IRAs are a great way to defer current income tax into the future. By contributing to your IRA, the amount contributed is not taxed today. The tax is deferred until the time you start withdrawing (Currently the government forces a withdrawal when you are 70 ½ years old).
The government likes that you are saving for your golden years, so there are statutes that limit the ability of a creditor (bankruptcy or lawsuit) to reach into your IRA to satisfy your debt. That is a good thing!
However, those of you who have decided to utilize a self-directed IRA may not realize that those protections may not be there. The statutes don’t go away; however, if the investments you make have a liability risk, the fact that the investment is in an IRA does not shield the asset, and potentially you personally, from that risk.
For example, if you decide to use your Self-Directed IRA to purchase a rental home, the risk that the tenant, or a visitor of the tenant, sues you lurks. If that tenant slips and falls due to your negligence as a landlord, the fact that the investment is in your IRA does not prevent the prevailing tenant from getting at the rental home. Further, there are arguments that the tenant, if the rental home asset is not enough, can reach to your personal assets to satisfy the claim.
There are ways to avoid those risks. Protecting your investments through the use of a Limited Liability Company (LLC) is a good way to reduce your exposure to those lawsuits.
Come in and talk with one of our estate planning attorneys to see what is the best structure for your investments.
About Morris Hall, PLLC:
At Morris Hall, we have focused our legal practice on estate planning for over 45 years. Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects. We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Carefree, Tucson, Oro Valley, Prescott, Flagstaff and Arrowhead. Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.