IMPORTANT: Prohibited Transactions in CONVENTIONAL IRA’s | SDITalk #291

December 12, 2017  --  Episode #291

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Summary

You usually think of prohibited transactions as being a risk that’s almost entirely unique to self-directed IRA’s and 401(k)’s… you usually think conventional IRA’s are largely impervious to this horrible risk that can slash half or more of the value of your account in a single instant.   You’d be wrong. Today you learn about a policy being implemented by financial behemoths Merrill Lynch, Wells Fargo and others that, I’m confident, will result in awful prohibited transaction penalties within CONVENTIONAL IRA’s… all because of what can only be described as aggressive GREED in the financial industry.   I’m Bryan Ellis.   This is episode #291 of Self-Directed Investor Talk.

 

Transcript

Hello, Self-Directed Investor Nation!  Welcome to the show of record for savvy self-directed investors like you, where in each episode, I help you to find, understand and PROFIT from exceptional alternative investment opportunities!

Ok folks, you know how it goes.  Whenever someone in your family has a new “opportunity”, the first thing they do is call you.  Maybe they are starting a new business… maybe they’ve signed up with a network marketing company… maybe they’ve become a stock broker or financial advisor and want you to transfer your accounts to them.

Hey… all good things.  Family should support family.  I’m totally in favor.

But is it really a “favor” if doing so could actually cost you in the form of huge penalties against your retirement account?  No, of course not… and that’s the sad story you’ll hear today, which is a big issue in the conventional financial world and is a painfully clear indicator of why so-called “conventional” IRA’s are at severe risk of prohibited transaction penalties due to no fault of the IRA owners themselves.

But first… to join in the discussion for Episode #290 of SDI Talk, you can give us a call at (833) SDI-TALK.  You can also drop an email to me at feedback@SDITalk.com or – maybe best of all – visit today’s show page at SDITalk.com/291 to participate in the discussion about today’s show.  SDITalk.com/291

So here’s the whole deal, in about 60 seconds:

The law describes a few things as “prohibited transactions” for your IRA.  These prohibited transactions result in HUGE fines for the IRA.  I mean, it can be really, really ugly… life-changing, even.

One of those prohibited transactions, to which I link on today’s show page at SDITalk.com/291, says in plain English:  Relatives of yours can’t use the money in your IRA to benefit themselves.  So, for example, if your son or daughter or grandchild gets a job as a financial advisor and you transfer your IRA to them, no problem!  But the moment they get paid for managing your IRA, well then… you could have a serious problem.

Of course, financial advisors don’t care for this.  They want to get paid.  Fine, I get it.  These guys usually have a little bit of investment knowledge, but practically zero legal knowledge.  They don’t know that what they want could cause big problems for their own family members.

So some of the big financial companies at some point made some policies to prevent payment to brokers on transactions in their relatives’s IRA’s.  That’s good.  That’s as it should be.  But it appears there’s been a lot of whining and moaning from those brokers and financial advisors.  They really, really want to get paid for doing transactions for their family members.  I mean, they really, really want to get paid.

So Merrill and Wells… what do they do?  They’re jumping from the pan straight to the fire, according to Tim Berry, a top IRA attorney.  Specifically, to address this issue, they’re agreeing to let their employees be paid for family members’ IRA transactions, with one caveat:  The money for the payment must come from some non-IRA account.  In other words, commissions for transactions in an IRA must be paid from some source other than the IRA itself.

Ummm…. No.  I’m confident that won’t pass legal muster on a number of levels.  One is that there’s clear benefit to a disqualified person, the family member.  Another is that, essentially, the expenses of the IRA are being paid by non-IRA funds which will, I suspect, be categorized as additional, and potentially unauthorized, contributions.

This stinks on every level… and it’s all because some companies appear to be bowing to the demands of their employees to be able to profit from servicing their own family members.

Jee whiz.

But at the end of the day, as I said, where this ends up is simple:  The brokers and financial advisors make their commissions, while their family members run a huge risk of being hit for massive prohibited transaction penalties.

And that, my friends, is just another example of precisely why you can not, you MUST not, view conventional stock market investments in your IRA as inherently safe… because the news of the day proves that just isn’t the case.

Folks if you haven’t signed up for the Self Directed Investor email hotline, it’s time to do that now!  It’s totally free and frankly, it’s where you get the news that actually matters for self-directed investors… not the fluff you get from so many of the financial companies whose motivation is primarily to drain you of your hard-earned money.  To sign up now, at absolutely no cost, go to SDITalk.com and click the big red SUBSCRIBE button in the top part of the page.

And be sure to stay tuned to this show.  After a week of business travel, I’m back in the saddle and boy have some FASCINATING things happened that you need to hear about.

My friends, invest wisely today and live well forever!

 

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Bryan Ellis

I am host of Self Directed Investor Talk, which I'm told is America's #1 podcast and for affluent self-directed investors. I'm also something of an expert in self-directed IRA's, solo 401k's and 1031 exchanges. You can find more of my writing in some cool places like TheStreet.com, Entrepreneur.com, ThinkRealty and even Forbes (that was always one of my goals!). I live in metro Atlanta, Georgia with my wife and business partner Carole Ellis(she's a real business partner... not just because she's my wife... I'd want to work with her if I wasn't married to her... and I'd want to marry her, too). I also have 4 children ranging in age from 2 to 20 (yes, you read that correctly). It's my goal to be the name everybody thinks of when they think of Self-Directed IRA's and Solo 401(k)'s.
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