FAQs

Read some of the most frequently asked questions from clients and potential clients. This is a great way to start with your education about self directed accounts and the benefits of using CamaPlan as your administrator. It’s great to learn from your mistakes but it is better and less expensive to learn from other peoples mistakes. If you don’t get your questions answered please set up a complimentary phone call with one of our knowledgeable account executives 866-559-4430.

Disclaimer: These questions should be reviewed with your accountant or other professional tax advisor. More details are needed to accurately the answer questions you posed. The good news is not many IRAs are audited but that also means there are not a lot of precedents set, thus a fair amount of grey area exists.


Why does CamaPlan require so much personal information to open an account?

  • Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. This is to minimize money laundering, terrorist funding , and other goals of the government laws such as the Patriot Act.
  • When you open an account, we will ask for your name, residence address, social security number, date of birth, occupation, and other information that will allow us to identify you.
  • We will ask for copies of your passport, driver’s license, social security card and other identifying documents.  Your account name needs to match your social security card otherwise you may be fined (presently $100).
  • We are required to compare your identity to lists of persons and organizations maintained by federal agencies designated by the Department of the Treasury and/or Homeland Security(such as OFAC). If your name appears on any of these lists, we must refuse to open your account, close your account if it is already open, notify federal authorities, and follow all federal directives.
  • If you attempt to falsify or conceal your identity, we may be required to file documents such as a Suspicious Activity Report.
  • We also use independent sources to verify identifying information. Federal law requires us to retain the identification information for a certain period of time (currently 5 years after we close your account) see also our privacy policy for information on how this information is used.

How long does it take to set up a Roth IRA?

A Roth IRA can be established in 48 hours and we usually see money transferred in 2-4 weeks from your existing custodian.

If I flip in my IRA, does anything need to go on my 1040?

Not necessarily on your 1040 but you may have to fill out a tax return for your IRA, Form 990T. I suggest you read the IRS 990T instructions. The IRS gives the IRAs exemption for owning real estate as an investment, but your real estate may instead be classified as inventory in a business because you flip it. Questions like how many houses constitute a business, how to establish intent to own real estate and what time frame for holding property appropriate to avoid having it classified as inventory is best discussed with your professional tax advisors and we would be happy to assist you in any way. If you are at the top of IRS tax bracket these concerns are most likely moot. If you don’t need the additional income to live on then it probably makes sense as a rule of thumb.

Can I use borrowed money to purchase property within my Roth IRA?

Yes, we have many clients that do this type of investing. You can use borrowed money if your Roth IRA is the borrower (not you personally) and your Roth is also the owner of the property purchased. When an IRA borrows money to purchase real estate it most likely will be subject to taxation of a percentage of the borrowed amount –again this would be done through IRS form 990T and called Unrelated Debt Financed Income (UDFI), subject to taxation at trust rates. Many clients structure deals in different ways to minimize taxes, as an example instead of borrowing money in the above example– sell part of the deal and UDFI may not apply.

Can I convert an Inherited IRA?

Conversions are not permitted for an IRA you inherit from a person other than your spouse. When you inherit a Traditional IRA from your spouse, you’re permitted to elect to treat this IRA as your own. If you make this election, you can convert the IRA to a Roth IRA.

Are there income limitations for contributing to a SIMPLE IRA?

Yes — if you choose nonelective contributions. Instead of matching contributions, an employer can choose to make nonelective contributions of 2% of each eligible employee’s compensation. If the employer makes this choice, it must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. An employee’s compensation up to $250,000 (for 2012; $255,000 for 2013) is taken into account to figure the contribution limit.

If the employer chooses this 2% contribution formula, it must notify the employees within a reasonable period before the 60-day election period for the calendar year.

What about Required Minimum Distributions (RMD’s)?

RMD’s are required from all Traditional or tax-deferred accounts. Beneficiary IRA’s will also have RMD’s. Roth IRA’s do not have RMD’s for the primary account holder. Please contact your accountant or financial advisor to help you determine the amount of your RMD.

May I have a company that I own fix up the property that I have in my IRA/401(k)?

The IRS code on prohibited transactions precludes such an activity by an owner. This would mean providing a service and receiving a benefit from your plan or account to which you are not entitled, and are specifically prohibited. There are specific rules regarding ownership and what is a party in interest transaction, and who may or may not provide such services.

There are private letter rulings which have been obtained in the past permitting latitude under certain circumstances. Private letter rulings may be obtained by application to the IRS.

