The Singularity is Coming
The SEC released a statement this week (http://www.sec.gov/litigation/litreleases/2012/lr22339.htm) which says that a lawsuit is being brought against two brothers who were running a penny stock scam. The way it worked was like this: the brothers touted a stock picking robot that could predict with amazing accuracy which stocks investors should be getting into. Meanwhile, behind the scenes, the brothers were making deals with penny stock promoters. For a fee the brothers would push a specific stock as if it were the pick of the robot. Investors would rush in, promoters would cash out, and the investors would be left holding the bag.
The appealing part of this story is obviously the fact that tons of people decided to throw in with a robotic advisor. We’re so conditioned via the popular media to view robots as hyper geniuses with super-human potential, that the word “robot”automatically bestows upon us a comforting sense of superiority. However, that’s not the real story. For the past 150 years there has been an ever changing technological aura with which scamsters and quacks can ply their malevolent trade. Mention “science” in the 50′s, “computers” in the 80′s, or “genetics” in the 90′s, and you automatically had the world’s ear. In that sense this is an old story wrapped up in the lingua franca of the present. What is actually the truly interesting part of this story is the feedback loop that’s being generated between technology, buyers, and sellers. It would seem that the financial world is finally reaching its own singularity.
The confluence of technology and its effects on the financial markets is quickly approaching the point where no credible predictions will ever be possible. As both investors and promoters increasingly rely on technology to identify and propogate profitable areas in the Market, a self-sustaining feedback loop is being established. Market crawling spiders take advanatage of inefficiencies which trigger real world action on the part of human investors which in turn change the market dynamic to once again give the spiders room to roam. Throw into the mix the hucksters (knowingly so or just naively conceited) and you have a system that is contantly in flux as it responds to its own ever changing dynamic. This is like physics’ three body problem maxed out on performance enhancing drugs. For the less scientifically inclined, it’s a problem without a solution.
We’re not quite there yet, but the day of financial singularity is already visible with the naked eye. Meanwhile, maybe you should think about getting into real estate or whatever precious metals will be needed to buy the Ipad 27.
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Is Your Self Directed IRA Affected By This Lawsuit?
The Wall Street Journal reported today that two self directed IRA custodians are facing a major lawsuit. Entrust and Equity Trust are being accused of not performing due dilligence when approving financial advisors, as well as outright fraud by misrepresenting individual client accounts. However the dust eventually settles, one thing remains clear: it behooves an investor to know what the options are. With the right choices, you can protect yourself from wondering what’s going on with your money.
Self directed IRAs come in one of two flavors: a Trust model and a Checkbook Control model. In the Trust model the custodian retains most of the power. The custodian not only get to hold the funds and control access to them, but it also gets final say in any transaction or investment decisions. If you think that sounds scary, you’re absolutely right. Anytime you allow a third party to be in control of your money, you obviously run the risk of that party taking advantage. Safeguards are ineffective, and you’re left depending upon the goodwill and trustworthiness of the institution.
Lots of luck with that.
The Checkbook Control model was created to address these problems. With a Checkbook IRA, the IRA funds are held in a checking account and only one person has access to them: the investor himself. This enables the investor to make all investment and transaction decisions, as well as bar access from any unrelated parties. Thus, the Checkbook model avoids all those sleepless nights wondering what’s happening with your money.
Unfortunately we have to live in a world of caveat emptor. However, not all hope is lost. With proper decision making you can still get to where you want to be.
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What Exactly is a Solo 401k?
Most employed people have heard the term 401k before and are probably setup with one through their company. However, you may have heard the term “solo 401k” being tossed around but have no idea what that really is. If you’re working for a corporation, it’s actually not something to be very concerned about. A Solo 401k is a retirement plan, just like a normal 401k, but for people who work for themselves and have no full-time employees (also known as everyone’s dream job to be your own boss!).
