FAQ

The following questions and answers are intended for information and educational purposes only and should not be construed as legal or investment advice.
 
  1. What is a Self- Directed IRA?

  2. Why would I want to open a Self-Directed IRA?

  3. Are there restrictions on the investments that can be made in my Self-Directed IRA?

  4. Why don't more people know about this? Even my CPA and other advisors thought IRAs could only invest in traditional things like stocks, bonds and mutual funds.

  5. How do I open a Self-Directed IRA with Liberty Trust Company?

  6. How often do I receive statements on my account?

  7. What happens to the profits that my Self-Directed IRA makes? Are they paid to me or to my IRA?

  8. How much can I contribute to my Self-Directed IRA?

  9. Are there different limits for a Roth IRA?

  10. What is the contribution limit if I have two Traditional IRAs or if I have both a Traditional IRA and a Roth IRA?

  11. Can I transfer my current IRA to Liberty Trust Company?

  12. What is the difference between a transfer and a rollover?

  13. I have a 401(k) account with my former employer. Can I transfer the funds to a Self-Directed IRA with Liberty Trust Company?

  14. What is a Direct Rollover?

  15. I rolled over my 401(k) plan to an IRA. Is my account still considered a 401(k) account?

  16. I have a 401(k) plan with my current employer. Can I self-direct the funds?

  17. Can I Self-Direct my 403(b) account?

  18. Can I Self-Direct a 529 plan?

  19. My company's 401(k) plan allows me to borrow against my account. Can I borrow money from my IRA?

  20. Can I use my IRA as security for a loan?

  21. What are Prohibited Transactions?

  22. What are the consequences of a Prohibited Transaction within my IRA?

  23. Can my IRA borrow money to make an investment? For example, can my IRA make a down payment on some rental property and obtain a mortgage for the balance of the purchase price?

  24. Can I receive commissions if I am the broker involved in the sale of an investment to my IRA?

  25. My company granted me some stock options. Can I put these options in my IRA?

  1.  What is a Self-Directed IRA?

The term Self-Directed IRA is commonly used to refer to an IRA that can be invested in non-traditional investments, such as real estate, rather than being limited to traditional investments such as stocks, bonds or mutual funds. Click here for more information on self direction and alternative investments.

  1.  Why would I want to open a Self-Directed IRA?

If your investment philosophy includes alternative investments, doesn't it make sense to invest your retirement plan money accordingly?

  1.  Are there restrictions on the investments that can be made in my Self-Directed IRA?

Yes, but there are only a few. Your IRA cannot invest in life insurance contracts or collectibles, such as art, rugs, coins, stamps, etc. Although an IRA may invest in entities, such as corporations, limited partnership and limited liability companies, an IRA cannot invest in an S-Corporation.

  1.  Why don't more people know about this? Even my CPA and other advisors thought IRAs could only invest in traditional things like stocks, bonds and mutual funds.

The retirement industry is a highly specialized area, so even professionals like CPAs or attorneys are often unaware of the options available to IRA account holders. Because the vast majority of IRAs are held by large transaction-driven custodians that allow only "traditional" assets, most people conclude that these are the only assets that are allowed in an IRA. The IRS has never published a list of legal investments; however, they do state explicitly that real estate is a permissible investment in an IRA (click here to view site).

  1.  How do I open a Self-Directed IRA with Liberty Trust Company?

Simply click on the "Open an Account" link on the left side of the page. We have fillable kits for opening both Traditional and Roth IRAs. The kits are pretty self-explanatory, but feel free to call us if you have any questions.

  1.  How often do I receive statements on my account?

We will mail you a statement once a year. But you can view your account anytime if you utilize our online access.

  1.  What happens to the profits that my Self-Directed IRA makes? Are they paid to me or to my IRA?

All the profits from your investments will be paid to your IRA.

  1.  How much can I contribute to my Self-Directed IRA?

2016 - $5,500 plus $1,000 catch-up if you are age 50 or over. (See Internal Revenue Service Publication 590-A for more information.)

2017 - $5,500 plus $1,000 catch-up if you are age 50 or over. (See Internal Revenue Service Publication 590-A for more information.)

  1.  Are there different limits for a Roth IRA?

No. The limits are the same as for Traditional IRAs; however, not everyone is eligible to make a Roth contribution. Click on the "Contribution Limits" on the left side of the page for more information or see Internal Revenue Service Publication 590-A.

