by Mat Sorensen | Sep 14, 2012 | Uncategorized
The Walls Street Journal reported on January 19th that former Massachusetts Governor and Presidential candidate Mitt Romney has an IRA valued between $20 million and $100 million dollars. The article speculates about how those earnings were made and eventually concluded that because there is now way he could have such significant returns in mutual funds or typical stock or bonds that he must have invested in companies that he was consulting and working with while running the private equity firm he founded called Bain Capital. In other words, he self directed his retirement account into investments with small companies that he knew.
There are two important lessons to be learned from Mitt Romney’s $20 Million IRA. First, you don’t have to settle for a select group of mutual funds when investing your retirement plan and you can self direct it into all kinds of investments allowed by law including small companies such as Gov. Romney. Other popular self directed options are real estate, or loans, or precious metals. A Romney campaign aide who was questioned about Romney’s investments answered that the tax treatment for Romney’s IRA “is the same for Gov. Romney as it is for every citizen of the U.S.” This is true. Don’t feel trapped into investing your IRA or other retirement plan into the menu you get from your account custodian. Look to put your retirement account with a self directed retirement plan custodian who will allow you to invest in any investment allowed by law. Typical prohibited investments by law include collectibles, life insurance, s-corporation stock, and related family member transactions and others outlined in IRC 4975. All else is fair game.
The second lesson to be learned is that Gov. Romney’s IRA account success was a result of him investing in what he knew. Many of our clients express frustration in their retirement plan investments because they end up investing in mutual funds, bonds, or stocks that they have no idea how they will turn out and have no skill or insight that gives them an advantage in their investments. However, many of our clients who self direct their retirement plans have found success in investing their retirement plans into what they know. This could be real estate or a small start-up company. Keep your investment portfolio open to self directed retirement plan options and don’t feel trapped into the typical stocks, bonds and mutual funds. As with all investments, please consult with competent legal professionals before investing money. There are scams and bad deals out there and you need to make sure your retirement account is properly protected before you invest.
In sum, the rules for self directed retirement plan investing can be tricky but with the proper counsel and with good investment decisions you can be well on your way to a $20 Million IRA. If you’d like a referral to a self directed retirement account custodian or if you have questions about self directing your retirement account, then please contact us at the law firm at 435-586-9366.
by Mat Sorensen | Aug 31, 2012 | Uncategorized
Many real estate investors and landlords often ask whether they should use an umbrella insurance policy or a LLC to protect them from liabilities that may arise on their rental property. An LLC protects the owner of the LLC from liabilities that arise on any property in the LLC and prevents a plaintiff from being able to go after the LLC owner personally. As a result, we often say that an LLC protects a business owner’s personal assets from the risks and liabilities of the LLC business. An umbrella policy is coverage above and beyond the typical property insurance and covers additional risks and adds additional coverage to a typical property insurance policy.
Issues and Factors
There are many issues and factors to consider in making this decision and there is no one-sized fits all recommendation. In many instances we recommend that you have both an LLC and an umbrella policy and in other instances we may recommend just an LLC or just an umbrella policy. The first factor to consider is the cost. The cost of an LLC in our office is $800 and on average you can expect about $200 in fees a year to keep that LLC active with the State (about $900 annually in California, each state is different). As a result, the major cost of an LLC is in the first year but you can plan on having about $200 in fees each year (each state is different) to keep your LLC active. If you have a partnership LLC then you also have the cost of a LLC partnership tax return but the LLC also provides a significant amount of partnership advantages and protections.
An umbrella policy on the other hand is typically paid for monthly. Let’s say you are able to get $1M in umbrella protection at a cost of $50 a month. That would run you about $600 a year. Insurance policies have benefits which include attorneys whom the insurance company will appoint and pay to defend you (and protect themselves from having to pay) but also contain certain exclusions to coverage that may leave you with no coverage for the liability you incur. Another important factor to consider is the type of property you own. If you own a multi-unit property or commercial property we would recommend having both an LLC and an umbrella policy because you have more liability exposure when you have more tenants. On the other hand, if you have a single family rental in an otherwise good neighborhood where you feel less likely to be sued then we may only recommend an LLC or an umbrella policy on its own. Bottom line, consider both an LLC and an umbrella policy in your analysis and get quotes and advice upon which to make an informed decision so that you are protecting your assets in the most efficient and effective way as possible.
by Mat Sorensen | Aug 21, 2012 | Uncategorized
There are numerous laws, cases, and regulations to consider in analyzing whether your IRA can own an LLC (commonly referred to as an “IRA/LLC” or a “checkbook control IRA”). Despite the complexity of the law, your IRA can own 100% of the ownership interest of an LLC and you as the IRA owner may serve as the Manager of this LLC. This proposition was first supported by the case of Swanson v. Commissioner, 106 T.C. 76 in 1996 where the U.S. Tax Court held that it is not a prohibited transaction under IRC Section 4975 for a retirement plan to invest and own 100% of newly created corporation nor was it prohibited for the IRA owner to serve as an officer of that company where no salary or compensation was paid to the IRA owner. In summary, the U.S. Tax Court has supported the structure whereby a new created company is wholly owned by a retirement plan and managed by the retirement plan owner and that is the same rationale used in many IRA/LLC’s.
