The magic day for Roth IRA Conversion is quickly approaching - January 1, 2010.  This will usher in a whole new era for investing in Roth IRAs.  Currently, if you have adjusted gross income of greater than $100,000, you cannot convert your Roth IRA to a Traditional IRA.  Effective January 1^st, the law will allow everyone, no matter what your income is, to convert to a Roth IRA.

The benefit of converting lies in the fact that distributions from a Roth are tax free versus taxable in a Traditional IRA.  From an investment stand point, a better decision would be to convert appreciating assets.

If you are considering making a conversion, there are several factors that must be considered.

1.       Value of the asset being converted – Based on current market condition it might be an excellent time to do a conversion.  When you do a conversion to a Roth, you do have to pay regular tax based on the current value.  If you own a piece of land, this might the time to do the conversion because most values are down.  If you own gold, you might want to hold off because gold prices are at all time high.  As noted above, you will have to pay income tax on the converted amount but you are not subject to IRA early distribution penalties of 10%.

2.       Do you have the money to pay the tax on the conversion?  Typically you do not want to use IRA conversion money to pay the tax.  It is best to use personal funds so that all tax sheltered retirement money can continue to grow tax free.

3.       What will your income be in the year of conversion?  If you know that your income will be down in 2010 that might be a better year to convert versus future years when the income is greater.  When you do a conversion you are still taxed but try to do a conversion when in a lower  tax bracket.

Finally any Roth Conversion in 2010 will let you defer the tax payment for two years.  This is a special onetime tax law change.  The way it works is, if you do a conversion in 2010, you will report no income in 2010, half the conversion amount as income in 2011 and the other half in 2012.  That means the final tax payment could be delayed until April of 2013.

Please consult your tax advisor before doing a Roth Conversion.  Everyone has a unique tax situation so please take the time to learn the learn the law and understand these changes.

Dave Owens, CPA, CES, is the managing member of Entrust Freedom, LLC.  If you have any questions about this article and would like more information please feel free to contact the author.  Dave can be contacted atowens@entrustfreedom.com or 239-333-1031.  Dave has been a practicing tax accountant for over 20 years. 

How do we make our financial decisions? Why do we invest the way we do and what is the benefit?  I think the current economy has put a cold dose of reality in every type of investor.  Many of us now realize that when our parents were harping on hard work and telling us what the world used to be like, they were not kidding. Oh my gosh, did I say my parents were right?

Building wealth is a long term process and it is a ton of work.  I think technology has helped us lose sight of how long it actually takes to build wealth.   The internet gives us instant access to so much information.  We can invest in stocks and watch them all day long, or have an email sent to us every hour telling us how the market is doing.  Today, I repositioned my portfolio only to look at it at lunch and find out it was down already.  Why did I look?

This is where an old Math formula could never be more important.   It is called the Rule of 72 and it should be one of the first things you learn when starting to invest.  The Rule of 72 is a math formula used to project how fast you can double your money based on a certain rate of return.

The formula is very easy and it is very useful to understand how powerful compound interest really is.  If we divide 72 by our projected rate of return, we find out how long it will take us to double our money.

Let's go through a simple example.  Assume I want to buy a rental house and I determine that with rental cash flow and market appreciation, I will get a 6% rate of return.  I divided 72 by 6, and it tells me it will take 12 years to double my original investment (72 /6 = 12).

Now let's assume you are in the highest tax bracket and Uncle Sam is going to tax 1/3 of your annual gain, so after you pay your taxes, your return is only 4% annually.  Now let us apply The Rule of 72; 72 divided by 4% return and the answer is 18 years.  Taxes or unexpected costs can quickly derail project profits or wealth. 

That is why it is important to understand investing and all the options available.  There are some great tax strategies available and they can be a great opportunity for everyone.  Some of the most popular strategies that help defer or eliminate taxes are 1031 Exchanges and Self-Directed IRAs.  By taking advantage of these strategies, your returns can be maximized by reducing taxes and helping the investor increase their returns sooner.  Self-Directed IRAs are a great opportunity for investors to use retirement funds to by real estate and other alternative assets.  The benefit is that no gains inside the IRA account are taxable until withdrawn.  This can lead to tremendous amount of wealth being accumulated in the retirement account.  The other option for real estate investors is a 1031 exchange.  1031 allows you to sell your investment real estate (please note this is non-IRA property) and pay no federal or state capital gain taxes on the transaction as long as you buy a new piece of investment real estate within the guidelines. Both strategies can be a huge benefit to savvy investors. Please consult your tax advisor for specific details regarding your situation and if you qualify.

