Source: CamaPlan Self-Directed IRA
DISCLAIMER: CAMA Self-Directed IRAs, LLC. does not render tax, legal, accounting, investment, or other professional advice. If tax, legal, accounting, investment, or other similar expert assistance is required, the services of a competent professional should be
sought. Investors should verify this information with their financial professionals. CamaPlan is happy to participate in these conversations with your professionals.
What is a Self-Directed IRA (SDIRA)?
A Self-Directed IRA is a retirement account that allows investors to hold alternative assets—such as real estate, private equity, and private lending—instead of only traditional securities like stocks and mutual funds. You can learn more at
https://www.camaplan.com/self-directed-ira/.
Can I use an IRA to invest in Break of Day Capital’s investment opportunities?
Yes, investors often use self-directed IRAs to access private real estate opportunities. A common goal of SDIRA investors is to use their tax-advantaged retirement capital to diversify their portfolio into deals such as value-add multifamily properties that aim to generate both cash flow and long-term appreciation.
What types of retirement accounts are eligible?
Eligible accounts typically include Traditional IRAs and Roth IRAs (most common), 401Ks, SEP IRAs, SIMPLE IRAs, HSAs, and ESAs. For more information on the selfdirected plan that is right for you, visit https://www.camaplan.com/choose-yourcamaplan/.
What are the tax advantages of investing through an IRA?
Traditional IRAs offer tax-deferred growth, while Roth IRAs offer tax-free growth. The tax treatment depends on the account type and investment structure.
How does the investment process work?
Break of Day Capital investors can expect a straightforward, three-step process for using a self-directed IRA: 1. Open and Fund Your Account; 2. Direct CamaPlan to fund your investment; 3. Your investment is funded and active with Break of Day Capital (transactions may be viewed on CamaPlan client portal).
How long does it take to invest from a Self-Directed IRA?
From beginning to end (no account to funded investment), the process takes 2-3 weeks.
- Opening your account and directing your investment can be done online in 15 minutes. A designated CamaPlan client team member can also personally assist you.
- Funding the account will most likely happen via transfer from an existing IRA or rollover from an old 401K, 403B, etc., and usually takes two weeks.
- Once your account is funded and investment paperwork has been completed, CamaPlan will fund your investment in 48 hours.
Are there any restrictions or prohibited transactions I should be aware of?
Yes. IRS rules prohibit certain transactions involving disqualified people and selfdealing. Common examples include using IRA funds to benefit yourself personally,
transacting with certain family members, or providing services to an IRA-owned asset. Violations can result in penalties or disqualification of the IRA. Additional guidance can be found at https://www.camaplan.com/resourcecenter/prohibited-transactions/.
How are distributions handled?
Investment distributions (such as cash flow or proceeds from a sale) are paid back into the IRA, where they retain their tax-advantaged status until those funds are reinvested or removed from the IRA account.
What fees should I expect?
Fees typically include account setup, transaction fees, and annual account maintenance fees charged by the custodian. Fee example for a $100K investment:
- Year 1: $75 account-open fee; $150 one-time transaction fee; $300 annual maintenance fee
- Years 2, 3, 4, etc: $300 annual maintenance fee
CamaPlan’s full fee schedule can be found at https://www.camaplan.com/wp-content/uploads/2023/04/Fee-Schedule.pdf.
What is Unrelated Business Income Tax (UBIT) and Unrelated Debt Finance Income (UDFI), and how does they affect my IRA?
UBIT is a tax that can apply to IRA investments that generate active business income or use debt financing (UDFI).
For investments like those offered by Break of Day Capital, any potential IRA tax exposure would typically come from UDFI. Some
considerations for UDFI:
- It’s important to consult with a qualified tax professional who understands UBIT (if you need a CPA referral, CamaPlan can assist).
- Many investors find that even despite UBIT, the built-in tax advantages of a self-directed IRA can produce an attractive return while also giving their investment portfolio more diversification.
- In some cases, depreciation may help offset taxable income and investors should ask the sponsor how this applies to a specific deal.
If UBIT/UDFI applies, the investor (with their CPA) is responsible for calculating and filing it using Form 990-T. The tax is paid from IRA funds, and CamaPlan can assist in processing the payment once directed.
Do I need to work with a specific custodian or administrator?
Yes. IRAs must be held with qualified custodians or administrators like CamaPlan that support alternative assets. Not all custodians allow private investments, so investors choose one that specializes in self-directed accounts.