The Difference Between IRA Transfers and Rollovers

The Difference Between IRA Transfers and Rollovers

If you have an existing retirement plan and want to move those funds into a self-directed account, rest assured you will encounter the words “transfer” and “rollover.”  Many people believe IRA transfers and rollovers can be used interchangeably, but they are actually very different.  Each has different tax treatments and rules that you need to know in order to decide which transaction best suits your needs.

Midland handles both IRA transfers and rollovers regularly, as more and more individuals are choosing to use self-directed retirement plans.

Rolling Over A 401(k)

The best example of a rollover is when you have a 401(k) and would like those funds moved into an IRA. Provided the funds are portable, an individual can rollover the 401(k) funds into an IRA in two ways: a direct rollover or an indirect rollover. A direct rollover sends the funds from your current plan administrator directly to another administrator. An indirect rollover, on the other hand, involves the funds from the plan administrator being given to the plan participant, with the intent to place those funds into an IRA. Because the funds are actually touched by the plan owner, this transaction is reported to the IRS. The plan participant then has 60 days to deposit the funds into another retirement account. If this does not occur within the 60-day time-frame, the account owner is required to report the rollover funds as income for that year and as well as pay taxes on that amount. If you are talking about a Qualified Plan such as a 401k rollover, and it is done indirectly, the plan administrator will automatically withhold 20%. The client would have to come out of pocket to send the full amount (prior to withholding) to the new custodian and essentially has given the IRS an interest-free loan. If you decide to perform an indirect rollover, then you can only do so once every 12 months.

Transferring An IRA

An IRA Transfer (trustee-to-trustee transfer) occurs between like accounts. For example, a Traditional IRA can “Transfer” to another Traditional IRA at a different custodian. A transfer is used when you have existing IRA funds at one custodian, but want to move them directly into a new IRA housed with another custodian. A transfer can be performed unlimited times and can be a cash transfer or an in kind transfer of an asset.

Do you already have an IRA? Chances are, you’ve been down this road before and perhaps the process hasn’t gone as smoothly as you would’ve liked. Midland has you covered. Transferring an IRA is as simple as completing our Transfer Form. Some custodians require originals, but many accept scans, so the best approach is to email your completed form to our service team, and we will follow-up if the transferring institution requires an original. All-in-all, the transfer process takes an average of anywhere from 2 – 7 business days, so be sure to plan accordingly. Having cash readily available in your account allows funds to be available for any pending investment purchases, unexpected asset-related expenses, and annual administrative fees.

Midland Trust is a self-directed retirement plan administrator serving clients across the nation. Our staff is experienced in handling IRA transfers and rollovers and can help you navigate the process should you decide you want to take control of your retirement funds and start using self-directed plans.

Contact us to get started self-directing an IRA today at 239-333-1032!

Investing in Futures and Forex with Your IRA

Investing In Futures and Forex With Your IRA

Creating and funding a futures or foreign exchange trading (forex) account in your self-directed IRA is a relatively simple process. Many clients of Midland Trust choose to invest their retirement funds in futures and forex trading accounts with their self-directed IRA to build tax-sheltered income on the returns.

Below is a list of steps outlining the process of setting up a self-directed IRA so you may begin trading futures and forex investments within your IRA. For additional support, your dedicated Midland representative will walk you through the steps, review the paperwork to ensure it is in order, and processes the transaction inside your IRA.

1. Establish a Midland account by completing our application online or by hand, which you can mail, email, or fax to our office.

Fund your IRA in 3 ways:

  • IRA to IRA transfer
  • 401k or other qualified plan via rollover
  • Annual contribution

2. Establish a trading account with an introducing broker

  • Individual capacity
  • The trading account is titled in the name of and owned by your IRA
  • If you are not trading this account yourself, you must grant a Commodity Trading Advisor (CTA) permission to trade in the account on your behalf

3. Midland Trust receives your completed trading agreement with your desired trading company and CTA agreement (if you choose to assign a CTA).

  • Midland will countersign the trading agreement to build this account within your IRA
  • A trading account number is usually created in a few business days

4. Funding

  • We can now facilitate your funding through our online portal once click “approve” for us to do so in the portal
  • If the investment amount is over $100k, a manual purchase form is required and completed with a phone call, we will also call to verbally confirm your approval to fund the investment into the trading account
  • Funds will go out the next business day via wire

Midland is a self-directed retirement plan administrator serving clients across the nation who have the freedom to invest in alternative assets they know and understand. If you’d like to learn more about us, or have questions about setting up futures and forex trading in your IRA, please contact us today!