  1.  What is the contribution limit if I have two Traditional IRAs or if I have both a Traditional IRA and a Roth IRA?

The contribution limit is the total amount that an individual may contribute to all IRAs, whether Traditional or Roth. For example, if you are under age 50 and have both a Traditional IRA and a Roth IRA and are eligible to contribute to your Roth, the maximum you can contribute overall is $5,500 for 2017. You can contribute the full $5,500 to either your Traditional IRA or your Roth IRA; or, you can split the $5,500 contribution between the two, perhaps $2,750 to the Traditional and $2,750 to the Roth.

  1.  Can I transfer my current IRA to Liberty Trust Company?

Yes. I if you are opening a new account, our application kits contain forms that will assist you in transferring or rolling over your funds to us.

  1.  What is the difference between a Transfer and a Rollover?

A Transfer occurs when money is moved directly from one IRA Custodian to another without distribution to the IRA accountholder. No tax forms are generated by the sending custodian or by the receiving custodian. In a transfer, checks from the sending custodian will be made payable to the new custodian.

A Rollover occurs when an individual receives a distribution from an eligible retirement plan and makes a contribution to an IRA (or company sponsored retirement plan) within sixty days of receiving the distribution. The individual may roll over all or any part of the actual amount received and, if the distribution was from an employer sponsored retirement plan or 403(a) or (b) annuity (thus subject to the 20% federal income tax withholding), he/she may roll over up to 100% of the distribution by making up the 20% difference that was previously withheld.

  1.  I have a 401(k) account with my former employer. Can I transfer the funds to a Self-Directed IRA with Liberty Trust Company?

Yes. You should first open an account with us and then contact the administrator of your former employer's plan. They will probably require you to complete some distribution election forms. There will be an option on the forms to elect to do a direct rollover of your account to an IRA.

  1.  What is a Direct Rollover?

A Direct Rollover occurs when an individual elects to have the plan administrator of an employer sponsored retirement plan (such as profit sharing, money purchase, defined benefit, etc.) move part or all of his/her account in directly to an IRA. A Direct Rollover can also be made from a 403(a) or (b) annuity.

  1.  I rolled over my 401(k) plan to an IRA. Is my account still considered a 401(k) account?

No. Once your account has been transferred to an IRA, it becomes an IRA.

  1.  I have a 401(k) plan with my current employer. Can I self-direct the funds?

It is possible, but self-direction that includes the ability to invest in alternative investments is not common in employer sponsored plans, such as 401(k) plans. You should contact the plan administrator for the answer.

  1.  Can I Self-Direct my 403(b) account?

No. The investment options in 403(b) plans are limited to annuities and mutual funds.

  1.  Can I Self-Direct a 529 plan?

No. 529 plans are sponsored by states and the investments are made by fund managers chosen by them.

  1.  My company's 401(k) plan allows me to borrow against my account. Can I borrow money from my IRA?

No. You may not borrow funds from your IRA under any circumstances.

  1.  Can I use my IRA as security for a loan?

This would be considered a distribution from your IRA.

  1.  What are Prohibited Transactions?

Prohibited Transactions are commonly referred to as self dealing. An IRA cannot engage in transactions with disqualified persons. The most obvious disqualified persons include, but are not limited to, the account holder, his/her ancestors, and his/her descendants and their spouses. The rules regarding prohibited transactions are quite complicated. You should seek legal advice if you are considering a transaction that could be prohibited.

  1.  What are the consequences of a Prohibited Transaction within my IRA?

The consequences are very severe if the account holder or beneficiary enters into a prohibited transaction with respect to the IRA. In such case, the IRA is no longer considered an IRA and the entire IRA is deemed distributed as of January 1 of the year that the IRA entered into the prohibited transaction.

  1.  Can my IRA borrow money to make an investment? For example, can my IRA make a down payment on some rental property and obtain a mortgage for the balance of the purchase price?

Yes. However, the loan must be a non-recourse loan. You cannot guarantee the loan and you cannot secure the loan with other IRA assets. Non-recourse lenders generally will only make loans for income producing property and also require a substantial down payment. If your IRA borrows money, the IRA's profits may result in Unrelated Business Taxable Income (UBTI). See Internal Revenue Service Publication 598  for more information.

  1.  Can I receive commissions if I am the broker involved in the sale of an investment to my IRA? How about my wife or other family members?

No. Neither you nor your family members (spouse, ancestors, descendants and their spouses) may benefit personally from a transaction involving your IRA.

  1.  My company granted me some stock options. Can I put these options in my IRA?

No, since the options were granted to you not to your IRA.


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