The 6th Annual ACCOUNT GUIDES - Directed IRA
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The 6th Annual
ACCOUNT GUIDES
April 23rd & 24th, 2021 1
www.SDIRASummit.comROTH IRA ACCOUNT GUIDE
Roth IRA - (pay taxes now, retirement is tax free)
A Roth IRA is an Individual Retirement Account to which you contribute after-tax dollars. While there are no current-year tax benefits, your contributions
and earnings can grow tax-free. There are no contribution age restrictions, nor do you have to take Required Minimum Distributions (RMDs).
Roth IRA Account PDF Form
CONTRIBUTIONS Modified Adjusted Gross Income (MAGI)
§ $6,000.00 or $7,000.00 if over 50
Married Filing Separately Married Filing Jointly Filing Single?
§ No Age Limits
§ Must have earned income
§ Must fall within MAGI requirements
MAGI less than $198,000 = MAGI less than $125,000=
Lived with your spouse at Can contribute up to the Can contribute up to the
any time during the year. max *2020: $196,000 max *2020: $124,000
MAGI $208,000 or more = MAGI $140,000 or more =
MAGI less than $10,000 Can No Contribution can be No Contribution can be
contribute a reduced amount
made *2020: $206,000 made *2020: $139,000
Did not live with your
MAGI $10,000 or more = No spouse at any time
Contribution can be made during the yearBACKDOOR ROTH STRATEGY
HOW CAN I BENEFIT FROM Backdoor Roth IRA Strategy PDF Application: PDF Form
A ROTH IRA IF I EXCEED THE Additional Resources on Backdoor Roth Strategy
§ Mark’s YouTube Video: Backdoor Roth IRA
INCOME LIMITS § Mat’s Blog Article: Back Door Roth IRA Rules and Steps
§ Mat’s Blog Article: Roth IRAs Are for High-Income
Earners, Too
1 2 3 Caution: If you have existing
Traditional IRA funds those
Step 1: Make a Non- Step 2: Establish your Step 3: Convert Non- must be converted first
Deductible Contribution Roth IRA Deductible Funds
Make a non deductable This account will receive your Convert non-deductible funds
contribution to your Traditional Roth conversion and is the from your Traditional IRA to your
account you will make your Roth IRA. There is no tax for this
IRA, up to $6K [$7K if 50+]
investments. conversion.DISTRIBUTIONS
Under 59 ½ Over 59 ½
Roth IRA contributions can
§ Principle contributions can
be withdrawn at any time
§ Principle contributions can
be withdrawn at any time always be withdrawn without
§ Earnings must be left in Roth
IRA account until age 59 ½
§ Earnings can be withdrawn
as long as account owner
tax or penalty
has had Roth account for 5
(or taxes and penalties will
years (this is the “Five Year
apply)
Rule”)
ADDITIONAL RESOURCES ON ROTH IRAS: WHY A ROTH IRA?
§ Mark’s YouTube Video: Traditional IRA vs Roth IRA § Enjoy tax-free withdrawals
§ Mark’s YouTube Video: Can My Spouse Have a Roth IRA § Watch your money grow tax-free longer
§ Mark’s YouTube Video: Roth IRA – For your Children? § Unlike Traditional IRAs, Roth IRAs don’t have RMDs
§ Mat’s Blog Article: Roth IRAs- Other Perks on Top of Tax- during your lifetime
Free Growth § Leave a tax-free inheritance to your heirs
§ Mat’s Blog Article: Roth IRA Distributions Before Age 59 ½ § The people who inherit your Roth IRA will have to take
annual RMDs, but they won’t have to pay federal
§ IRS Website: Amount of Roth IRA Contributions
income tax on their withdrawals (as long as the
§ For year 2021 account’s been open for 5 years)
§ For year 2020 § Pay tax on the smaller investment amounts nowTRADITIONAL IRA ACCOUNT GUIDE
TRADITIONAL IRA - (pay taxes at retirement)
A Traditional IRA is an Individual Retirement Account to which you can contribute to pre-tax or after-tax dollars. The money grows in the account tax-
deferred, but you will pay ordinary income tax on the withdrawals at retirement. A Traditional IRA is a good option for those who expect to be in the
same or lower tax bracket at retirement.