Like all the other retirement plans, this one comes with rules and regulations too. Your spouse is actually allowed to contribute to the plan as well. You can put away more money with a Solo 401k than with a Simple IRA. You can contribute 100% of your first $16,500 in income from your business. If you’re 50 or older, you can put in $22,000. You can also add an additional 20% of net profits until you reach the maximum of $49,000 ($54,500 if you are 50 or older).
If you’re interested in a Solo 401k, consider setting one up through Broad Financial. You will be in control of diversification options and all your investments. Plus, with a checking account, you can control your funds by simply writing a check. Visit Broad Financial’s website to learn more about this great retirement plan.
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Prohibited Transactions with a Self-Directed IRA
Last week we discussed a few common mistakes people make with a self-directed IRA, and today we want to expand on that topic with prohibited transactions. Both the Internal Revenue Code and the ERISA have rules about self dealing and prohibited transactions. Most prohibited transactions pertain to a commerce between your account and a “disqualified party” or “party of interest.” What constitutes a disqualified party?
- The IRA owner or the spouse of the IRA owner
- The IRA owner’s descendants (children and grandchildren) and ascendants (parents and grandparents)
- An entity, such as a corporation, that has a combined ownership greater than 50% by any of the disqualified people
- A fiduciary of the IRA
The goal of a self-directed IRA, or any other retirement plan, is to provide you with money after you retire and not before. Therefore, most prohibited transactions are when the IRA is benefiting a disqualified party now as opposed to after retirement. A few examples include the following:
- Using the money to purchase a home to live in now
- Using funds to buy collectibles
- Loaning money to your children
- Purchasing life insurance
It’s easy to make mistakes if you’re not well informed. The experts at Broad financial can guide you through this process and ensure that you know how to maintain your retirement plan and use it correctly.
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Mistakes to Avoid with a Self-Directed IRA
Keeping your financial future stable is the main priority when investing in a self-directed IRA. However, with little knowledge on the subject, it’s easy to make mistakes. Financial mistakes are going to cost you, so regain peace of mind by avoiding these common errors:
- Do-it-yourself kits: When searching the Internet for “IRA LLC,” you’ll come across several sites that allow you to set up the account yourself. The so-called “kit” may save you money initially, but one wrong move and it can cost you thousands of dollars in penalties and taxes. You will be held responsible for any faults.
- Not understanding prohibited transactions: Investing is a business and you need to be informed about the restrictions involved. You need to talk with experts who understand the business and can advise you in your investment options.
- Not diversifying: There’s a reason why the saying “don’t put all your eggs in one basket” exists, and that’s because it’s true! Diversification will give you more stability and security. Read more about diversifying in this blog post.
- Not using experts: Many people turn to a CPA for advice, but the reality is that they are not experts in self-directed IRAs. When it comes to your retirement money, wouldn’t you rather trust someone whose sole job is retirement investments?
When you’re ready to discuss your options, visit BroadFinancial.com and invest in what you understand and believe in.
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Why Consider A Real Estate IRA?
With housing prices decreasing, many self directed IRA investors have been running from real estate. It’s true that residential real estate is struggling in many parts of the country, but the fact is, real estate is still a must for any investor’s portfolio over the long term.
Why? Because real estate serves as a counterweight to inflation. Investment experts agree that a portfolio should have between 5% and 20% invested in real estate that’s not a primary residence. Real estate can take the form of everything from single homes and duplexes to apartment buildings, medical offices and retail spaces.
With so many real estate investment opportunities out there, your financial planner is often the best place to start. Many financial planners offer real estate funds which offer investors another level of diversification that’s important in today’s market. There are many types of real estate investment trusts, each playing off different economic drivers – some have a sector focus, others have a broader domestic or international focus.
Broad Financial’s real estate IRA fund is based on profitable multifamily apartment communities in strong submarket locations in the Southeastern United States, and this strategy has a proven track record of yielding higher than market returns.
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Alternative Investment Funds to Complement Your Solo 401k
Most working, retired and self-employed Americans are taking charge of their retirement fund with diversified self-directed IRA and Solo 401k plans that offer financial growth and safety.
