that incinerated two trillion dollars and unabashedly repeated this debacle in 2009.
Bill, Arthur, Sally and Jim once stood among the 97% of Americans with Wall Street controlled IRAs and for decades they too believed what Wall Street told them;
“Your IRA funds must be invested in Wall Street products”.
Gaining 100% control over their IRA funds just didn’t happen for Bill, Arthur and Sally and Jim. And their decisions to no longer purchase by rote Wall Street investments did not come as a recommendation made by their Stock Broker, Mutual Funds salesperson or Financial Planner. These glib Wall Street agents were not about to relinquishment their stranglehold on the proverbial IRA “Golden Goose” by suggesting to their IRA clients that they actually take Wall Street’s mantra, “Diversify” seriously and look elsewhere.
What Bill, Arthur and Sally and Jim did do was conduct a little homework and make a simple decision, one you too can make right now, today. They took Wall Street’s “Diversify” to task by no longer accepting the notion that “diversify” equates to holding 100% Wall Street products in an IRA.
Their life-changing decisions to truly “diversify” their IRA dollars and no longer blindly hand over hard earned income to IRA Custodians that in reality are mere puppets of Wall Street and who can only peddle Wall Street products came to an end when Bill, Arthur and Sally and Jim converted their generic IRAs and or Company 401(k)s into a:
a) Self-Directed IRA
b) Check Book Control Self-Directed IRA (with qualifying LLC)
c) Individual 401(k) (with qualifying LLC)
Many Escape Artist Readers share a lot in common with people like Bill, Arthur and Sally and Jim and may be standing right now at the same financial “fork in the road” they did where two signs read.
a) Do I continue to let Wall Street, who has repeatedly lost trillions of IRA dollars, continue to make all of the investment decisions for my IRA?
b) Do I take the reins of control over my IRA and decide what I think is best?
The first thing Bill, Arthur and Sally and Jim did was to educate themselves about the different types of IRAs and 401(k)s, relax it isn’t complicated. Once armed with this knowledge you can then intelligently decide whether or not switching from your present IRA Custodian is the best thing. It may not be, perhaps staying right where you are is best.
The IRA Funds Score Board Currently Reads:
Five Trillion Dollars
Wall Street Controls 97%
Individuals Control 3%
The scoreboard should read:
Wall Street Controls 0%
Individuals Control 100%
This is not to suggest you abandon Wall Street products; stocks, bonds and mutual funds, rather what is suggested is that Americans should have 100% control over their IRA funds and make a choice whether to continue to purchase Wall Street products, or diversify and buy real estate and real estate product, e.g. Tax Lien Certificates, Notes, Leases, lend money as a mortgage and other non traditional Wall Street products.
Many Escape Artist readers are taking a hard look at foreign property as an alternative investment but how many realize they can use their IRA exclusively or in partnership with themselves in the purchasing process?
A typical Wall Street IRA with its affiliate Custodian cannot facilitate the purchase of US real estate and it most definitely cannot facilitate the IRA purchase of foreign real estate.
The Self Directed IRA
While in theory a generic Self Directed IRA with a typical introductory $50.00 set up fee, this Wall Street does not offer, can be employed to purchase foreign real estate. However, many of the Self Directed IRA Custodians are not equipped for such foreign transactions. These Self Directed IRA Custodians can thwart such endeavors by demanding the original contract be in English, the funds paid in US Dollars and the closing be held in the USA. These etched in steel requirement eliminate most foreign countries.
Another time consuming feature of the generic Self Directed IRA is the Custodial requirement that you properly complete and submit an “IRA Buy Direction” Form and an “IRA Funding” form. Each of these forms must be approved by the Custodian before a transaction can proceed and can unnecessarily bog down to outright kill a foreign real estate investment transaction by requiring days, even weeks to consummate.
The Check Book Control Self Directed IRA
This retirement jewel evolved from its generic cousin the Self Directed IRA. The Check Book Control Self Directed IRA eliminates the need to submit the “IRA Buy Direction” form and the “IRA Funding” form. This tremendous feature is something you need in your IRA Tool Box as an effective way to cut through Custodial “red tape”.
