berklee Member  Posts: 28 Joined: 9/16/2013 Location: Greenville, SC  User Profile | Mark, Thanks for the reference. Here is a little pearl I have not seen mentioned in the past on the blog - may be worth a separate thread. If one sets up a self-directed IRA, one can trade on margin within the IRA but you would need to pay UBIT (unrelated business interest tax) on the gains. This type of account configuration is similar to that used for real-estate investing with IRA funds (or purchasing and holding physical precious metals, or cryptocurrency, with IRA funds.) One needs to know all the rules because there are lots of ways to mess up with this... but it does allow some more freedom. Basically IRA assets are transferred to a custodial account. An LLC is formed which is considered a pass-through and TAXID is assigned to the LLC. If there are multiple IRA's involved, TAXID's are assigned to each IRA (as they are considered partners of the LLC.) The custodian is then directed to invest in the LLC and each IRA becomes a partner of the LLC. The LLC needs to file a 1065 on a yearly basis (added accounting expense), and IRA beneficiaries holders will need to file end of year valuation with the custodian. The LLC then opens a brokerage account which is funded with LLC holdings. This structure is still subject to UBIT tax if trading on margin. However, if one uses a foreign entity (rather than LLC) into which the custodian invests IRA holdings, this is considered a "UBIT Blocker" where the profits are now recharacterized as dividends and the UBIT issue is circumvented. http://www.ubitblog.com/2012/04/07/how-ubit-blockers-avoid-debt-financed-income/ This needs to be structured with the guidance of a tax attorney. Best, Lee | |
