Secondary Market Annuities can easily be purchased in qualified retirement accounts.

Qualified funds may be in a Roth, a 401K, 403b, a Simple IRA, or other qualified vehicle.  To buy an SMA using qualified funds we need to utilize a self directed IRA.  Many self directed IRA custodian options exist but we have identified two with experience in the asset class with low costs.

Rolling funds over from one custodian to a new one is a very simple process, but it can take a week or two.  For clients who are planning to use qualified funds, it often is best to open the self directed account first, even before you reserve a deal.

Self Directed IRA’s- Set-Up, Transfers & Rollovers

Self directed IRA’s are needed when making investments in Secondary Market Annuities with qualified funds

Using Self Directed IRA’s With Secondary Market Annuities

GSTC Full Logo smallThere are three self directed IRA custodians we work with. Provident, IRA Services, and Gold Star Trust all have familiarity with the asset class. However, Gold Star Trust is head and shoulders above the other two in terms of speed, service, and low cost. They are doing a great job for us and we recommend all our customers and advisors use them. Their paperwork will be shown in the video demo.

Download “Gold Star Trust Traditional IRA Documents” Shown In This Video

Download “Gold Start Trust Roth IRA Documents” Shown In This Video

There are four steps in an SMA/IRA transaction:

  • Open the Gold Star IRA Account– pages 1-4 AND page 8 of the IRA Application kit
    • Gold star will open an account with $0 transferred in. There are nominal account establishment fees ($65 annual/$25 opening) that can be paid by credit card.
    • Typically there is no need to open the IRA until an SMA is court approved.
    • Page 8= wholesale rep form. This authorizes us to communicate with, but not direct, Gold Star regarding your SMA purchase.
  • Fund the Gold Star IRA- pages 5+6, IRA Transfer/ Rollover documentation
    • This moves money from the current custodian to Gold Star.
    • Depending on the current custodian and the investments held, this might take 2 days or 4 weeks. It might require additional documentation such as notarized or medallion stamped signatures, and it may require time for currently held investments to sell and for trades to settle out. Also, some custodians may not wire, and may only send a check.
    • All these factors determine when you need to initiate the rollover/ transfer. Ideally, you wait until your SMA is court approved, then initiate transfer of funds to Gold Star, however there may be situations depending on your current custodian where you need to start money moving earlier.
  • Buy the SMA- Direction of Investment form, page 7
    • There is a space on the form for the case code, (examply- 7A060116A-1)  and for the exact purchase price
    • The best practice for people who know they are buying an SMA but don’t know which SMA yet, is to send in a signed DOI form right at account opening, leaving the case code and $$ blank- Gold Star will fill this in once you identify an SMA
    • Alternatively, if you know which SMA you are buying and it’s been court approved, fill in the case code but leave the price blank, as that is not known until right before closing, and Gold Star can fill that in.
  • Closing book
    • In SMA transactions with IRA funding, we supply you with the closing book for your review prior to funding
    • Once you review and approve, by email or call to us or to Gold Star, Gold Star signs the Absolute Assignment and the Servicing Agreement on your behalf as custodian, and wires money from your account to purchase the SMA
    • Closed/Funded/Complete

About Self Directed IRA’s

Self directed IRA’s are simply IRA’s held by a custodian that permits you to direct your own investments- you can chose to buy SMA’s, real estate, or any other sort of investment.  A self directed IRA custodian will not offer you investment advice- they just ensure the account is in compliance with the IRS.

By contrast, many IRA’s held by brokerages like Schwab or Fidelity let you pick from only a few Fidelity or Schwab mutual funds- they are restricted and captive, and may  offer traditional stock picking advice.

Best Cases For Qualified Funds

IRA’s are designed to offer tax deferral for investors saving for retirement…. and they are designed to be SPENT in retirement as well.  Most investors can’t touch the money in their IRA’s for a long time, and too often, people shoot for income contracts in an IRA and produce income (and return of principal) that they can’t take out.  Instead, take advantage of these deferred interest rates and consider deferred lump sum cases.

RMD Details

Holding SMA’s in a qualified vehicle requires the custodian to calculate the Required Minimum Distribution (RMD) each year.  Be aware that long term deferred SMA contracts in qualified vehicles for investors over 70.5 years of age may be subject to RMD’s yet not produce cash flow.  Advisors should be sure there is sufficient money for RMD’s when using deferred contracts in IRA’s

Self Directed IRA Custodians

There are many self directed IRA custodians, but only a few are familiar with the secondary market annuity.

Out clear favorite that we prefer above all others is  Gold Star Trust Company.  Gold Star is the trust-only branch of a  mid-sized Texas based bank and has a specialized niche in the Secondary Market Annuities business.  Gold Star offers fantastic customer service and the lowest prices of any self directed IRA custodian, and is our preferred SDIRA partner.

To be fair, there are two other custodians we can work with for customers who already have accounts, namely IRAServices and Provident Trust Group.  Both understand Secondary Market Annuities and are easy to work with, but Gold Star is a superior value and quality of service.

If you plan to use an IRA, you’ll need to open the account first.  Fill out and return to us, we’ll fill in your IRA documents for you and mail to you for your signature, with a return envelope too to make it easy.

You do NOT need to fund your IRA to open the account, but as it sometimes takes time to open, and then again to transfer money, we prefer to have IRA buyers open their accounts prior to reserving deals to prevent delays.

What Are The IRA Fees For Multiple SMA’s?

Depending on the custodian, there may be fees for adding multiple SMA’s to you IRA, but there are generally no fees for receiving funds from the insurance company into your IRA.

Now, depending on what you direct your custodian to do with your IRA funds in terms of distributions, you may incur fees, as outlined in their fee schedule.  That’s not something we control and is at your discretion.

Our preferred custodian, Gold Star, charges no additional fees to add multiple SMA and their distribution costs are minimal.

Are Taxes Withheld?

None of the money coming in to the IRA from an SMA will be subject to withholding or taxation.  Money you direct to come out of your IRA for distribution to you however would be taxable.  Those withdrawals are all up to you and your accountant.

That said, lottery SMA’s ARE subject to withholding by the state lottery commission.  Typical lottery winners have a $0 cost basis in their prize so all the income is taxable and taxes are withheld by the lottery commission in  the state of issue for both state and federal.  But as you bought the lottery payment, you DO have a cost basis.

In this case, Lottery payments purchased in your IRA will require your IRA to file for a refund in the State that issues the lottery.

Are There Carrier Fees?

While there are no fees to insurance companies, there may be minimal costs for payment servicing. Otherwise, SMA’s are What You See Is What You Get.

IRA custodians have fees, as laid out in their fee schedules.  How you choose determines the fees.

What about Custodian Fees?

There are generally no costs associated with receiving a check into your IRA from an SMA.  There may be some minimal costs for adding multiple IRA’s, depending on your custodian. All custodians, however, have some costs for disbursements, and depending on your case and intentions, we can help determine which is best for you.

Now, depending on what you direct your custodian to do with your IRA funds in terms of distributions, you may incur fees, as outlined in their fee schedule.  That’s not something we control and is at your discretion.