The funny thing about the Rule of 72 is that the number we need to actually double our money is not 72, but 69.3.  The Rule of 72 is actually an estimate, and I think they thought no one would believe The Rule of 69.3, so somewhere along the line it was rounded up because it is so much easier to divide into 72.

If you want to know how long it will take you to triple your money, it is actually The Rule of 110.  For Example, 110 divided by an 11% rate of return, would mean it would take 10 years to triple your money. 

While none of us want to be math wizards, it is important to understand the basics or variables of wealth building.  In the long run it is will be well worth as grow your dreams.

Dave Owens, CPA, CES, is the managing member of Entrust Freedom, LLC.  If you have any questions about this article and would like more information please feel free to contact the author.  Dave can be contacted at owens@entrustfreedom.com or 239-333-1031.  Dave has been a practicing tax accountant for over 20 years. 

This spring it might have been an investment fad, now it is serious investments strategy, buying gold in your IRA.  This can be a well positioned move for many retirement accounts that are looking for security and stability in the coming years.  As we hear the term "Second Stimulus" being loosely floated to the public, fears of inflation grasp every economist.  In this scenario the economics lesson is simple, if you print too much money, it becomes devalued and tangible assets, like real estate and gold, will go up in value.

Gold can be held in IRAs and most retirement accounts in many different ways.  Some of the most common ways to hold Gold include:

•1.       Gold Bar or Bullion

•2.       Gold Certificates

•3.       Gold Money

•4.       Gold Mutual Funds

Owning gold bars is easy accomplished through a Self-Directed IRA.  The IRA owner is in complete control of their investments.  Typically the IRA owner directs their administrator to purchase the Gold through a prearrange purchase with the dealer that the client chooses.  The gold is usually held at a large company called a depository.  The depository will guarantee security of the gold.  There are several large depositories throughout the United States.  The depositories will charge a fee to store the gold and the nice part is that most depositories will not commingle your gold.  When you would like to sell your gold the depository will sell the gold and transfer the currency back to your IRA, it is a very smooth transaction.  Entrust is one the leading administrators of Gold IRAs in the country.

The argument is commonly made that holding gold in a mutual funds is the best way.  While it can be easy to purchase gold and silver this way, it is not the cheapest.  When you buy in a fund, the investor is at the mercy of the fund manager and has no control over their fees or expenses inside the fund.  The goal is preservation of principle and keeping costs down, this is not the case with a gold mutual fund. 

While the Gold is used throughout this article, any precious metal can be held in an IRA, the most common include, silver, platinum and palladium.  All have they own risk and specific guidelines and constraints.  While holding actual gold is common and easy, Silver is not typically held outright because of the weight and inconvenience.  The author can vouch for this last statement.

If you would like more information on purchasing Gold in your IRA, please feel free to contact Entrust Freedom at www.entrustgoldira.com or calling 239-839-1031 x212.  Entrust will be happy to send you a complete packet that outlines all the steps in purchasing the gold and other alternative assets including real estate.

Dave Owens, CPA is the Managing Member of Entrust Freedom, LLC.  Entrust is the largest IRA Administrator in the United States.  Please feel free to contact Dave with questions at 239-333-1031 or owens@entrustfreedom.com

Concentrated power has always been the enemy of liberty. - President Ronald Reagan

I don't want to be political, but I can feel a change in our Nation and it struck me how it applies to what I do for a living.  I have discovered Politics will never make you friends or clients - I will keep the political commentary brief.  Whether we like it or not, the society we live in is changing dramatically or at least our view of society is.  On the front page of USA Today, June 17^th, they noted a story about an agency that is being created by the current Administration from the Office of Consumer Finance.  The article stresses how consumers need financial protection; Big Business has made some major mistakes that have cost us all financially. 

