Plan for Retirement

What You Need to Know About IRAs

 An IRA is not a type of investment, it is a tax status of an investment or savings account. The IRA status indictates how taxes are treated but the account is comprised of investment securities, CDs or cash savings.

IRA vs Roth

Roth version of IRAs was established by the Taxpayer Relief Act of 1997 and named for its main sponsor William Roth. Whereas the traditional IRA is a mechanism for tax deferral, the Roth can provide actual tax free retirement income. Traditional IRA contributions are tax deductible for qualified account holders, Roth contributions are not. Traditional IRA earnings are tax deferred and taxes are paid as the money is withdrawn from the account. Roth earnings are tax deferred and actually are not taxed at all when withdrawn according to plan guidelines. Be aware of the 5 Year Rule. You cannot withdraw earnings or interest tax and penalty free until five years after your first contribution. Your five year clock starts in the tax year for which you made your first contribution regardless of the years of subsequent contributions.

Traditional IRAs as well 401(k) and 403(b) assets can be converted to a Roth IRA. With this unique feature, the converted amount is taxable in the year of conversion but the 10% penalty does not apply. The earnings after conversion grow tax-deferred and can be withdrawn tax-free.

A Roth conversion can also be recharacterized. An account holder can change the Roth back to a Traditional provided it is done by the tax filing time including extensions of the tax year in which the conversion was done. This may be useful if there was a large drop in value after conversion, the future  tax outlook has changed or tax payer does not have the funds available to pay the tax due on conversion.

Savers Bonuses

IRA account holders who are over age 50 can contribute a set additional amount per year above the stated limits, currently set at $1000.00. This is called a “catch-up” contribution designed to help people nearer to retirement catch-up on their savings.

Secondly, lower income IRA contributors actually get a tax credit for making contributions. A credit differs from a deduction. A deduction reduces taxable income. A credit reduces actual taxes due. For the IRA “Savers Credit” a married person making $39,000 or less can get a 50% tax credit for their contribution. In other words, if they contribute $2000, not only do they get any deduction due prior to calculating what taxes are owed they also get a $1000 reduction in taxes owed by applying the tax credit.


This is an attractive low cost way to allow employees to set aside tax deferred earnings. Employers can allow employees to choose their own financial institution by establishing the plan with IRS Form 5304- SIMPLE or the employer can choose the institution with IRS Form 5305-SIMPLE. Once established, employees complete an adoption agreement. Employers can elect a 2% minimum contribution or a 3% matching contribution.

Make It Simplified

The Simplified Employee Pension (SEP) is another attractive low cost method of setting aside money tax deferred. Contributions are made only by the employer. These plans must be established by tax filing time, usually April 15 or in the case of an extension October 15. SEPs are treated like traditional IRAs for tax purposes and are often referred to as SEP IRAs. Employees must establish a traditional IRA to participate.

SEPs have higher contribution limits than IRAs and SIMPLEs. Business owners and the self-employed can put away 25% of pay up to $57,000 for the 2020 tax year and $58,000 in 2021.

Saving for Education

The education IRA has been rebranded into the Coverdell Education Savings Account (ESA). It works similar to an IRA. Contributions are limited based on income. Capital gains and earnings are tax deferred until withdrawn. Then are distributed tax free up to the total amount of education expenses in the year distributed.

Funds remaining in the account beyond the student’s 30th year will be subject to taxes and fees. Special needs students may not be subject to this rule depending on qualification.

Alternative IRA

An IRA is not a type of investment, it is a tax status of an investment or savings account. The IRA status dictates how taxes are treated but the account is comprised of investment securities, CDs or cash savings. The investment optionality depends on the custodian of the IRA account.  If you would like to learn more about IRA structures that give you full control over your assets or access to a broader range of investment options beyond stocks and bonds, see the information on the Check Book IRA below.

There have been many changes in the past few years to the retirement and education plans discussed here. The majority of these changes have been improvements for most people. It may be a good time to evaluate your own situation and take advantage of these plans. As with any financial matter consult your financial and tax advisors.


What is a Check Book IRA?

Although an IRA account determines  when and how your retirement funds will be taxed, the investment options available to you are limited to the investments offere d by your custodian.  These investments usually consist primarily of stocks, bonds and mutual funds, although there are many other highly profitable and reliable investments to choose from.  For those who desire to have greater control over their retirement investments and more investment options, a Check Book IRA offers the best of both worlds!

A Check Book IRA is a Self-Directed IRA that owns a Limited Liability Company, LLC, managed by the IRA account holder – YOU.  As the sole owner of the LLC, all profits are retained by the IRA, and the IRA, not the LLC, is liable for all tax payments.  As a result, there are no taxes due until you make an IRA distribution.

Here are some of the key benefits of having a Check Book IRA:

  • The ability to manage your investments directly without waiting for a custodian
  • A vastly broader range of investment options – almost any investment is allowed by the tax code with the exception of collectables and life insurance contracts
  • Full check writing privileges (as the name implies)
  • Greater profit potential with favorable tax benefits
  • Lower custodian fees

What Can You Invest in with a Check Book IRA?

Compared to the options available on the stock market, the investment options for a Check Book IRA are almost unlimited.  Here are some examples of what you can invest in:

  • Rental Properties
  • Commercial Real Estate
  • Farms & Ranches
  • Tax Liens
  • Cryptocurrencies
  • Precious Metals
  • Intellectual Property


The list goes on, giving you complete freedom to invest and manage your retirement funds however you choose, faster, with lower fees and greater confidence.

Check Book IRA, LLC pioneered the Check Book IRA structure, coined the name, and owns the trademark.  From setting up a Check Book IRA to providing their expertise and guidance along the way, they are the best at what they do.  If you would like to learn more and see if this is the right investment vehicle for you, click The Roadmap to IRA Success to receive their FREE Download or to book a FREE consultation with one of their experts.

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