Traditional IRA Account Form: PDF Form
Does the individual (AND spouse, if applicable) have a
current Retirement Plan with an
CONTRIBUTIONS
§ $6,000.00 or $7,000.00 if over 50
§ No Age Limits
§ Must have earned income YES NO
§ May be deductible
Married Filing Separately Married Filing Jointly Filing Single? Can take a full
deduction up to the
amount of your
contribution limit
MAGI less than $10,000 = MAGI $105,000 or less = MAGI $66,000 or less = Full
Partial Deduction Full Deduction *2020: $104,000 Deduction *2020: $65,000
MAGI $10,000 or more = No MAGI $125,000 or more = MAGI $76,000 or more =
Deduction No Deduction No Deduction *2020: $139,000DISTRIBUTIONS
AGE TAXES APPLY PENALTIES You can begin withdrawing from your account
APPLY
at age 59 1/2 (any withdrawals before this age
59 and under
are subject to penalty and taxes) and you’re
59 ½ - 72 required to take a distribution each year
beginning in January after the age of 72.
72 and over
required by law
(RMD – Required
Minimum Distribution)
WHY A ROTH IRA?
ADDITIONAL RESOURCES ON TRADITIONAL IRAS:
§ Enjoy tax-free withdrawals
§ Watch your money grow tax-free longer
§ IRS Website: 2021 IRA Contribution and Deduction § Unlike Traditional IRAs, Roth IRAs don’t have RMDs
Limits during your lifetime
§ IRA Deduction if you ARE covered by a § Leave a tax-free inheritance to your heirs
§ The people who inherit your Roth IRA will have to take
Retirement Plan at Work
annual RMDs, but they won’t have to pay federal
§ IRA Deduction if you are NOT covered by a income tax on their withdrawals (as long as the
retirement plan at work. account’s been open for 5 years)
§ IRS Website: Required Minimum Distribution FAQ § Pay tax on the smaller investment amounts nowHEALTH SAVINGS ACCOUNT GUIDE
Health Savings Account - PDF Form
A tax-advantaged account created to help individuals save for medical expenses that high-deductible plans don’t cover. Can be used to pay for qualified
medical expenses at any time without federal tax liability or penalty.
ELIGIBILITY
CONTRIBUTIONS Are you enrolled in a High-Deductible Health Insurance
§ Individual Plan Limit: $3,600 (2021) Plan (HDHP)?
§ Family Plan Limit: $7,200
§ Contributions are tax-deductible
YES
NO NOT SURE*
You are eligible *IMPORTANT - It should always be
to establish a recommended that the client should You are not eligible to
Health Savings contact the insurance provider directly establish a Health
Account to inform them whether they are eligible. Does your plan pay for other
Savings Account.
services, such as doctor visits
or prescription drugs, before
Your plan may be a you meet the deductible?
High Deductible Health
Plan.* You will want to
contact your insurance
provider directly with Does your plan have a minimum deductible of $1,400.00 or more
any eligibility for an individual plan or $2,800.00 or more for a family plan?DISTRIBUTIONS
AGE TAXES APPLY 20% PENALTY APPLIES
Non-Qualified Withdrawal (under age 65)
Non-Qualified Withdrawal (over age 65)
Qualified HSA distributions (List of expenses in
‘Additional Resources’ below)
Q&A ADDITIONAL RESOURCES ON HEALTH
What’s the ”Last Month Rule?” SAVINGS ACCOUNTS:
Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax
year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. § IRS Website:
§ Publication 502: List of Eligible Medical
What is the “One-Time IRA to HAS Conversion?” and Dental Expenses
A once in a lifetime penalty and tax-free rollover of money is allowable from your Individual
§ More information regarding Qualification,
Retirement Account (IRA) to a Health Savings Account (HSA). You can do this only if you are eligible
to make new contributions into your account (have an existing HDHP). Benefits, and much more
§ Mark’s Blog Article: The Power of the Health
Can I designate anyone to inherit and maintain the HSA? Savings Account
If you designate a Spouse Beneficiary: If you name your spouse as your HSA Beneficiary, at your death § Mark’s YouTube Video: HSA Basics and
the HSA will become your spouse’s own HSA. They can maintain the HSA in their own name and Surprising Strategies
continue to access funds. § Ed Slott’s Article: What You Should Know Before
You Name an HSA Beneficiary
If you designate a Non-Spouse Beneficiary: The account value of the HSA account becomes taxable to
the non-spouse beneficiary in the year of your death. That means the entire account will be taxable in
one year.COVERDELL EDUCATION SAVINGS ACCOUNT GUIDE
Coverdell Education Savings Account (ESA) - PDF Form
A tax-advantaged investment account designed to pay the educational expenses (i.e., elementary, secondary, and postsecondary school) of an individual
who is the designated beneficiary and is under age 18 or a special needs beneficiary.
