Glossary of Self-Directed and Checkbook Control Retirement Terms

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Familiarize yourself with common terms used across the self-directed retirement industry.


5-year Roth withdrawal rule

To get the full tax benefits for Roth IRA investment gains, you must leave Roth IRA money in a Roth IRA for 5 calendar years after you made the contribution.

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529 Plan Account

A college planning vehicle that various states allow tax advantages for your child or family's education expenses. Rocket Dollar does not have a Self-Directed 529 or college education related account at this time, and cannot take rollovers from these accounts. Some people have found a Self-Directed Roth IRA useful for college financial planning.

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60-day rollover

If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you’ll have to use other funds to roll over the full amount of the distribution. This is usually unnecessary with Rocket Dollar, and can be accomplished by a trustee to trustee transfer or direct rollover.

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Accredited investor

Investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Include natural high net worth individuals (HNWI), banks, insurance companies, brokers and trusts. You do not need to be an accredited investor to use a Rocket Dollar account, you are only restricted from accredited investor requirement investments.

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Short for "Automated Clearing House" and (ACH) Network is an electronic funds-transfer system that you can use at our partner bank with your retirement dollars with full checkbook control.

Backdoor Roth

Method that taxpayers can use to place retirement savings in a Roth IRA, even if their income is higher than the maximum the IRS allows for regular Roth IRA contributions.

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The person who will receive your retirement dollars in the event of your death. You can set up a beneficiary for your IRA online and with a beneficiary form for your Solo 401(k)

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A brokerage firm that buys and sells securities on its own account as a principal before selling the securities to customers. Rocket Dollar is not a broker dealer.

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Brokerage Account

Arrangement where an investor deposits money with a licensed brokerage firm, who places trades on behalf of the customer. Although the brokerage executes the orders, the assets belong to the investors, who typically must claim as taxable income any capital gains incurred from the account. Brokerage/Trading accounts opened properly a Rocket Dollar account in the name of an IRA LLC or Solo 401(k) Trust do not have to pay capital gains taxes as they are trading inside the wrapper of a retirement account.

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Checkbook control

When a Self-Directed IRA owner has complete signing authority over an account and investment discretion that gives access to his/her retirement funds.

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Money you contribute to a retirement account. There are annual limits to how much individuals can contribute, and certain contributions may be tax-deductible, depending on the account owner's income and employment situation.

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A custodian helps you hold assets in your financial accounts. At Rocket Dollar, your IRA structure helps you custody assets in the name of your IRA LLC and our partner bank helps you custody cash assets.

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Custody IRA

A little different and lacking some of the advantages of the checkbook control IRA LLC, a custody IRA has no LLC, and the custodian holds the alternative asset for the customer's account just like traditional custodians that hold stocks and bonds.

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Disqualified Person

Person that your IRA is forbidden from doing business with such as yourself (personal non-retirement assets), your children, parents, and other close family and business associates.

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Withdrawing money from your retirement accounts, usually to use in your personal or non-retirement related money activity. This can be a taxable event for traditional/pre-tax dollars. It is not a taxable event if you are executing a normal transfer or rollover.

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Exclusive Benefit Rule

All actions the retirement account makes must be for the benefit of the retirement account (your retirement) and not conflicts of interest like your own immediate personal gain, or a disqualified person's immediate gain.

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Extension of Credit

Self-Directed IRAs or Solo 401(k)s can not take on prohibited extensions of credit. All loans must be non-recourse and not be based on any of your personal assets. Examples would be something like a credit card, a mortgage based on your personal credit and your personal home, or margin agreement based on your non-retirement trading assets.

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Fair Market Value (FMV)

Total dollar value of assets within an account at year end

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A person or organization that acts on behalf of another person or persons to manage assets. Usually fee based. The fiduciary rule has been hotly debated in recent years compared to a broker/commission based practices. Rocket Dollar is not a broker or a fiduciary, as we do not recommend investments or deals. We are a third party administrator making it easier to manage your Self-Directed account with checkbook control.

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Inherited IRA

An Inherited IRA is a way for a beneficiary to take on retirement assets from someone who has passed away. The IRA will required minimum distributions based on the life expectancy of the person who passed it onto you.

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IRS W-9 form

Investment issuers can request a W-9 so they know where to send money back, such as your Solo 401(k) trust account. Never fill out and submit a W-9 to an unknown party.

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Shorthand for "know your customer". Compliance that any financial company must complete to verify the identity of their customer opening bank or financial accounts.

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Corporate structure in the United States whereby the owners are not personally liable for the company's debts or liabilities. A Colorado IRA LLC is in almost all of our IRA products to help achieve checkbook control.

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Mega Backdoor Roth strategy

A way to maximize Roth conversions using the Solo 401(k).

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Non-Recourse Loans

Does not allow the lender to pursue anything other than the collateral; all loans in an IRA and Solo 401(k) must be non-recourse.

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Plan Asset Rule

Also known as the "25% rule" which means that after a fund takes in more than 25% in retirement funds, extra compliance restrictions kick in unless the fund qualifies for one of the many exceptions.

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Prohibited transaction

Transaction between a plan and a disqualified person that is prohibited by law

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Qualified Retirement Plan (QRP)

Plan that meets the requirements of Internal Revenue Code Section 401(a) of the Internal Revenue Service (IRS) and is therefore eligible to receive certain tax benefits

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Required Minimum Distributions (RMDs)

Amount that owners of a traditional, SEP or SIMPLE IRA account and qualified plan participants must begin withdrawing from their retirement accounts by April 1 following the year they reach age 72.

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Restricted investment

Constitute what you cannot invest in with a retirement account

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Moving money from a 401(k) to an IRA or 401(k) to a different 401(k) plan. Sometimes this is a little slower and might involve a physical check that needs be mailed.

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Roth conversion

Shifting money from a Traditional IRA into a Roth IRA, which may have long-term tax benefits.

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Roth IRA

A individual retirement account that allows you to pay taxes on the money you put into it upfront, offering tax-free growth and tax-free withdrawals in retirement.

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When your self-directed retirement account makes a prohibited transaction with the same person who owns it (you). This is not allowed.

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Self-Directed IRA (SDIRA)

Retirement account that allows alternative investments for retirement savings.

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(Simplified Employee Pension IRA) type of traditional IRA for self-employed individuals or small business owners.

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Solo 401(k)

Retirement plan for business owners who have no other full-time employees other than the owner and, if married, their spouse.

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Step Transition Doctrine

When you try to put a straw person as a layer in between a prohibited person or prohibited transaction, it is still a prohibited transaction.

Successor Trustee

Your successor trustee is the executor of your estate after you die. They pay your final bills, sell assets if needed, work on your final tax return, and most importantly, distribute your assets according to the instructions detailed in your trust.

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Traditional IRA

An individual retirement account, that anyone with taxable income can qualify for.

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Transfers (similar to rollover)

Moving money from an IRA to an IRA

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Trust bank account

A bank account tied to your Solo 401(k) retirement trust to give you checkbook control.

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Unrelated Business Income Tax (UBIT)

If your IRA owns an asset or interest that produces Unrelated Business Taxable Income (UBIT), your IRA may be subject to an unrelated business income tax

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Unrelated Debt-Financed Income (UDFI)

If your IRA owns an asset that has been purchased through leverage (non-recourse loans) then it could have to pay UDFI tax.

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