For example, giving a credit card to every college student (90% of whom don't have jobs) was probably not Citibank's best move.  Every time I go to a Florida Gator football game and I see the credit card companies giving out a free Gator T-Shirt if you sign up for a card, I am amazed by the number of students and non-students lined up to get a free T-shirt.  Either they have no clothes or they are really hurting with the economy the way it is; that same shirt is $7 at the corner vendor. 

By creating this new department, what we are doing is saying that consumers don't need to think or take responsibility for their financial actions.  Uncle Sam will save them and the new department will only cost 100 Billion Dollars per year to run.  It would probably be cheaper to send the money to everyone that does not want to take responsibility for their financial actions.  As a society, we have decided that consumers don't want to read the fine print, so the Government will do it for them.  I am sure Former President Reagan turned over in his grave at thought of this new agency.  God rest his soul.

Government does not solve problems; it subsidizes them.  - President Ronald Reagan

One of the things our government has done right is to allow for Self-Directed Retirement Accounts.  The spirit of Former President Reagan lives in Self-Direction.  Self-Direction is independence, free thinking, control and most of all risk-taking.  This is your retirement and it is your responsibility.  

Self-Direction allows investors to buy alternative assets like real estate, private notes and mortgages, private LLCs, hedge funds, small community bank stock and gold.  What is more American than an investment in gold?  You can also buy more traditional assets like stocks and bonds with a Self-Directed IRA.  With Self-Direction you must do the research, read the fine print and decide what is best for you.

I think the government does not realize that most of us want to take risks; it is in our nature, we are Americans.  If some individuals don't want to read the fine print on their mutual fund statement and find out they are getting charged  an 8% load fee a year,  they need the suffer the consequences.  They do have options with Self-Direction.

Thank you President Reagan for your inspiration and the opportunity you gave us to think for ourselves and control our own lives.

Government's first duty is to protect the people, not run their lives. - President Ronald Reagan

 Dave Owens, CPA, CES is the managing member of Entrust Freedom.  Please feel free to contact him at 239-333-1031 or owens@entrustfreedom.com.

There was nothing better than being a Real Estate Flipper in 2004 and 2005.  The Flippers would buy a piece of property today and literally sell it for a 10, 20, 30% return in a matter of days, weeks or months.  These returns were unheard of in market history.  We should have all known.  The interesting things was, the Flippers were not a small group, there were thousands of these “investors” involved in transactions throughout the country.

Unfortunately if you were holding a property around mid 2006, your pumpkin came due and you turned in to a Flopper.  Floppers got upside down on properties.  Also many Floppers did not have the financial means to carry the properties resulting in the enormous foreclosure numbers we have today.

But do not despair; the Flippers are back in the 2009 real estate market.  Real Estate is making history again, this time for large price decrease.  Cookie cutter real estate developments throughout Florida have seen price decrease as much as 60%.  Markets in Las Vegas, Chicago, and California have seen similar price decrease.  It is to note prices in metro areas that actually produce jobs have not seen the huge price decrease as have the speculative or vacation areas. 

So here they come in full force, the Flippers are making their come back.  With depressed prices, investors are buying property from sellers that must get out at bargain prices.  The savvy investor can find tremendous deals. The nice part is that these properties have solid fundamentals that make investing a good move at these low prices.  Cash flows on rentals make sense again and investment ratios are inline to make decent returns.  With appreciation on the horizon, we see clients buying real estate in their Self Directed IRA.  Assets inside a Self Directed IRA are tax free when sold guaranteeing additional funds are available for the next investment, not paid away as taxes.

At the Lee County Court house in Florida, on average there are 10 foreclosure specialist on any given day, that number the last month has jumped to over a 100 investors bidding on properties.  The typical strategy of the foreclosure specialist was to buy the property so low and then quickly put it on the market for a price that was usually the lowest in a neighborhood to guarantee a quick sale.  There have been so many foreclosures flooding the courthouse that smart buyers have figured out the deals. The effect is that now that demand is up, prices are not at rock bottom levels the are increasing because of the competition at the foreclosure auction. We are starting to see the signs of prices leveling off and actually increasing because of the demand.