CONTRIBUTIONS You are eligible to contribute as a…
§ Yearly Contribution Limit: $2,000.00 Single Filer
§ Contributions are not tax-deductible If MAGI is less than $110,000.00.
§ Account can accept contributions up
until their 18th birthday* Married Couple Filing Jointly
§ *does not apply for special needs beneficiary
If MAGI is less than $220,000.00.
§ The eligibility to contribute is based on
the adult’s modified adjusted gross
Contributions to a Coverdell ESA for the previous year
income and tax filing status
must be made by April 15th
The individual who opens the EXAMPLES OF QUALIFIED EXPENSES
account or makes annual
Can I only establish Stationary Supplies Uniforms Transportation Books
contributions to the account
an account for a
does not have to be related to
family member?
the beneficiary. Student Activity Fees Tuition and Fees Laboratory Fees
Academic Tutoring Room and Board Computer/Computer SoftwareDISTRIBUTIONS
IMPORTANT!
TYPE OF WITHDRAWAL TAXES 10% PENALTIES
APPLY APPLY If a distribution exceeds the beneficiary’s qualified
education expenses, the portion of the distribution in
ESA Qualified Expense
excess is taxable to the beneficiary.
Non-Qualified
Withdrawal
Upon the beneficiary reaching age 30, any remaining funds in the ESA must
be disbursed. Taxes, fees, and penalties will apply to the distribution.
*Does not apply to special needs beneficiaries ‘Family Member’ Rule as Defined by the IRS
(Must be under Age 30)
Can I change the beneficiary if Yes, you would have to make the change
the balance does not get used before the existing beneficiary turns 30. § Beneficiary’s child, grandchild, or stepchild
by the time the existing Also, the new beneficiary needs to be a § Brother, sister, stepbrother or stepsister of beneficiary
beneficiary turns 30? ‘Family Member’ of the existing beneficiary. § Niece or nephew of the beneficiary
§ Father, mother, grandfather, grandmother, stepfather, or
stepmother of the beneficiary
§ Aunt or uncle of the beneficiary
§ Beneficiary’s spouse, son-in-law, daughter-in-law, father-in-
law, mother-in-law, brother-in-law, or sister-in-law
ADDITIONAL RESOURCES ON TRADITIONAL IRAS:
Mat’s Blog Article: College Savings Accounts: Coverdell Versus 529 § ALSO APPLIES TO BENEFICIARY THE RESPONSIBLE
Mark’s Blog Article: The Hidden Power and Benefits of a College Education IRA INDIVIDUAL WILL ENTER IN THE BENEFICIARY
Mark’s YouTube Video: What is a Coverdell Education IRA? DESIGNATION ON DIRECTED IRA APPLICATION.SEP IRA ACCOUNT GUIDE
SEP IRA - (Simplified Employee Pension)
SEP IRAs are adopted by business owners to provide retirement benefits for themselves and their employees. There are no significant administration
costs for self-employed person with no employees. All contributions are funded by employer contributions.
SEP IRA Account Form: PDF Form
CONTRIBUTIONS CONTRIBUTIONS
1. Very Small Businesses 2. Self-Employed or
§ Up to 25% of compensation (not to exceed the Independent Consultants
maximum contribution of $58,000.00 for 2020).