There are specific rules regarding taxation of prohibited transactions, which include a 100% tax if a prohibited transaction is not corrected in a taxable period, and a 15% tax on the amount of the prohibited transaction. Additional rules apply to IRAs established by employers, which disqualify the entire IRA. See IRS code section 4975 for more information.

I have a 401(k) where I currently work. I would like to use those funds to invest in real estate on a tax-deferred basis. How do I proceed?

The 401(k) Plan Document or Summary Plan Description will specify whether you have complete self-direction (including real estate and notes). You should ask your plan administrator or Benefits Department at your place of employment about the investment options available. If you have a profit sharing, money purchase or defined benefit plan, the same applies.

Your plan may permit you to roll eligible funds from your 401(k) or other qualified plan account to a self-directed plan that permits complete investment flexibility. Again, your plan administrator or Benefits Department can provide you guidance.

CamaPlan would be glad to talk to your Benefits Department or the CEO to discuss the merits of incorporating true self-direction.

Can my IRA buy a house and rent it? Who gets the rent and who pays the bills/expenses?

Yes – your IRA gets the rent and is responsible for all expenses. CamaPlan will help you set everything up.

Can your IRA invest in foreign properties or entities?

Yes, if they are not considered terrorist or disallowed countries. We have many clients with investments outside of the US, including Mexico, Canada, Europe, the Caribbean, etc.

What is an ESA or Coverdell account?

An Educational Savings Account is a tax-free vehicle used to save for educational purposes. Contributions can be made up until the age of 18 and must be used prior to the beneficiary reaching age 30. ESAs may be transferred to other relatives as circumstances warrant.

What do you think about Health Savings Accounts? Can they be invested in notes, mortgages, real estate, etc?

HSAs are great – there is a tax deduction going in, and the money is tax-free coming out; it doesn’t get much better than that! You can spend that cash on eye glasses, dental procedures, etc. HSAs can be self-directed and can be used at any time. Most of our clients keep their contributions to build wealth more quickly and pay any deductibles from other available funds. You should discuss the merits of an HSA with your professional advisors in the tax and insurance fields.

What is the difference between 1031 exchanges and self-directed IRAs?

Both are tax-saving, wealth-building tools. 1031 exchanges have time constraints that are sometimes a problem. They are not mutually exclusive, so you may use them both. 1031 exchanges are used for properties an entity already owns and wants to sell and defer taxes. IRAs are used to defer earnings and build retirement wealth, and are used for ongoing investments.

What is the difference between a Traditional IRA and a Roth IRA?

Income deduction may apply with traditional IRA contributions, but not with Roth contributions. Both have earnings that are tax-deferred. Roth earnings and contributions are tax-free with qualified distributions, whereas Traditional IRA distributions are taxed at the owner’s tax rate as ordinary income. Roth contributions can be withdrawn at any time without penalty or taxation. Traditional IRA’s require mandatory distributions at 70.5 years of age; the Roth IRA does not. A person can contribute after 70.5 years old to a Roth, but not a Traditional.

What is the difference between the 401(k) Roth and the Roth IRA?

Income limits apply to the Roth IRA, but not the Roth-like 401(k). Contributions for the Roth IRA are significantly less than for the 401(k). Retirement age for the 401(k) can be 55 years, while the IRA is 59.5 years. UBIT/UDFI may not apply in some cases with a 401(k), but would with respect to a Roth IRA. Also, RMD’s are required with a Roth-like 401(k) but not a Roth IRA for the plan owner.

Is it true that you need less money in retirement then when you are working?

That is a personal choice. The majority of our clients think that the opposite is true. In fact, you will most likely need more money. You will only need less money when you retire if you are lowering your standard of living. Real estate taxes, income taxes, cars, gas, medical expenses, clothes, food, medicine, and insurance seem to always be increasing. Has anything gone down in price in recent years?

I have a self-directed account with my broker – can I use it to buy real estate or other non-traditional assets?

Most likely not, but you can always ask. Most brokers allow you to “self-direct”, but only in products they sell. You can transfer all or part of your account funds to a CamaPlan account that allows for true self-direction, and then invest.

Do you sell any non-traditional investments? Are you going to be calling me with a deal every week?

No – we are a neutral third party. We do not sell any products, nor give investment advice to our clients. We specialize in the use of tax-free and tax-deferred retirement and savings plans, and only provide that service, along with bookkeeping and required IRS reporting.