Flippers need to be smarter than last time.  The highest price was only price that was accepted for a Flipper to sell in 2005, now they are notching their price just below the market to guarantee a quick sale.  Flippers will always be around; this time there will be a lot less.  In parting, next time my barber or waiter tells me what they are flipping real estate; I will run home and make sure I that I am selling.

Dave Owens is a CPA that specializes in Self-Directed IRAs and 1031 exchanges.  Please feel free to call him at 239-333-1031 or email him at owens@1031company.com.

Guess who is making a comeback.  Other popular investments in Self-Dircted IRAs are private notes, LLCs, bank stock, managed commodities and even Gold.  Real Estate is flexing its muscle and growing in popularity daily.  The real estate boom of 2005 has cause maybe one of the greatest real estate depressions of all time. Real Estate is very affordable and now it is a great investment again.

Prices are dropping to levels not seen in 10 years.  In Southwest Florida, Gulf access canal homes, built in 2005, are selling for less than $150,000 and duplexes in Cape Coral are selling for $40,000.  These are great investment opportunities.

Add the stock market crash of the Fall 2008, investors are turning to Self-Directed IRAs and purchasing real estate to diversify and solidify their investments.

How does one get started purchasing real estate in an IRA?  Opening a Self-Directed IRA is easy.  Download the forms at www.entrustfreedom.com.  The application is three pages long.  Now that the account is open, the account must be funded.  Typically the most popular way to fund an IRA account is to transfer from an existing IRA account.  This transfer can take about 2 weeks. There are ways to speed this up if up if necessary. The other two ways fund an account is an annual contribution, or a rollover from a 401k. 

Now that the account is funded, you will need to find the investment.  It is important to know with Self-Directed Accounts, to make money, you must find investments, the administrator cannot sell you investments.  If you are working with a realtor, the contract for your real estate will be titled in the name of your Administrator, with our company it is Entrust Freedom for the benefit of John Doe IRA #12345 for example.  After the contract is accepted, Entrust will work with the closing agent to purchase the asset in the name of your retirement account.  Title will be the same as the contract.

All income and expenses associated with the real estate now belong to the IRA.  If rent is recieved it must be deposted to the IRA account.  All expenses must be paid by the IRA account, for example property taxes, and insurance.

The neat thing about Self Directed IRAs, All Real Estate can qualify to be purchased in an IRA.  The most common examples are rental properties including houses and condominiums, vacant land, commercial land, fixer uppers, and foreign properties.    If you dont have enough money in your account you can also purchase a percentage of the real estate as tenants in common with a partner purchasing the difference.

This is just a brief overview of Real Estate IRAs.  Please feel free to email me at mail@entrustfreedom.com or call me at 239.333.1031.  Have a great day!

I always get questions about what the hot investments are today?  Precious metals including gold are at the top of the list right now.  Many clients have told me that with the current spending of the federal government, inflation is a real concern.  Tangible assets like Gold and Real Estate become more valuable during inflationary times.  

Buying Gold in an IRA is easy.  Entrust has streamlined procedure to that make it easy.  The client is free to choose the storage location but many choose the Delaware Depository.  

If you would like more information on how to buy Gold or other precious metals in your IRA, please send me an email or call and I would glad to forward you some information.

Dave Owens, CPA, CES, is the managing member of Entrust Freedom, LLC and can be contacted at owens@entrustfreedom.com or 239-333-1031.  The Entrust Group is an national administrator of Self Directed Retirement Plans.

Now that Bernie is in the poky and we all feel a lot safer, how do investors treat their losses for tax purposes.  The IRS has recently released two Revenue Rulings to help.  This ruling applies to all “ponzi” losses not just Bernie’s mess. 

The IRS released Rev. Rul. 2009-9 addressing the tax treatment of "Ponzi" scheme losses, and Rev. Proc. 2009-20 which provides safe harbor options for deducting these losses. This is a safe harbor rule, which mean it is not law just guidance.  The guidance is welcome relief to the thousands of investors who have lost money in the Bernard Madoff scandal and others who have incurred similar Ponzi scheme losses.