So what does the IRS think about IRA/LLC’s? The IRS issued IRS Field Service Advisory #200128011 in April of 2001 which indicated that the IRS will not contend that there is a prohibited transaction when there is a newly formed and capitalized company that is 100% owned by a retirement plan. Keep in mind that both of these cases deal with newly formed companies and do not apply to LLC’s or corporations (or other companies) which a retirement plan owner may have already established. Also, it is possible to partner your retirement plan with others into one IRA/LLC but you must carefully consult with professional who are experienced in this area as there are numerous prohibited transaction issues that may arise when you partner your IRA with others.
Serving as the Manager of the IRA/LLC allows the IRA account owner to enter into contracts on behalf of the IRA/LLC and to sign checks on behalf of the IRA/LLC. There are restrictions on the amount of work you may do (for example, if the IRA/LLC owned a property you may not work on the property) but you may oversee the administrative matters like the signing of contracts and checks. The prohibited transaction rules still apply to IRA/LLC’s in the same way they apply to your self-directed IRA so you still must pay careful attention to these rules and most consult with professionals who are competent in the laws that apply to retirement plans. Moreover, an IRA/LLC is different from your typical LLC and the IRA/LLC documents should include numerous provisions which protect your IRA from a prohibited transaction. This doesn’t mean that an IRA/LLC should costs thousands of dollars. In fact, our law firm sets IRA/LLC’s up for $750 plus the state filing fee if the IRA/LLC is owned by one IRA or $1,500 if owned by multiple IRA’s or partners. In the end, an IRA/LLC can be a powerful tool to gain more control of your IRA’s investments but you must do so with adherence to the rules and laws that apply to your IRA. Written by Mathew Sorensen, Attorney at Law and Partner at Kyler Kohler Ostermiller & Sorensen, LLP, a law firm assisting self directed retirement plan owners across the U.S. for over ten years from offices in Arizona, Utah and California. To learn more about our law firm, please visit our website at ww.kkoslawyers.com or call us at 435-586-9366.
by Mat Sorensen | Aug 14, 2012 | Uncategorized
The JOBS Act signed into law by President Obama in April created a new exemption from the Securities Act of 1933 for “crowdfunding transactions”. This exemption allows entrepreneurs to raise small sums of money from large groups of people without having to complete a securities offering with the SEC. The concept of crowdfunding is to loosen the restrictive securities laws so that new companies can raise small sums of money from large groups of people. By limiting the amount of money raised by each person the law limits each investors risk. Crowdfunding can be used to fund any type of business or venture including a real estate business or investment, a new movie, or a technology business. Popular crowdfunding portals include, kickstarter.com, earlyshares.com, and indiegogo.com.
In order to qualify as a “crowdfuning transaction”, the issuer of the investment cannot sell more than $1M of securities in a 12 month period. Additionally, the amount that can be invested depends on the income or net worth of the investor. For investors with net worth or annual income less than $100,000, they can invest the greater of $2,000 or 5% of their annual income or net worth. For investors with annual income or net worth greater than $100,000, they can invest up to 10% of their annual income or net worth not to exceed $100,000. There is no requirement that investors be “accredited investors” and anyone can invest at least $2,000 in a “crowdfunding transaction”.
In addition to the restrictions on the amounts raised, the transaction must also be conducted through a broker of “funding portal” that provides risk disclosures and other information to investors. A funding portal is a new system of exchange that has been used in recent years by many small companies but has only recently been recognized in law under the JOBS Act. A funding portal is defined as a person that acts as an intermediary in a transaction involving the offer or sale of securities for the account of others. There are a number of restrictions placed upon funding portals such as prohibitions on investment advice or recommendations, they cannot solicit offers or transactions, they cannot compensate employees based on the sale of securities, and they cannot hold, manage or possess investor funds or securities. Funding portals must register with the SEC as a funding portal but they do not have to be registered as broker-dealer.
The SEC has 9 months from the signing of the act in April to adopt regulations and guidelines. Crowdfunding will be an important and commonly used funding mechanism for many new small businesses and should be considered as an option in every business or investment where the funds being raised are $1M or less.
Page 30 of 30« First«...1020...2627282930
