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Self-Directed Retirement Plans

Know how to grow.


Contents Know How to Grow

1

What We Do–and Do Not Do

2

The Advantages of Working with Entrust Group

3

Investment Options

4

Retirement Plan Overview

5

An Open Invitation

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ENTRUST GROUP: KNOW HOW TO GROW



Know How to Grow You know how to invest, but do you know how to grow? True growth requires more than just investment knowledge and dedication to a bright financial future – it requires an advantage. We can help you benefit from one of the most powerful advantages allowed by law. Knowledge is power: Traditional approaches to retirement investing lead many otherwise savvy investors to overlook one of the most lucrative wealth-building strategies available– self-directed non-traditional tax-deferred and tax-free investing. Investors in the know have learned, and you can too, that under your direction, your self-directed retirement plan can invest in real estate, notes, limited partnerships, commercial paper, and many other assets. With the great tax advantages provided by a self-directed IRA or 401(k), as well as the wider range of possible investments, you can potentially build wealth and secure your future much more effectively than you can through traditional plans.

For over a quarter century Entrust has been showing individuals and small businesses how to take advantage of self-directed retirement plans. With the nation’s largest network of local offices, we deliver the personal service, expertise, education, and trust that self-directed investors rightly demand. Let Entrust show you how to grow.




ENTRUST GROUP: KNOW HOW TO GROW

What We Do—and Do Not Do Entrust Group is the world’s premier provider of account administration services for self-directed retirement plans. Self-directed accounts are an ideal option for those who view their retirement plan as an aggressive investment fund or as part of a balanced portfolio, depending on individual risk profiles. We enable a greater range of investment choices, but we do so as an entirely neutral third party. By refraining from offering investment advice, and from selling any investment products of our own, we are supporting your efforts as a truly self-directed investor. Clients receive informed encouragement and timely support while remaining secure in the knowledge that Entrust will provide for the maintenance of each account’s tax-deferred status. recorded. If you prefer, Entrust will even provide off-site management of your properties, ensuring that rental income is properly deposited and Information and Records Management ensure all bills are paid. We can help when you Entrust’s primary business is accurately managing decide to sell the property as well. At Entrust, and providing all the information that you, the we make sure the sales process takes place IRS, and Department of Labor need for personal smoothly, efficiently, and accurately. accounting as well as regulatory reporting. We provide this information to you in timely Consulting fashion as you need it. Reports are delivered Entrust’s professionals will review transactions quarterly. Account statements and transaction you are considering and provide you with details are provided on an online, quarterly, or appropriate information so that you can as-requested basis. determine if transactions may be prohibited, and so that you understand all the associated Additional Administrative Services requirements. This can be highly valuable Entrust makes life much easier by managing in keeping our clients on track to achieve other administrative aspects of your accounts their goals, and safeguarding their accounts and transactions. For example, if you plan to from disqualification. buy a real estate asset we will interact with the title company, the real estate agents, the closing company or attorneys, and guide you through escrow. We will ensure the transaction is funded, and that rental contracts are properly


ENTRUST GROUP: KNOW HOW TO GROW

We can also help take the hassle out of complex transactions, which sometimes require both clarification of legal requirements, or creative strategies—or both. Entrust’s professionals have been through complex transactions themselves, and are ideally positioned to guide you to resources you may need to more appropriately determine courses of action. Education Our day is made when you “know how to grow.” That’s why Entrust offers workshops and presentations for all levels of financial expertise. Our education services are open to individual investors, as well as real estate and financial professionals. Topics include the basics of selfdirected plans; the broad range of investment options beyond familiar securities, mutual funds, and CDs; legislation and legal updates from a variety of sources. Seminars and workshops can also be sponsored by third party groups. Visit our web site at www.theentrustgroup.com or contact your local Entrust office for more information about any of our services.

The Advantages of Working with Entrust As a self-directed investor your financial future is entirely in your hands. Working with Entrust will enable you to pursue this future in your own way while administration, record keeping, and other key services are performed along the way, by those who do them best. It’s a partnership for success, and here’s why:



Experienced Professionals Entrust is the most knowledgeable provider of self-directed retirement plan services. Our professionals have personal, hands-on experience in self-directed investing, including real estate and other non-traditional investment transactions.