§ Based only on the first $280,000 of income
§ Contributions are made by employer only
§ Contributions must be equal percentage for all business
owners and eligible employees
§ Can be made for last year until the tax filing deadline
No, you cannot have both a SEP IRA and a Solo
If the employer has filed an extension, then the final SEP Can I open a SEP if I
have a Solo 401(k)
401(k) account. Per the 5305-SEP : You cannot
use the SEP if, “ [you] currently maintain any
IRA contribution date is the extension deadline which is account?
other qualified retirement plan”.
usually October 15.DISTRIBUTIONS
AGE TAXES APPLY PENALTY APPLIES
59 and under
59 ½ - 72
72 and over REQUIRED BY LAW
(RMD – Required Minimum Distribution)
Do I need to contribute for all of my employees or just eligible ADDITIONAL RESOURCES ON SEP IRAs:
employees? What makes an employee eligible?
§ IRS Website:
You do not need to contribute for all employees. An eligible § Calculating Your Own Retirement
employee is an individual who meets all of the following Plan Contribution and Deduction
requirements: § Who Can Participate in a SEP or
SARSEP Plan?
§ Has reached age 21
§ Operating a SEP
§ Has worked for the employer in at least 3 of the last 5 § Mat’s Blog Article: Can I Use a SEP IRA If I
years Have Employees?
§ Mark’s YouTube Video: What Strategy
§ Received at least $650 in compensation from the Makes More Sense the SEP or 401k?
employer during the year 2021SOLO 401(K) ACCOUNT GUIDE
Roth IRA - (Can be both Roth and Traditional)
The Solo 401(k) is an Employee Benefit Plan that is exclusively for business owners that have no employees besides themselves and a spouse. The Plan
is adopted by a company, not an individual, that has earned ordinary income from the sale of goods or services.
Solo 401(k) Adobe Link: Click Here for the Solo 401(k) Application
NOTE: The application is a two-step process. The client will first need to complete the linked application. Once the Solo 401(k) representative receives
the KKOS application, the representative will then send Directed Trust Company’s application to the client pre-filled with their information.
SOLO 401(k) vs SDIRA
Must be self-employed with no Full-Time Self-Employment not required – must have
Qualification Employees (besides yourself and a spouse). earned income to contribute.
Contribution Limits Max Annual Contribution = $58,000.00. Max Annual Contribution = $6,000.00
($7,000.00 if over 50).
Custodian Requirement You can be the Trustee and Administrator – No You MUST have a 3rd Party Custodian.
Custodian required.
Rollover Limitations Can rollover most retirement accounts except Roth Can rollover existing retirement accounts
IRA and 401k with a current employer.
Loans Can borrow up to $50,000.00 from the 401(k) it is Cannot borrow from the IRA.
called a Participant Loan.
UDFI Tax Real Estate is NOT subject to UDFI Tax. Real Estate IS subject to UDFI Tax.
Consequences of Prohibited 15% excise tax if prohibited transaction occurs. Entire IRA is distributed if Prohibited Transaction
Transaction occurs.SOLO 401(k) vs SDIRA
Client is Trustee and Plan Administrator. Client is Trustee and Plan Administrator.
Trustee/Plan Administrator What is the difference
between the two types of
Custodian No Custodian is named. Directed Trust Company named as Custodian. Solo 401(k) accounts that
you offer?
Bank Account Option Client goes to a bank of their choice to set-up a Transactions will be made through an
Trust Checking Account. account held with Directed Trust Company.
Client needs 401k/LLC to obtain checkbook
Checkbook Control Client has immediate checkbook control through
control.
their Trust Checking Account.
Record Keeping Client is responsible for all record-keeping and Directed Trust Company handles all
IRS filings required of the plan (ie. 5500 EZ or recordkeeping and IRS filings required of the
Responsibilities 1099-R**) plan.
Directed IRA Fee $150.00 Annually $350.00 for the 1st account, $250.00 for each
additional account under the plan.
In addition to the fees mentioned above, KKOS will draft and bill the client to prepare the new plan documents.
$995.00– Full Service, attorney consult, plan documents and plan binder.
$495.00 – Plan Docs, plan binder. No attorney consult.
Does the client already have a Solo 401(k) but it’s either out of date or it is a plan captive with a broker/dealer and you can’t self-direct? Restatement fee is $495.00.
