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Uncommon Self-Directed Investments You May Not Know About

Jan 22, 2019

As Self-Directed Investments within IRAs become more popular due to the increased volatility of the stock market, many savvy investors have discovered investment opportunities such as Real Estate, Private Businesses, and Promissory Notes. The investment potential of Self-Directed IRAs using qualified funds extends beyond those few options, and can include, but are not limited to:

TAX LIENS / DEEDS

A tax lien is a lien imposed on property to secure the payment of taxes. Tax liens may be imposed for delinquent taxes on real property or personal property, or as a result of failure to pay income taxes or other taxes. They are imposed by the county in which the property is located. Some states don’t offer tax liens, but offer tax deeds instead. A tax deed sale is a governmental sale of real estate to cover nonpayment of taxes.

TIMBER RIGHTS

This type of investment involves purchasing the right to cut and sell timber from a piece of land. The Timber Rights can be sold/recorded so that it reserves the rights to the timber in a variety of ways such as:

      • In perpetuity or a certain period of time.

Or state that:

      • Only trees of a certain size, species, or quantity, etc. can be harvested.
      • Require the trees to be marked ahead of time.
      • Only allow trees located in a certain area of the property to be removed.
      •  

FOREIGN INVESTMENTS

Provident Trust Group can typically hold investments in U.S. based companies whose holdings include foreign investments, and may hold foreign property, if the asset can be valued annually in U.S. dollars. Foreign assets are reviewed on a case by case basis to determine if Provident Trust Group can hold the asset.

STRUCTURED SETTLEMENTS

This type of investment involves the purchase of a payment stream. Typically, a person that is the recipient of an income stream (perhaps from an insurance settlement) sells all or part of their future income stream for a lump sum.

MINERAL RIGHTS

Also known as a “mineral interest”, this type of investment involves purchasing the right to exploit, mine, and/or produce any or all of the minerals below the surface of a piece of land. Minerals can refer to: metal ores, oil, gas, salts, sands, or stones.

You cannot participate in a prohibited transaction

When using retirement funds to make an investment, it is important for the qualified account owner to understand the Internal Revenue Service (IRS) rules and regulations to avoid engaging in a prohibited transaction with a disqualified person that could lead to a complete distribution of the account with taxes and penalties incurred. A prohibited transaction is any improper use of the retirement account by the account owner, beneficiary, or any disqualified person.

A “disqualified person” includes, but is not limited to:

    • Yourself
    • Your lineal ascendants and descendants
    • The spouse of a lineal descendant
    • Your spouse
    • Any entity that is owned 50% or more by disqualified persons
    • An entity that is controlled 50% or more by disqualified persons

Examples of prohibited transactions include:

    • The account owner or a disqualified person will receive a personal benefit as a result of the transaction.
    • The account owner or a disqualified person owns 50% or more of the investment entity combined.
    • The account owner or a disqualified person has a controlling interest in the investment entity.

DISCOVER THE POWER OF TRUE SELF-DIRECTED INVESTING

Our Self-Directed IRA allows you to invest in what you want, when you want. The investment possibilities are endless.

Discover the power of true self-directed investing

Our Self-Directed IRA allows you to invest in what you want, when you want. The investment possibilities are endless.

When using your qualified account to purchase any investment, there are a few key items to remember:

  • You are responsible for performing due diligence on your investment. Every investment has unique risks and any decision to invest should only be made after you conduct a thorough review of the investment and any parties related to the investment. Provident Trust Group is a passive, directed custodian and as such does not provide any type of investment advice or due diligence.
  • All funds to purchase the investment must come from your qualified account.
  • All income generated by the investment must be paid to your qualified account.
  • You must provide a Fair Market Value of all assets held in your qualified account annually.

Required Documentation

  • Direction of Investment Form
  • Support documentation related to the investment. This may include purchase agreements, deeds, notes, loan repayment schedules, etc.

Investment Titling

You and your qualified account are two separate entities and your qualified account is considered the legal owner of this investment. As such, all documents must reflect this ownership. Failure to title the asset correctly may cause delays and/or tax consequences. The correct titling for all investment documents should be as follows:

“Provident Trust Group, LLC FBO: your name and account type

 

Resources

IRS Publication 590A – Contributions to Individual Retirement Arrangements (IRAs)
https://www.irs.gov/pub/irs-pdf/p590a.pdf

IRS Publication 590B – Distributions from Individual Retirement Arrangements (IRAs)
https://www.irs.gov/pub/irs-pdf/p590b.pdf

IRS Publication 598 – Tax on Unrelated Business Income of Exempt Organizations
https://www.irs.gov/pub/irs-pdf/p598.pdf

Internal Revenue Code 4975 – Tax on prohibited transactions
https://www.law.cornell.edu/uscode/text/26/4975

 

Please Note: Provident Trust Group and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

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