Mastering Estate Planning: For Self-Directed Retirement Accounts

By Frank Selden

Attention all Self-Directed Qualified Account (SDQA), Self-Directed IRA (SDIRA), SoloK, or Rollover Business Startup (ROBS) holders! Are you prepared for the intricacies of estate planning specific to these types of accounts? This book is your ultimate resource, providing invaluable knowledge to help you avoid prohibited transactions, distributions, and even account disqualification. The consequences of mishandling the transfer of SDQA assets after the death of the Account Owner (AO) can be severe. But fear not, because this book is here to guide you through the process with clear, concise explanations of the proper procedures, making compliance a breeze.
Behind the expertise of this book is the author, a former personal banker who found his passion for SDQAs after a career-altering merger. Enrolling in law school and serving in the military, he later faced a back injury that led him to discover the world of self-directed IRAs and ROBS. Armed with his knowledge and experience, he now shares his insights with you to ensure your estate plan is properly prepared for the seamless transfer of assets when the time comes. Why waste tens of thousands of dollars on unnecessary taxes and legal fees when you don't have to? Just like a brief, six-minute phone call saved a caller from a hefty tax bill, this book has the potential to provide you with the same invaluable advice.
Not all professionals possess the answers to the questions tackled in this book, so it's crucial to empower yourself with the knowledge found within these pages. And if you find it helpful, don't hesitate to share it with others who could also benefit. Remember, though, that reading this book does not replace professional advice, and if you require legal assistance with the IRS, seek the services of a qualified professional.
Dive into the world of self-directed qualified accounts and the nuances of estate planning, taking control of your financial future. This comprehensive guide will demystify the complexities and ensure a smooth transfer of wealth. Don't miss the opportunity to save thousands and pave the way for a stress-free estate planning process.
Key features of this book:

- Detailed explanations of the estate planning nuances specific to Self-Directed Qualified Accounts.

- Step-by-step guidance to help you avoid prohibited transactions, distributions, and account disqualification.

- Insights from a former personal banker and expert in the field.

- Real-life examples of how proper estate planning can save you from hefty tax bills.

- A roadmap to navigate the complexities and ensure the seamless transfer of wealth.

- Sharing-worthy knowledge that not all professionals possess.

Master estate planning for your Self-Directed Qualified Account with expert guidance. Prepare for a seamless transfer of wealth and avoid costly mistakes. Empower yourself with invaluable knowledge today!

• Language: English
• Publisher: 22 Lions
• Release date: Sep 19, 2023
• ISBN: 1953274609

Book preview

Preface

This book helps anyone with a self-directed qualified account (SDQA), self-directed IRA (SDIRA), SoloK, or rollover business startup (ROBS) understand the estate planning nuances raised by these constructs.

Misunderstanding how to transfer SDQA assets when the account owner (AO) dies can result in prohibited transactions, distributions, or account disqualification. Intent is not an issue - waivers or appeals are rarely granted. Fortunately, the rules are not onerous. Compliance is easy if you know the proper procedures.

Clients often ask me how I came to build a law practice focused on SDQAs. I grew up on a dairy farm, left farming in my early thirties to join the Army National Guard, and returned home after boot camp and military school to work for a local bank. I loved banking. I planned to work in the industry until I retired. I offered loans, IRAs, mutual funds, annuities, and helped people with important life issues.

While I was a personal banker, I enrolled in a local college to qualify for a promotion to district manager. Any bachelor's degree qualified; the bank did not require a degree in finance or business. Our local community college offered only a few degrees in its night program. I chose psychology, a rather useless bachelor's degree, perhaps suitable for employers who don't care about a degree's major or for admission to a graduate program.

The bank I worked for merged with a larger bank in the spring quarter of my senior year. The merger eliminated many positions, including my promotion. The reorganization also moved investment sales, everything I liked about my job, to a new securities department. I didn't like banking anymore. I enrolled in law school that fall, intending to focus on estate planning. Then 9/11 happened. The military called me to active duty. The law school allowed me to complete my studies while on military orders. The Army gave me a four-day pass so I could return home from training to take the bar exam. I was then shipped to Iraq to join my unit.