True growth requires more than just investment knowledge–it requires an advantage. Dedicated National Network We are the only self-directed account custodian that serves customers through a nationwide network of dedicated local offices. Local presence is critical to delivering the superior quality of service that is associated with the Entrust brand. Superior Service We are the only firm of our type that allows customers to do business with us the way they want to: over the phone, over the Internet, or in person. Continuing Education No company in our industry provides better educational tools, including frequent in-person seminars, to ensure that customers are fully empowered to do what they want to do. Plus, our continuing professional education courses are credit courses and include real estate, accounting, and financial planning.




ENTRUST GROUP: INVESTMENT OPTIONS

Investment Options A self-directed account opens the door to many investment opportunities beyond traditional securities, bonds, CDs, and mutual funds. What kinds of investments are permitted? With the exception of certain prohibited transactions (see page 12), an Entrust self-directed account enables investment in a wide range of both traditional and non-traditional assets. For example, here are some of the most popular options:

• Purchasing or selling non-traditional investments through an IRA or 401(k) is subject to special processes, documentation, and regulations. For example, purchasing real estate through your self-directed IRA requires the familiar steps of the offer letter, title and escrow, and administration of rents, mortgage payments, and other expenses. The experts at Entrust make these steps flow as smoothly as possible.

• Real estate • Deeds of trust and mortgages • Secured and unsecured notes • Private placements Limited liability companies Private stock Partnerships and joint ventures • Common stock, bonds, mutual funds, and options

We invite you to learn more about the full scope of possible self-directed investments by visiting us at www.theentrustgroup.com or contacting your local Entrust office. And, please keep these important reminders in mind as you explore and learn about investment alternatives: • Our role is limited to facilitating your transactions and administering your account. As highly experienced professionals we provide you with resources to help you clearly understand everything you need to successfully purchase, maintain, or sell your investments of choice.


ENTRUST GROUP: RETIREMENT PLAN OVERVIEW



Retirement Plan Overview Each individual investor, family, or business has a specific situation and investment goals. Entrust offers both tax-deferred and tax-free self-directed plans to achieve them. These range from traditional or Roth IRAs, to savings plans designed for small businesses, to self-directed savings plans for children’s education. And more. Here is a brief overview of retirement plans. We invite you to learn more about the self-directed plans we offer at www.theentrustgroup.com or by contacting your local Entrust office.

IRAs An Individual Retirement Account is a personal retirement savings plan available to anyone who receives taxable compensation during the year. For IRA contribution purposes, compensation includes wages, salaries, fees, tips, bonuses, commissions, taxable alimony, and separate maintenance payments. Husbands and wives may each have an IRA, even if one person in the marriage is not employed. There are several different kinds of IRAs to meet specific individuals’ needs:

Traditional IRA A traditional IRA may be opened by any individual who has earned income and wants to set aside a portion for retirement on a tax-deferred or taxfree basis. Contributions to traditional IRAs may not be made for the year in which you reach age 70 1/2, or any year later.

If you are eligible to contribute to an IRA, the amount of the contribution for which you may take a tax deduction will depend upon whether you (or, in some cases, your spouse) are an active participant in an employer-maintained retirement plan and the amount of income you make. • If you (and your spouse, if you are married) are not an active participant in an employer-maintained plan, your whole IRA contribution will be deductible. • If you are an active participant (or are married to an active participant in an employermaintained plan), the deductibility of your contribution will depend on your adjusted gross income (AGI) and your tax filing status for the tax year for which the contribution was made. AGI is determined on your income tax return using your adjusted gross income but disregarding any deductible IRA contribution. Generally, a traditional IRA is appropriate for those who expect their tax rates during retirement to be lower than their current tax rate, or whose tax strategy is to defer taxes to a later time in their lives.

Roth IRA A Roth IRA differs from a traditional IRA in that your Roth IRA contributions are made with after-tax dollars. This means that eventual distributions from a Roth IRA are tax-free. By contrast, with a traditional IRA, you pay no taxes up front but pay them when you withdraw the money during your retirement. Moreover, contributions can be made to a Roth IRA even after you attain age 70½, and unlike a traditional IRA you are not forced to take distributions after a certain age.




ENTRUST GROUP: RETIREMENT PLAN OVERVIEW

Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income is less than: • • •

$160,000 for married individuals filing jointly $110,000 for single or head of household, and $10,000 for individuals who are married but filing separate returns

Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income and taxable alimony.