Many investors also seek alternative investment opportunities to secure their retirement account. Broad Financial’s Broad Tax Lien Fund and Broad Real Estate Fund are two such opportunities for discerning investors, large and small, who are looking for low risk, high reward opportunities.
Through the Broad Tax Lien Fund, the experienced investment professionals at Broad Financial exclusively purchase municipally issued real estate tax liens, which generate interest at rates well above market for investors, even in challenging economic times. Through the Broad Real Estate Fund, the company acquires profitable yet underperforming multifamily apartment and capitalizes on their latent potential, to the benefit of all stakeholders involved.
Established in 2004, Broad Financial’s aim is to help investors take a more active role in the investing of their retirement account – it’s about investing in only what you understand and believe in, and recognizing the importance and inherent safety of diversification, whether that’s through a do-it-yourself self directed 401k plan or a real estate fund.
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Buy Your Dream Retirement Home with A Self Directed IRA
In America, the population is rapidly aging as the Baby Boomers approach retirement and think about purchasing properties in warm and sunny locations ranging from Arizona and Florida to the South of Spain. By taking advantage of a rule in the IRS code which allows the purchase of investment real estate using funds from a self directed IRA, investors can secure a retirement property years before they actually retire.
Real estate can be purchased with an IRA as long as the property is a true investment which helps grow your retirement fund. You can’t live in an IRA property immediately, but you can rent it out to non-relatives. Once it comes time for you to retire, you take back the property, and you (or any relatives) are free to live in it.
There are many advantages to purchasing a property with IRA funds before retirement. By purchasing now, you’re securing the property at today’s prices, while allowing for a significant appreciation return on your investment. Generally, these properties appreciate at better rates than regular properties. Visit BroadFinancial.com today to find out more about how you can benefit from real estate IRA.
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New Ways To Invest From Broad Financial
We’ve talked before about how it’s Broad Financial’s mission to provide all investors, both young and old, with the tools necessary to diversify their retirement accounts beyond the world of Wall Street.
We’ve discussed The Ultimate IRA, an upgraded checkbook IRA that gives both the freedom and the tools necessary for investing in whatever, whenever, along with a plethora of other advantages including checkbook control and rollover options.
We’ve also discussed Our Solo 401k, an upgraded, qualified solo 401K retirement plan specifically designed for individuals working for themselves, along with a variety of advantages including maximum contributions, initial funding, and reduced costs.
That being said, there is one method of investing that guarantees both safety and growth that we have not yet discussed: The Money Tree
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Frequently Asked Questions of the Self Directed IRA
We’ve previously discussed the Broad Financial Self Directed IRA on this blog, but let’s face it; this stuff is confusing! That’s why we seek advice from informed, innovative minds in the first place when we’re investing.
That being said, here are a few of the most frequently asked questions when it comes to a self directed IRA:
Can my self directed IRA be used to buy non-standard assets, such as real estate?
Certainly. When the Employee Retirement Income Security Act of 1974 was passed, the responsibility of investing and saving for retirement was shifted from the employer to the employee. A year later, IRAs were created as a means for people to direct where they were investing their retirement funds. There are only two kinds of investments that are prohibited under both ERISA and the IRS Codes, and purchasing real estate is not one of them
But can my self directed IRA purchase real estate that I currently own?
No it may not. Doing so is in strict violation of IRC § 4975, and doing so is what is referred to as a “self-dealing” transaction. You have to be careful, because there are a plethora of different companies that claim you CAN buy real estate that you already own with your self directed IRA, and this is simply not true.
If a family member is not a disqualified party, can I purchase their property and let them rent it?
Yes and no. While on paper everything seems kosher, if your relative rents property owned by your IRA and fails to make payments, you’ll be in violation of the exclusive benefit rule. If this occurs, your IRA may be participating in a prohibited transaction. That’s why renting IRA-owned property to friends and family is rarely recommended.
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