ADDITIONAL RESOURCES ON SEP IRAs:
Mat’s Blog Article: Self-Directed IRA Versus Solo 401(k) Mat’s Blog Article: RMDs and Solo 401(k)s
Mat’s YouTube Video: When to Use a Solo 401(k) vs. A Self-Directed IRA Mark’s YouTube Video: 5 Reasons Why You SHOULD Use the Solo 401(k)
Mark’s YouTube Video: What is a Backdoor 401(k)? Mark’s YouTube Video: Can You Self Direct a 401(k)?
Mat’s Blog Article: 4 Reasons to Ditch Your SEP IRA for a Solo 401(k) IRS Website: One-Participant 401(k) Plans
Mark’s YouTube Video: The Rare Self-Directed Solo 401(k)DEFINITIONS, DEADLINES, & DIAGRAMS
5500 EZ – The Administrator of the plan is required to file Form 5500 EZ FUNDING VIA CONTRIBUTIONS OR ROLLOVERS
with the IRS if their Solo 401(k) plan has a combined value of assets over
$250,000.00.
1099- R – Issued anytime money leaves a retirement plan (account) or if a
Roth Conversion occurs. Old 401(k)
Participant Loan – Loan that allows account holders to take loan up to
Rollover
$50,000.00 or 50% of available plan balance. Interest Rate is Prime + 2%.
Employer contributes up to 25% (S-Corp,
The loan must be paid within 5 years and payments must be made at least C-Corp) or 20% (Sole Prop, Partnership)
quarterly. of the Employees Compensation
New Solo 401(k) Set-Up Deadline – December 31st. (Traditional Funds Only)
Contribution Deadline for Sole Prop, Single-Member LLC, or C – Corp –
April 15th (can be extended by filing an extension)
Contribution Deadline for S – Corp or partnership LLC – March 15th (can be
extended by filing an extension)
Company New Solo 401(k)
(Adopting Employer
or Solo 401(k))
Receive’s Rent,
Pays Expenses Contribute up to $19,500
Wages from company
401(k) Owns wages of self-employment
100% of LLC income per year.
(Roth or Tradtional)
Buys Property
New Solo 401(k) 401(k)/LLC Rental Property
ABC Mgmt, Inc. “XYZ Investments, LLC”
Retirement Plan Trust You/Owner(s) of
Self-Employed CompanyRETIREMENT ACCOUNT TYPE GUIDE
Type of Account 2021 Contribution Limit: Qualifications Withdrawals/Distributions
$6,000.00 Age 59 and under: Taxes and 10% penalty
($7,000.00 age 50 and over) apply
Traditional IRA Age 59 1/2 – 72: Taxes apply, but no penalties
Age 72 & over: Taxes apply, and distributions
are required by law (RMD)
$6,000.00 Single Filer: MAGI under $124,000.00 Married Withdrawals are tax and penalty-free after age
Roth IRA ($7,000.00 age 50 and over) Filing Jointly: MAGI under $196,000.00 If client 59 1/2 and once the account has been open for
does not qualify due to income 5 years
Cannot exceed: 25% of compensation (up to An employer (sole proprietors, partnerships, Age 59 and under: Taxes and 10% penalty
$58,000.00) and corporations) can set up a SEP plan. * apply
SEP IRA Age 59 1/2 – 72: Taxes apply, but no penalties
Age 72 & over: Taxes apply, and distributions
are required by law
Individual: $3,600.00 Must be enrolled in high-deductible health Funds can be used for eligible medical
expenses
Health Savings Account Family: $7,200.00 insurance plan (HDHP)
Publication 502
$1,000.00 catch up for 55 and older
(HAS) If funds are used for non-eligible expenses:
Pay taxes plus a penalty if under age 65
$2,000 You are able to make a full contribution if your Qualified Education expenses
Coverdell Education Savings MAGI is under $95,000 (single filer) or less Section 530 (2)(A)
Account than $190,000 if married filing jointly.
$58,000.00 max Employee: $19,500.00 Business owners that have no employees Age 59 ½ and under: Taxes and 10% penalty
Employer: S or C corp – 25% of the participant’s besides themselves and a spouse. apply, with exceptions
Solo 401(k) W-2 pay LLC or Sole Prop – 20% of the Age 59 ½ - 72: Taxes apply
participant’s self-employment income 72 and over: Taxes apply, and distributions are
required by law (RMD)
*Use the Types of Retirement Accounts information sheet for more information on the accounts offered by Directed IRA.You can also read