We take the privacy of our clients seriously, and we will never give away or sell your information to outside sources.

Why would an investor want to use their IRA or 401(k) plan to buy real estate?

Many clients already know the benefits and risks of investing in real estate, especially income-producing properties. There are a few key benefits for the investor using an IRA or 401(k). The investors are in total control, they dictate the rate of return, they feel they have less risky investments, and have less anxiety as opposed to the “hope is my strategy” approach.

  • The investment gains from that property will go directly back into their IRA or 401(k) on a tax-deferred basis. Every year, the gains will compound or grow in a tax-free environment, which leads to tremendous wealth accumulation over time.
  • Successful real estate investors can apply the same great returns they’re getting with their cash investments to their retirement savings plans.
  • Many new investors can actually get started in this market by tapping into this money they’ve saved over time. In many cases it allows investors to buy properties they weren’t considering before, especially if they partner their IRA or 401(k) funds with more knowledgeable investors.

Are non-traditional investments right for everyone?

Non-traditional investments may not be right for everyone, but many of our clients like the diversification. They get to use their knowledge and expertise, they are in control and have less stress and anxiety about their investments. If you know what you are doing, why do it any other way? Many people find comfort when investing in hard assets instead of just paper products.
 

Why do people say tax-free or tax-deferred investments build wealth?

That’s simple – you make interest on your taxes versus paying taxes on your interest. It is the same principle as compounding interest.  The money does the work for you and you have more money working for you because taxes are deferred on all income and earnings. This is unlike ordinary income that is taxed by everything from the Federal and State Government, to Social Security and Medicare.

I’ve heard of people putting more than the annual contribution into their Roth IRAs in a year – how is that possible?

You must distinguish between “earnings” which can be unlimited and “contributions” which are limited—several clients put earnings in excess of their annual contribution in their IRAs each year. If someone contributes more than is allowed, it would be considered an excess contribution and would be taxed at the prevailing rate. Individuals over 50 are able to put in a catch-up contribution, presently $1,000/year, for traditional and Roth IRAs. You should always check with your accountant or financial advisor. Our website has contribution limits for all type of plans.

What about Unrelated Business Income Tax?

Debt-financed property in an IRA is subject to Unrelated Business Income Tax (UBIT or UBTI or UDFI), provided that the net gain is more than $1,000 in a year. UBIT/UDFI is applied to profits made on the sale of a debt-financed property.
 
Preparation of the 990-T tax forms is performed by you. The appropriate agent will file such taxes and sign the tax forms on behalf of your plan.

Who in my family is considered a disqualified person?

Any ascendant or descendent of you and your spouse are considered disqualified. Children and their spouses, grandchildren and their spouses, parents and grandparents are prohibited. Family members such as siblings, nieces/nephews, aunts/uncles and cousins are allowed.
 
Partners, trustees and fiduciaries, as well as entities that any disqualified person or group of disqualified persons owns more than 50% of, are also prohibited. Please refer to IRS Code 4975 and Publication 590 for more details.

Are there any special rules required by the IRS when you make these investments?

Yes – the purchase has to be an “investment”, meaning you cannot buy a property and live in it, or sell your plan a property you already own. There are rules and regulations regarding Disqualified Persons.
 
You must also have an IRS-approved IRA administrator or custodian, such as CamaPlan, hold your account for you.

Can I consolidate my IRAs?

Yes. You may consolidate your IRAs into a single relationship with us by completing the appropriate transfer and rollover forms. Consideration of pre- and post-tax money should be discussed with your financial advisor and/or accountant.

How do I buy a piece of property in my IRA/401(k)?

The process is pretty simple – open an account with CamaPlan and make a contribution or initiate a transfer/rollover to fund it. Then, after performing necessary due diligence, identify the asset you want to buy (i.e. real estate) and make the offer in the name of the IRA. You, as the client, sign all papers as “read and approved’ and forward the documents to CamaPlan for final signatures.
 
CamaPlan then wires the funds to the closing agent. After closing, you can check your online account for the asset addition to your portfolio. For more details on the investment process, click here.

What happens to my un-invested funds?

As all plans are self-directed, you may direct all funds anywhere you wish. All funds for which we receive no instructions are held for your benefit in an FDIC-insured account. If you wish to use a bank or other institution closer to you, all you have to do is direct us.

What are the fees to open an account?