Entrust is the most knowledgeable provider of self-directed retirement plan services. Contribution limits change every year, so please consult us at www.theentrustgroup.com or call your local Entrust office. Your accountant should be able to tell you your reduced Roth limit, or you can complete the worksheet provided in IRS Publication 590. Generally, a Roth IRA is appropriate for those who expect their tax rates during retirement to remain the same or be higher than their current tax rate.

SEP IRA A Simplified Employee Pension (or SEP IRA) is a plan that allows an employer, including self-employed individuals, to make contributions toward his or her own as well as their employees’ retirement plans without becoming involved in administrative complexities. With a SEP, contributions are made to a traditional Individual Retirement Account (IRA) for each participant of the plan. Each participant under the SEP may establish his or her own IRA at the institution of his or her choice. As the underlying account is an IRA, any covered employee may have a self-directed IRA as his or her SEP-IRA. This is in addition to any other IRAs the employee may have. An employer may contribute up to 25% of an eligible employee’s compensation to the SEP IRA. For contributions made to the plan, the employer will be eligible to receive a tax deduction within established regulatory limits. The total amount contributed may not exceed amounts, published by the IRS each year, of Modified Adjusted Gross Income, or W-2 compensation. For more information, consult our website at www.theentrustgroup.com or call your local Entrust office. If contributions are made, they must also be made in accordance with rules the employer establishes. These rules include who is eligible based on age and length of service. Your accountant should be able to tell you the amount you may contribute based on your individual circumstance. Roth IRAs are not eligible for SEPs. However IRAs to which SEP contributions have been made may be subsequently converted to Roth IRAs.


ENTRUST GROUP: RETIREMENT PLAN OVERVIEW



An employer may contribute a percentage of an eligible employee’s compensation to the SIMPLE IRA. For contributions made to the plan, the employer will be eligible to receive a tax deduction within established regulatory limits. For more information please consult our website at www.theentrustgroup.com or call your local Entrust office. The total amount contributed may not exceed amounts, published by the IRS each year, of Modified Adjusted Gross Income, or W-2 compensation. Up to 3% of your salary will then be matched by your employer (or 2.192% if you are self-employed). Employers may make non-elective contributions to your plan in the amount of 2% of your compensation for the entire year, if you were properly notified SIMPLE IRA of this option. If contributions are made, they must also be made in accordance with rules the A Savings Incentive Match Plan for Employees, or SIMPLE IRA, is well-suited for small businesses. employer establishes. These rules include who is eligible based on age and length of service. Generally, the attraction of a SIMPLE is its ease Your accountant should be able to tell you the of administration. amount you may contribute based on your individual circumstance. You may also make a SIMPLE plans may be established only by “catch-up” contribution if you are age 50 or over. employers who have fewer than 100 employees who earn $5,000 or more in compensation All contributions are made directly to an IRA during the preceding calendar year. set up for each employee. SIMPLE IRA plans are maintained on a calendar-year basis. Eventual Under a SIMPLE IRA plan, employees may distributions are taxed as ordinary income. choose to make tax-deferred contributions out of their salary while the employer makes a matching contribution of 3% each year, or, alternatively, a non-elective contribution of 2% of compensation. Employers must make either one or the other type of contribution, and must notify the employee prior to the beginning of each year which contribution type the employer will make.

See IRS Publication 560, IRS Publication 590 and IRS Notice 98-4 for detailed information on SIMPLE IRA plans.




ENTRUST GROUP: RETIREMENT PLAN OVERVIEW

Plans for Employers Employers who contribute to the retirement security of their employees, as well as their own, have several choices among types of plans. As always, the experienced professionals at your local Entrust office stand ready to help you understand the details and implications of any plan. Defined Benefit Plans Familiar to many as a “pension plan,� a Defined Benefit Plan is designed to provide the participant a specific monthly benefit at retirement. This benefit may be stated as an exact dollar amount. The point of the plan is reliable retirement income. Employee contributions are based on the calculation of what will be needed to provide monthly benefits at the time the employee reaches retirement age. Actuarial assumptions and computations are required to calculate these contributions. In addition to employer contributions, participants may make non-deductible voluntary contributions to a Defined Benefit Plan. Even though the contributions are not deductible, the earnings on them are tax-free until distributed during retirement. The limits of these contributions are 10% each year, and are subject to rules. Defined Contribution Plans A Defined Contribution Plan does not promise a specific monthly benefit at retirement, but does give individuals the flexibility to invest plan contributions for more or less aggressive growth.