Too many soldiers discover that one improvised explosive device (IED) can ruin their entire day. In my case, a back injury and eventual medical discharge. Six months of physical therapy allowed me to work eight to ten hours a week. I looked for jobs that I could do from home. A new company in our area needed an attorney to help with their self-directed IRA product. The part-time workload and my banking background were a perfect match for their needs. A year later, they added a ROBS product as well. I stayed with that company for ten years until health issues forced me to take a break. I then started my own company creating, managing and liquidating self-directed retirement funds. That business closed in 2021.

Periodically, I helped clean up messes created by an SDQA promoter who didn't pay attention to the details, or by the client who didn't know any better. Some messes arose because the SDQA owner died and the client, often an executor or heir, misplaced assets and received a tax bill.

This book will help you prepare your estate plan correctly so that the assets pass properly when the time comes. It will save you or your loved ones potentially tens of thousands of dollars in unnecessary taxes and legal fees.

Years ago, my phone rang. I recognized the area code as San Francisco. I clicked the answer button. After a few pleasantries, including remarks about the Seahawks vs. 49ers that year, the caller asked me an SDQA question. I answered it. He asked how confident I was in my answer. I replied, 100 percent and gave him the appropriate reference. He was silent for a moment. Then he asked how much he owed me.

Nothing! Less than six minutes! In those six minutes, however, I showed him how to avoid the enormous tax bill that would result from doing the transaction the way he had written it up. Lucky for him, he called me first.

Then he said something remarkable. Do you mind if I tell you something?

Not at all!

I asked a law firm here in San Fran this question. They wanted a $2,000 retainer to research it. They just called me to say they didn't have an answer yet and wanted to increase the retainer. Some days I hate lawyers ... present company excluded."

A correct answer might take two minutes, yet save someone five or six figures in taxes and penalties. Not all attorneys, CPAs, or financial advisors know the answers to the questions addressed in this book. If you find the information in this book helpful, please feel free to share it with others who may need it.

Except when discussing an actual court case, the characters in this book are fictitious and are not intended to portray any real persons, living or deceased.

You may have heard that the IRS may waive certain penalties or fees if the offending taxpayer relied on professional advice in the matter that brought the IRS to the scene. Reading this book does not constitute such reliance. If you want professional advice that will defend you with the IRS, then you must find such a professional and pay for his services.

Another disclaimer: The tax code and links in this book are correct as of July 2023. If I revise the book in the future, I will change the as of date here.

I hope you find this book valuable. Please feel free to share it with others who could use its advice.

Blessings on your journey,

Frank Selden

Somewhere in the Caribbean, 2023

Introduction

Are you someone who has a Self-Directed Qualified Account (SDQA), Self-Directed IRA (SDIRA), SoloK, or Rollover Business Startup (ROBS)? If so, this book is a must read for you. Understanding the estate planning nuances raised by these constructs is critical to avoiding prohibited transactions, distributions, or even account disqualification. The consequences of not knowing how to transfer SDQA assets after the death of the Account Owner (AO) can be detrimental. But fear not, because this book is here to help. With clear and concise explanations of the proper procedures, compliance becomes easy.

So how did the author, a former personal banker, end up writing a book focused on SDQAs? It all started with a merger that changed the course of his career. After leaving banking and enrolling in law school, he was called to serve in the military after 9/11. Eventually, a back injury forced him to work from home, and that's when he discovered the world of self-directed IRAs and ROBS. With his knowledge and experience, he helped clean up the messes created by others' lack of attention to detail or simply not knowing any better.

Now, he has put all of his expertise into this book to help you properly prepare your estate plan so that your assets will transfer smoothly when the time comes. Wasting tens of thousands of dollars in unnecessary taxes and legal fees is not an option when there's a way to avoid it. The author recalls a phone call that lasted less than six minutes but saved the caller from a massive tax bill. This book has the potential to give you the same kind of valuable insight.