Investing in Private Mortgages and Notes with Your IRA

Investing in Private Mortgages and Notes With Your IRA

Lending funds is one way smart investors earn income. While everyone knows you can personally loan someone money for anything, did you know you can loan money from your IRA with private mortgages and notes in the same manner?

Extending private loans and mortgages using a self-directed IRA is a popular way clients of Midland Trust earn income for retirement. We have seen loans to individuals and even to businesses or other entities that are seeking funds for anything from home mortgages to capital to expand business growth or start-ups.

If you decide to invest in private lending options, there are a few things you need to know right off the bat. You are able to personally vet the people you want your IRA to work with in these transactions, and you choose the terms of the loan (interest rate, length, etc.) You also have the option to choose between extending secured or unsecured notes.

Unsecured notes

Unsecured can be a great way to grow your IRA funds because you can demand a higher interest rate than secured notes. However, since this type of investment is considered high risk, you want to be sure you do this type of business with someone you trust or with a reputable company. So, the upside to this type of investment is that you are able to propose a higher interest rate, which will give you a higher return. The downside is that you run the risk of losing out if the borrower decides not to pay you according to the terms. It is recommended that you seek legal counsel before pursuing this type of investment.

Secured notes

Secured notes are another great way to grow your IRA funds and are much less risky than unsecured notes. Why? Because these types of private mortgages and notes are secured with a tangible asset, such as real estate or personal property. The upside to secured note is that you have a security instrument as collateral in place so that, in the event the borrower decides he does not or cannot pay you back, you can take the property from them and sell it to recoup your investment. Still, as with unsecured notes, you want to be sure you are doing business with someone you trust. You should also seek legal counsel before pursuing this type of investment.

Investing in private mortgages and notes with your IRA offers plenty of opportunities for you to grow wealth in your retirement account. If you’d like to learn more, please contact Midland Trust. Our team is always happy to help others learn about the diverse investments permissible in self-directed retirement plans.

14 Tips for Vacation Rental Property Investments in Your IRA

14 Tips for Vacation Rental Property Investments In Your IRA

Rental property is a common asset investors use to make income. Vacation rental property investments have the potential to garner a continuous, tidy monthly sum—if the property is located in a popular locale and is rented out often.

These assets are favored by clients of Midland Trust, as self-directed retirement plan funds can be used to invest in many diverse real estate assets to build tax-sheltered income.

Because we often work with clients who use vacation rental property investments in their self-directed IRAs, we’ve been able to compile a handy list of things to consider and understand about these transactions. If self-directed accounts are not maintained in compliance with IRS rules and regulations, your plan can incur penalties, taxation, and even disqualification of its intended tax-sheltered status.

These assets are not transactions to take on unless you fully understand the benefits and risks. You need to be familiar with the way income and expenses are deposited and paid for, as well as how the property must be maintained and used as an investment in your IRA.

Here’s what you need to know about vacation rental investment property.

  • Your IRA is the property owner and all income flows directly into that account.
  • Expenses must be paid with IRA funds. You are not allowed to personally pay any expenses or personally receive any rental payments.
  • No personal use of the property owned by your IRA is allowed—not even for a 2-week vacation.
  • If you plan to purchase a condo or property in a community development, make sure rentals are allowed, as some associations do not permit the leasing of condos/homes in this manner.
  • When purchasing a vacation rental, figure the frequency of the rental period in order to cover expenses and turn a profit.
  • Allow for advertising expenses to advertise the property. These are expenses that your IRA must incur.
  • Factor in maintenance costs and repairs into your IRA’s budget. Include cleaning costs after each guest leaves if you don’t include that cost in your rental agreement.
  • If HOA dues are applicable, count on them to rise in the future and add that to your budget.
  • When setting the rent, consider what rates guests could rent property for elsewhere. The more competitive your rates, the better your ability of keeping it rented out!
  • Consider using a property manager, especially if the property is not local.
  • Insurance requirements may be different for vacation properties. Check with an insurance agent to cover your bases.
  • Taxes may be due if it is a vacation rental/resort property. Check with the State Department of Revenue or Business Licensing Division to find out. Again, this would be an expense to be paid by the IRA.
  • Know the association or condo rules for the property, if any, and make sure any renters are aware of them, too.
  • Consider installing a security system if the property will remain vacant for periods of time.

These tips are just a few of the details you need to know when investing with an IRA. They should be enough to get you started on the right path of understanding how these assets work when purchased using retirement funds. A good investment has the potential to considerably grow wealth in your portfolio.

If you want to learn more about vacation rental property investments or other real estate-related assets permissible in self-directed retirement plans, contact Midland Trust today at (239) 333-1032!