With a Defined Contribution Plan, employees may contribute a percentage of compensation up to a certain dollar amount. The contributions may be tax-deferred, or tax-free, depending on whether the plan is traditional or Roth. Employers may match a percentage of the employee’s contribution. Examples of Defined Contribution Plans include Profit Sharing plans, Profit Sharing plans with a 401(k) deferral option, 403(b) plans, employee stock ownership plans and profit sharing plans. Participants in these plans are required to make investment decisions, and can ultimately benefit from good investment choices and market performance.


ENTRUST GROUP: RETIREMENT PLAN OVERVIEW

The 401(k) A 401(k) plan is an option within Employer Sponsored Profit Sharing Plans. Employees may defer a percentage of their salary to any of several 401(k) investment choices allowed by the plan. The maximum amount of the allowable 401(k) contribution changes annually. Consult us at www.theentrustgroup.com or call your local Entrust office for details of contribution, deferral and catch-up limits. Employers may match employee contributions on a dollar or a percentage basis. For example, an employer may match 25% of every dollar that the employee contributes up to 8% of the employee’s compensation. So an employee who defers 8% of his or her pay will also receive an additional 2% from the employer. Employees are always vested 100% in the amount contributed from their pay. There are vesting schedules for employer matching contributions, which permit the employee to “own” a certain percentage of the match over a period of time, but no longer than 6 years. The Roth 401(k) A recent innovation, the Roth 401(k), is an employer administered 401(k) that is similar to the Roth IRA in that plan contributions are made with after-tax dollars. Eventual distributions from a Roth 401(k) are thus tax-free. The Individual(k) Plan™ The Individual(k) Plan is a defined contribution plan only for business owners (plus spouses or partners) who have no employees.



An employer may, if desired, designate his or her Individual(k) as a Roth plan, meaning contributions will be made with after-tax dollars, and distributions will be tax-free. The annual dollar limit on a participant’s Roth contributions will be the applicable limitation on elective deferrals, reduced by the elective deferrals that he doesn’t designate as Roth contributions.

Entrust is the only self-directed account custodian that serves customers through a nationwide network of dedicated local offices. In some plans, including 401(k)s, business owners can make both employer and employee contributions. Under current law, there is generally a 25%-of-pay contribution cap on employers’ compensation, plus a deferral limit for employees. In an Individual(k), employee deferrals are not counted toward the 25%-of-pay limit. This makes it possible for owner-only businesses to make a large employer contribution and then also make the maximum per-person deferral. Thus, the Individual(k) offers the largest potential contribution for one-person businesses earning above $5,000 for individuals who have attained age 50.


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ENTRUST GROUP: RETIREMENT PLAN OVERVIEW

Special Purpose Savings Plans In today’s economic climate it is highly useful to know that there are various specialized plans designed to address the future needs of individuals and families. These plans target two vital future concerns: providing for the education of family members; and providing funds for health needs.

No company in our industry provides better educational tools to ensure that customers are fully empowered to do what they want to do. Health Savings Accounts Health Savings Accounts (HSAs) are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. And unlike the Medical Savings Accounts (MSAs), an HSA is not a “use it or lose it” account. Further, any individual under age 65 can participate in an HSA. An individual or a combination of contributors can fund an HSA.

HSAs are used in conjunction with a “High Deductible Health Plan” (HDHP). This means: • •

Insurance that does not cover first dollar medical expenses (except for preventive care) Can be an HMO, PPO or indemnity plan, as long as it meets the requirements

A number of the rules that apply to HSAs are similar to rules that apply to an IRA. If the individual is an employee who later changes employers or leaves the work force, the HSA does not stay behind with the former employer, but stays with the individual. But because HSAs differ from IRAs in some important respects, taxpayers cannot use an IRA as an HSA, and cannot combine an IRA and an HSA in a single account. For current contribution limits to HSAs and any other information, please consult our website at www.theentrustgroup.com or call your local Entrust office. Education Savings Accounts An Education Savings Account, or ESA, is a trust or custodial account that is exclusively for paying the qualified higher education expenses of the designated beneficiary of the account. The account must be designated as a Coverdell Educational Savings Account when it is created in order to be treated as a Coverdell (ESA) for tax purposes.