There is a $50 account establishment fee that is due when you send in your application paperwork. There are no annual fees charged until your account makes an investment.  You may choose between two options for your annual recordkeeping fee – Value-Based (based on the value of the account) or Asset-Based (based on the # of assets your account holds). As an example, an account with one property would pay $275 per year.
 
Most clients agree that the fees are inconsequential compared to the savings. Please download our Fee Agreement for complete details about your options.

How do I open and fund an account?

Account applications can be downloaded from our website. Please visit our Forms and Downloads page . Or, you can call our office and one of our associates will email or fax you a copy.
 
Funding paperwork is also available on our Forms page. You can fund your new account via an annual contribution, automatic salary deduction, a transfer from an existing IRA, and/or a rollover from an employer plan – typically 401(k) or 403(b).

Why haven’t more people heard about this and is it legal?

There are probably several reasons why people haven’t heard of it:
  • Most professional advisors, financial planners and/or accountants are not taught this for whatever reasons. In many cases, when CamaPlan conducts education courses for these professionals, it’s the first they’ve heard of it. We provide education credits for attorneys, CPA’s, CFP’s and realtors.
  • If an advisor is selling products like mutual funds and life insurance, in many cases they are getting commission on those products. They would not have an incentive to encourage a client to invest in non-traditional assets such as real estate unless they were acting as real estate agents or real estate brokers. Quite simply, there may be a conflict of interest.
  • Many realtors are unaware of the benefits for their clients looking for investment properties. Realtors should be telling their clients about this because it could mean buying a higher priced property or multiple properties, which ultimately leads to higher commissions for them.

How long have self-directed IRAs been able to invest in non-traditional assets?

Self-directed IRAs have been around since 1975, shortly after Congress passed the ERISA legislation in 1974. Many unions and insurance companies have been doing it for longer than that. In the past, most banks and administrators would only do it for their best or wealthiest clients.
 
There have been many books and articles in the Wall Street Journal, Forbes, and other publications discussing the capability of self-directed IRAs. Google currently has information on the subject, which has been growing steadily for years.
 
Of course, IRS forms and publications (590 and 560 in particular) discuss these types of accounts as well, but how many people want to read those forms?

What does the IRS prohibit?

The IRS specifically prohibits life insurance, collectibles, antiques, artwork, precious metals (see exceptions), rugs, alcohol and gems. These items are noted in the IRS code, section 4975, pubs 560 and 590. The IRS does not approve any investments; they only tell you what is prohibited.

What can a self-directed IRA invest in?

Real estate (including single family residences, apartment buildings, raw land, parking spaces, duplexes/twins/quads, and commercial real estate, such as offices & warehouses), precious metals (gold and silver bullion), notes, mortgages, structured settlements, tax liens/deeds, LLC’s and LP’s, etc. Basically anything the IRS does not prohibit is permissible.

What kind of IRAs, 401(k)s, or other types of plans can be self-directed?

Traditional IRAs, Roth IRAs, Spousal IRAs, Coverdell ESAs, Health Savings Accounts (HSAs) individual or solo 401(k)s, Group 401(k)s and Defined Benefit Plans are just a few examples.

Where are you located?

Our headquarters is located at 122 East Butler Ave, Suite 100 Ambler, PA 19002. We also have sales offices in various locations throughout the US. To schedule an appointment at a location that is convenient for you, please call 866-559-4430.

Who is CamaPlan?

CamaPlan is an administrator that does the recordkeeping and required IRS reporting so our clients can invest their qualified plans in a myriad of investment categories. CamaPlan is a neutral third party, and does not sell any investments, so there is no conflict of interest. We allow our clients to use their knowledge and experience to invest in what they know and understand.

What is a self-directed IRA?

A truly self-directed IRA is one that allows you to invest in anything you want, except the few things the IRS prohibits. All the rules and regulations are exactly the same as any IRA or qualified plan, including contributions, distributions, taxes, penalties, etc.

Do I need to file state or local tax returns for property owned by my self-directed IRA or 401(k)?

Traditionally, entities exempt from having to file federal tax returns were also exempt from having to file state and local returns. But some local jurisdictions, including the cities of Philadelphia and Detroit, among others, now require returns as they seek to account for income generated within their borders. This may become more prevalent as city budgets and associated deficits continue to grow. The tax or filing requirement will have different names depending upon jurisdiction similar to the ‘business privilege tax’.

So we recommend contacting municipal authorities where your properties are located for information about requirements, and then consulting your accounting and tax advisors. This is a good time to get a separate Taxpayer Identification Number (TIN) for your account in case you need to file.

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