Self-directed IRAs
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As a member of the Retirement Industry Trust Association (RITA), Polycomp supports initiatives to reduce fraudulent activity. We encourage you to explore the resources available to you to protect yourself from investment fraud. » Continue |
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» Printable List of Assets Administered by Polycomp
Polycomp has approved the asset types listed below. Assets other than those listed below need to be reviewed by Polycomp for approval.
Secured Note
A secured note is a Promissory Note that is guaranteed by an interest in an asset that is worth as much or more than the amount of the note. If the borrower defaults on the loan, the IRA may become the owner of the asset securing the note. Notes can be secured by real property, undeveloped land, vehicles, mobile homes, accounts receivable, etc. As with an unsecured note, the note spells out the details of the loan, such as interest rate, loan amount, and terms. A Deed of Trust, a Mortgage, or a Uniform Commercial Code (UCC1) filing with the Secretary of State may be used to place a lien against the secured asset. For most vehicles, the IRA would be placed on title as the lienholder, just like any other lender.
Note & Deed of Trust:
A Deed of Trust involves three parties: the trustor (borrower), the beneficiary (lender: the IRA), and the trustee (may be a title company or the beneficiary, but the trustee cannot be a disqualified person). When the loan is repaid the title is reconveyed back to the trustor. A note and deed of trust is the preferred financing instrument in California because of the ease of foreclosure. When a loan is in default, the beneficiary can order the trustee to hold a trustee’s sale where the property can be sold. The process takes about 4 months.
Note & Mortgage:
A mortgage involves just two parties: the mortgagor (borrower) and the mortgagee (lender). The mortgage places a lien on the property, but legal title remains in the name of the borrower. If the borrower defaults, court proceedings are required, which may take up to two years: one year to foreclose and another year in which the borrower has the right to redeem the property.
Note & UCC1 filing:
The Uniform Commercial Code (UCC) provides for the filing of certain financial statements, agricultural liens, and other lien documents with the Secretary of State. Filing with the Secretary of State’s Office serves to perfect a security interest in the named collateral and establishes priority in case of default or bankruptcy. A UCC filing can be used when a lien is attached to certain real property, such as mobile homes, a business’ inventory, etc.
Unsecured Note
Sometimes called a Promissory Note or a Straight Note, an unsecured note is only guaranteed by the borrower’s promise to pay. The borrower signs a note, which may be as simple as a hand written agreement. The borrower’s signature must be notarized. The note spells out the details of the loan, such as interest rate, loan amount, and terms. The loan may be amortized, interest only, a balloon note, or receiving full payment and interest at maturity. Polycomp holds the original note in safekeeping.
Real Property
Real property or real estate includes raw land, pre-development, commercial, residential, etc. Property can be owned directly by the IRA or the IRA can hold an interest in an LP/LLC that holds title to real property or an interest in real estate investment trusts. For further information refer to Polycomp Trust Company Self-directed IRAs Investing in Real Estate Frequently Asked Questions (FAQs) and Polycomp Trust Company Real Property Requirements, available on our website or upon request.
» Real Property FAQs
» Real Property Requirements
Interest in Limited Partnership (LP) or Limited Liability Company (LLC)
Because of the liability protection offered by LPs and LLCs they have become a popular instrument to hold investments. Investors in LPs are called partners while investors in LLCs are called members. The partners/members pool their funds to invest in trust deeds, real property, etc. Any income generated by the investments flows back into the LP or LLC to be reinvested by the LP/LLC or distributed to the limited partners/members. The LP/LLC files a K-1 each year reporting each partner’s/member’s share of the earnings. Normally earnings on investments held within an IRA are not taxed until the IRA holder takes a distribution. However, sometimes the LP or LLC generates unrelated business taxable income (UBTI). If an LP or LLC generates UBTI it may be reflected on the K-1. If an IRA investment has UBTI the IRA must file IRS form 990-T and pay unrelated business income tax (UBIT). This tax must be paid from cash held in the IRA holding the LP/LLC. We do not prepare the 990-T for the IRA holder. When IRA funds are used to invest in LPs/ LLCs, the partner/member is Polycomp Trust Company Custodian FBO (IRA Holder’s Name) IRA/Roth IRA and the tax ID number is that of the custodian. Normally an LP/LLC will have an Operating Agreement, an Investor Questionnaire, and/or a Subscription Agreement. The IRA holder reviews all documents, answers any investor questions, and signs each signature page as read & approved. The IRA custodian signs as the new partner/member/investor. The IRA must be a passive member of the LP or LLC. The IRA cannot be the General Partner of an LP or the Managing Member of an LLC. In addition, once the LLC is funded, no further contributions or capital calls are allowed if the IRA, IRA holder and any disqualified persons own 50% or more of the LLC. » Limited Liability FAQs
If the IRA owns 100% of the LLC, the assets in the LLC are considered assets of the IRA. In this case, the Operating Agreement or Subscription Agreement must require that the managing member either appoint a qualified professional such as an attorney or CPA to either conduct a review of each transaction before execution, or take over as managing member.
» LLC and LP Investment Guidelines
Privately Held Stock
Privately held companies are companies whose stock is not traded publicly, i. e., the stock cannot be bought and sold on a stock exchange. Often these companies are just forming or are owned by a single family. To invest IRA funds in a privately held company, the IRA holder and his lineal descendents combined must own less than 50% of the company at the time of purchase or a disinterested third party must own the company.
A corporation can issue two general types of stock: common stock and preferred stock. When purchasing privately held stock a subscription or purchase agreement is required. The custodian holds the original stock certificate(s) in safekeeping. For a rollover, transfer in-kind, or purchase of stock from a current shareholder, additional documents will be required. S corporations can only have individuals as shareholders; therefore, an IRA cannot invest in S corporation stock.
Brokerage Accounts
Publicly traded assets held in a brokerage account require handling through a broker/dealer. Since Polycomp is not a broker/dealer, it is more cost effective and convenient for the IRA holder to establish an IRA at a brokerage firm for publicly traded assets.
Certificates of Deposit (CD)
When an IRA holder buys a certificate of deposit (CD) the money is left on deposit at the chosen bank for a specified period of time at a fixed interest rate. Certificates of deposit generally range from 30 days to 5 years. The IRA holder contacts the bank to find out the requirements for purchasing the CD. Polycomp requires a Direction Letter to process the purchase. Polycomp holds the original certificate (if one is issued) in safekeeping.
Polycomp Administrative Services, Inc. and Polycomp Trust Company do not sponsor, evaluate, or endorse any investment product, individual, or company. All clients are advised to consult with legal, tax, and investment professionals and to perform due diligence in choosing any investment. The fact that an investment is permitted in an IRA should not be used in determining whether the investment is appropriate for the IRA Holder.