The Check Book Control Self Directed IRA is simple and empowers you to act as Manager of an LLC created specifically for your IRA. As Manager you have 100% control over the LLC’s checking account. If an investment has appeal to you a LLC IRA check can be written on the spot or the IRA LLC funds wired to a foreign country. Note, however, that this does not give you the right to make prohibited transactions or direct your IRA to purchase a prohibited item, collectibles, e.g. antique cars, Persian rugs, Artwork, rare Coins and the like.
A Check Book Control Self Directed IRA equips you to be at lunch with an associate and snap off an IRA LLC check to buy a discounted Note, or while on a vacation use your IRA LLC checkbook to write an Earnest Money deposit for a piece of property.
Caveat, when enjoying those vacations you cannot write a personal check for a deposit and replace it with an IRA LLC check. Nor can you personally sign the contract and subsequently assign it to your IRA. To do so is “self-dealing” and prohibited by the IRS.
A Check Book Control Self Directed IRA Spells IMMEDIACY
A Check Book Control Self Directed IRA allows you to be at the Court House steps bidding on a property with an IRA LLC Certified check in your hand. If unsuccessful in the bidding simply re-deposit the check into your IRA LLC.
With the generic Self Directed IRA you need to complete the “IRA Buy Direction” form including a “legal description” which you don’t yet have and submit the form to your IRA Custodian for approval. This lack of “immediacy” eliminates Court House auction activities that demand instant funds.
A Teenager With A Credit Card
Giving a teenager a Credit Card can be a recipe for disaster and so too can be a Check Book Control Self Directed IRA in the wrong adult hands. The Check Book Control feature requires discipline and appropriate bookkeeping. Just because you are Manager of your IRA LLC does not equal a green light for you to go on a buying binge, “self-dealing” (sell property you or a prohibited party owns to your IRA) or skip the required bookkeeping paperwork.
The Check Book Control Self Directed IRA Has Stiff Competition
The Individual 401(k) with Check Book Control is one of the greatest retirement vehicles in decades yet few Americans are aware of its many features and benefits and Wall Street isn’t going to educate you.
There are certain qualifiers for the Individual 401(k) but if qualified the advantages make the Check Book Control Self Directed IRA seem tame in comparison.
With an Individual 401(k) with Check Book Control there is no need for a Custodian, that’s right, no Custodian. Wow, that spells real control. If you want a Custodian you can have one but sophisticated investors may elect to fly solo and eliminate paying nickel and dime Custodial fees.
No Free Lunches
Understand, if you have a Custodian there are custodial costs. IRA Custodian must generate revenue and they do so by imposing a litany of fees, e.g. annual asset fees, registration, documentation, safe keeping, and check writing fees etc. Custodian Fee Schedules are posted on their web sites for easy comparison.
Another major distinction between an Individual 401(k) with Check Book Control and a Check Book Control Self Directed IRA is the ability for you to actively run the business, e.g. an apartment house complex, a Music Shop or even a Restaurant.
With a Check Book Control Self Directed IRA your personal involvement with an LLC held property is quite restrictive. For example you cannot install a new floor or water heater in a rental unit and expect to be paid wages or reimbursed for materials.
Individual 401(k)s fall under the rules of Trust Laws and certain Individual 401(k)s may allow you to actively run the business including drawing a salary.
With an Individual 401(k) you can utilize debt financing (mortgage) of the business purchased by your Individual 401(k) and it may not be subject to Unrelated Business Income Tax (U.B.I.T.) at approximately 37% on net profits made. Such is not the case for a debt financed rental owned by a Check Book Control Self Directed IRA.
Maybe it’s time for you to join Bill who bought a Condo in Belize, Arthur and Sally who purchased a Vineyard in Argentina or Jim who acquired a Charter fishing boat in Cabo San Lucas, Mexico.
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The long held advice to invest in mutual funds is a sure way to see to it that your retirement funds are trashed by the whims of the economy but foreign investments are just as deadly. This article is too trivial in discussing foreign investing to be useful.