The revenue ruling states that the losses are considered theft losses not subject to casualty loss limitations under §165(h) or the itemized deduction limits under §67 and §68. The rulings will allow the losses against ordinary income and goes so fare that it even allows an NOL generated by Ponzi losses to be treated as sole proprietorship losses potentially eligible to be carried back 3, 4, or 5 years under the business tax breaks enacted by the American Recovery and Reinvestment Act of 2009.  This is good news that the losses are not treated as capital losses because they would only be eligible for a maximum deduction of $3,000 a years until the losses are used up.

The safe harbor options under Rev. Proc. 2009-20 allow a 95% deductible loss for investors with no potential third-party recovery or a 75% deductible loss for investors with potential third-party recoveries. The investor may have additional losses or income in later years depending on actual recoveries. The returns in those years would reflect the actual loss and be reported accordingly.

This ruling my also apply to the 1031 exchange industry where several qualified intermediary companies lost client’s proceeds while held in escrow.   

Dave Owens, CPA, CES, is the managing member of Entrust Freedom, LLC and can be contacted at owens@entrustfreedom.com or 239-333-1031.  The Entrust Group is an national administrator of Self Directed Retirement Plans.

As we all know last fall thousands of banks rushed out for Tarp Money.  Unfortunately for them the rules on what to do with it were not clear and the Federal Government have change rules as the months have passed.  While it might have been cheap money, many banks found out they either did not need it or did not want it once the rules had changed.

Last week there were a slew of banks that wanted to pay the TARP money back.  The money was not free at a minimum the banks had to pay 5% for the money.  They have found in this economy making 5% can be difficult.  So as the bank prepared to give the money back, as of this blog, March 16, 2009, they found out that they cannot just give the money back.  Northern Trust took 1.6 Billion in Tarp funds and now the US Treasury will not just accept it back.  Talk about a prepayment penalty?

The  dally interest expense for Northern Trust is approximately $219,000 per day!  What a great deal for Uncle Sam!  While the idea of TARP can be debated until the cows come home, will someone at the top wake up fixed this problem ASAP.  In one week since Northern Trust has tried to "give" the money back, it has cost them over $1,400,000 in Interest Expense. Tick...Tick... Tick...  Did you know that if the banks pay income tax at the rate of 35% (which I would assume Northern Trust does), the federal government has just lost $536,000+ in tax revenue this week, by not allowing Northern Trust to repay the Tarp Loans. 

It is not all bad news for the government because they get the money one way or another, taxes or interest?  While TARP may not been the best idea, the US Treasury loaned out $350 Billion.  If my math is right at 5% interest, $1.4 Billion a month in Interest income is paid to the government.  TARP may be the best revenue raiser we have?

Who does not want our Country's economy to recover as soon as possible?  But typical government bureaucracy that will not let the bank repay these loans is just WRONG? TARP - Love it or hate, we are living it..

Dave Owens, CPA, CES, is managing member of Entrust Freedom, Entrust is the largest self-direct administrator in the United States.  To contact Dave please feel free to email him at owens@entrustfreedom.com or call him at 239-333-1031 x203.

The nice thing about Self Directed IRAs is that you can buy almost any type of asset.  Most Self Directed Administrators (the ones that I know)  specialize in Nontraditional Assets (Real Estate, Notes, LLC and other private investments).  For the first time, we have seen a unique trend.  In the last month, we have had an influx of client leave their money managers and move the stock and bond investments to a Self-Directed Account.  With a self directed retirement account you have complete control.

Suprisingly the reasoning was all the same, they were two fold, first of all with the market at record lows and many losing money, most investors believe that at these price, they can make as good decisions as their money managers and buy their own stocks (and to be honest, they dont have to pay the 1% fee to the broker) Second, a lot of Self Directed Investors are control freaks, and they all want to consolidate and hold their money in one retirement account.

At Entrust we hold our brokerage accounts typically in this manner, Entrust as Administrator will open a discount brokerage account for the client (clients choice).  We will move the client cash in to the account as directed, and then give the client full trading authority.  The client can buy and trade online with their account.  If the client has stocks or mutual funds that they currently own do not want to sell we, there are certain discount brokers that will allow us to transfer securities inkind, so the client can keep the same lot.

If you would like more information on how to open a brokerage account in a Self Directred IRA, please feel free call me at 239-333-1031 or email me at owens@entrustfreedom.com.  Have a great day.

Dave Owens, CPA, CES is the managing member of Entrust Freedom.