Not all professionals have the answers to the questions addressed in this book, so it's important to arm yourself with the knowledge provided here. And if you find it helpful, don't hesitate to share it with others who might also benefit. Just keep in mind that reading this book does not constitute professional advice, and if you need legal representation with the IRS, you must seek the services of a qualified professional.

So dive into the world of self-directed qualified accounts and the nuances of estate planning and take control of your financial future. This book is your guide to navigating the complexities and ensuring a smooth transfer of wealth. Don't miss the opportunity to save thousands and pave the way for a stress-free estate planning process.

Chapter 1: Common SDQA Elements - Qualified Plans, Accounts, and Funds

According to the Internal Revenue Service (IRS), qualified plans include

Individual Retirement Arrangements (IRAs)

Roth IRAs

401(k), 403(b) and 457 plans

SIMPLE IRA plans (Savings Incentive Match Plans for Employees)

Simplified Employee Pension (SEP) plans

Salary Reduction Simplified Employee Pension (SARSEP) plans

Payroll Deduction IRAs

Profit sharing plans

Defined benefit plans

Money Purchase Plans

Employee Stock Ownership Plans (ESOPs)

Governmental plans

Funds are considered qualified if they are contributed to a qualified account in accordance with the contribution rules for that type of account. Realized gains are taxable to the account owner (AO) not in the year they are earned, but in the year the AO takes a distribution from the account. This book is not about taxing qualified accounts, comparing account types, or calculating required minimum distributions. This book focuses on understanding how to create or manage an estate plan that includes SDQAs. You can open a qualified account in person or online at banks, brokerage firms, financial advisory firms, and directly at some custodians. Finding an institution that offers SDQA features is more challenging.

If you walked into the bank where I worked and asked to open an IRA, I would say, Excellent. We do IRAs. Do you want laddered CDs, a long-term CD, or money market rates? That's it! Banks are in the distribution business. They sell financial products. As a sales organization, they like to give people choices. Our bank offered three options for an IRA because banks are only allowed to offer bank products. Back then, the interest rates on CDs and money market accounts were so high that people loved putting money in banks. Today? Not so much!

As a dually-licensed banker and securities advisor, I could also recommend mutual funds and annuities for my clients' IRA accounts. These investments were not bank products. I offered them through an affiliated brokerage firm under a parent company that owned both the bank and the brokerage firm. If someone wanted non-bank investments, regulations required me to replace my FDIC badge with a SIPC badge, change computer platforms and business cards, and inform the client that we were moving to a discussion of securities products. Subsequent regulatory changes took away my ability to even offer securities on the bank's platform. Today, you can walk into some banks and have securities account discussions, but with licensed securities advisors, not bankers, in dedicated, separate offices. They do not work for the bank and their products are not FDIC insured.

Suppose Ira Bancroft opens an account in October at a bank that offers qualified accounts. She decides to leave the funds long-term for her retirement and chooses a one-year CD as her investment. Her year-end statement shows a $5,000 CD earning modest interest. The CD account name includes the word Ira. Ira visits a CPA in January to start her tax return, which most CPAs appreciate because too many people bring in a shoebox full of paper on April 14, hoping for a miracle. The CPA reviews her W-2 and frowns as he mentally calculates her federal withholding as a percentage of her pay. Not enough withholding, he quietly observes. She'll need significant deductions to avoid a big tax bill. There are no employer plan contributions on her W-2. He asks Ira if she made any qualified contributions during the year. Ira isn't sure. She pulls out a bank statement that shows an account with the word IRA on it. Did Mrs. Bancroft make any qualified contributions?

For her deposit to qualify as an IRA contribution, she must have earned income and a deposit in a qualified account. In this example, we see a deposit, an account, an investment, an account title that includes the word IRA, an intent to save for retirement, and a custodian - everything we would expect to see if she correctly made a qualified contribution. However, she did not tell the bank that she wanted to make an IRA contribution. Her CD is not in an IRA account. She owes income tax on the $5,000, and the interest is taxable in the year it is earned. Based on her discussion with the CPA, can Ira do something to use the same $5,000 as