ENTRUST GROUP: RETIREMENT PLAN OVERVIEW

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contribute to a Coverdell ESA if the individual’s modified adjusted gross income is less than statutory limits which are changed annually, and depends on the filing status of the contributor. Please consult our website at www.theentrustgroup.com or call your local Entrust office for details.

The designated beneficiary must be under the age of 18 when the account is established. Any balance in a Coverdell ESA must be distributed within 30 days after the date the beneficiary reaches age 30. These age limits do not apply to beneficiaries with special needs. There is no limit to the number of Coverdell ESAs that can be established for one beneficiary. The contributions can only be made in cash and the total contributions made to all Coverdell ESAs for any beneficiary in one tax year cannot be greater than statutory limits. Any individual (including the beneficiary) can

In general, the designated beneficiary of a Coverdell ESA can receive tax free distributions to pay qualified education expenses. The distributions are tax-free up to the point that they do not exceed the beneficiary’s qualified education expenses. If a distribution does exceed the beneficiary’s qualified education expenses, a portion of the distribution is taxable. For information on how to determine the taxable portion of any distribution, refer to Publication 970, Tax Benefits for Education.


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ENTRUST GROUP: RETIREMENT PLAN OVERVIEW

Prohibited Transactions Self-directed accounts provide a great deal of freedom, flexibility, and choice among potential investments, but they are also governed by an underlying spirit and set of rules that investors must be aware of and follow. Prohibited Transactions There are types of transactions that violate the basic intent of your IRA, and subject your account to risks and penalties. “Transactions” are defined as the means of moving funds into your account and making use of the funds in the account. They include contributions, purchases, sales, and distributions. Fundamentally, your retirement plan is intended to benefit you when you retire, and not before then. Thus, transactions which can be construed to provide immediate financial gain to selfdirected account holders are not allowed. This is otherwise known as “self-dealing.” For example, IRA owners may not borrow money from their IRA, sell property to it, receive a current benefit outside their IRA from assets in their IRA, or use the IRA as security for a loan. (Assets held within an IRA may be debt financed.)

Qualified Plan members may not transfer Plan income or assets, sell, exchange or lease property, lend money, extend credit, furnish goods, services or facilities to disqualified persons, or allow fiduciaries to obtain or use the Plan’s income or assets for their own interest. For IRAs, a disqualified person is: • • • • •

the IRA holder and his or her spouse; the IRA holder’s ancestors, lineal descendants and their spouses; investment advisors and managers; any corporation, partnership, trust or estate in which the IRA holder has a 50 percent or greater interest; and anyone providing services to the IRA such as the trustee or custodian.


ENTRUST GROUP: RETIREMENT PLAN OVERVIEW

Exemptions A contract or reasonable arrangement made with a disqualified person for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan is allowable, if no more than reasonable compensation is paid therefore. The exemption may include servicing notes which you have directed to be purchased, and managing property which you have directed to be purchased. It does not include leasing back property to yourself or a disqualified person, if acquired by your direction in a plan. Nor does it include compensation to you or a disqualified person for rehab work performed on an asset in your plan. It is always wise to check with your tax advisors or Entrust before undertaking any arrangement or transaction your think may be questionable.

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A self-directed account opens the door to many non-traditional investment opportunities beyond traditional securities, bonds, CDs, and mutual funds. Classes of Prohibited Holdings Additionally, direct investment of your selfdirected IRA funds in collectibles, which include works of art, rugs, antiques, metals, other than gold and palladium bullion, gems, stamps, coins, except certain US minted coins, alcoholic beverages and other tangible personal property as may be defined by the Secretary of the Treasury, is prohibited.


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ENTRUST GROUP: AN OPEN INVITATION

An Open Invitation If you are considering self-directed tax-advantaged investing for the first time, or if you are already up and running but feel you could benefit from a relationship with Entrust, visit our web site at www.theentrustgroup.com for more comprehensive information. You may also call or visit your local Entrust office – we stand ready to serve you.


Know how to grow.


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