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Why the Self-Directed IRA Beats Other Investing Vehicles for Millennials

Posted by on Aug 28, 2017 in Blog | 0 comments

An IRA or Individual Retirement Account forms the backbone of retirement savings for most of us. A self-directed IRA is quite similar to regular IRAs, but along with tax-deferred gains and income, it also allows you to choose where retirement funds are invested.

Here are 5 ways to make better investment decisions when you’re just starting out:

  • Begin Now – Don’t avoid retirement planning or investment opportunities till you’re earning more. The sooner you start, the more you’ll save.
  • Don’t “Play” – Playing the stock market or choosing asset classes you don’t understand is a bad idea. Start with safe, long-term investments.
  • Get Help – Consult experienced financial advisors for investment advice and recommendations. As you learn, you can start exploring.
  • Stay Safe – Avoid placing all your savings into a single stock, especially if you’re investing with your retirement accounts and don’t have a safety net.
  • Diversify – Invest in precious metals, real estate and other alternative investments in addition to traditional stocks, bonds and mutual funds.

Proposed changes to the Social Security program may affect retirement age, benefits and more, so it’s more important than ever to take retirement planning seriously!

How Does a Self-Directed IRA Help Your Retirement Portfolio?

Here’s why you should consider using a self-directed retirement account:

  1. Freedom from Stock Market Fluctuations – Potential changes to Social Security, market ups-and-downs, rising inflation and terrorism threats all contribute to economic uncertainty, and cause sleepless nights for the individual investor.
    Being restricted to investing vehicles that rely on stock market performance doesn’t help. Instead, you can secure retirement funds with self-directed IRA real estate purchases or investments in precious metals. These long-term alternative assets cannot be funded with a traditional IRA or Roth IRA.
  2. Variety of Alternative Investment Options – Millennials are drawn to alternative investments and want more options for IRA investing. In fact, almost 1 in 4 Millennial investors plan to try an alternative investment strategy within 5 years (Source).
    Self-directed IRA accounts give you this option. Real estate, precious metals, private equity and startups/businesses are all great investment options for self-directed retirement accounts. Just make sure you follow the IRS rules and stay away from prohibited transaction pitfalls.
  3. Greater Safety and Security for Investments – When you have the ability to invest IRA funds in a range of asset types, you retain control of your retirement savings. Choosing the right investment opportunities also improves your financial security.
    Investing in alternative asset types such as IRA real estate ensures a long-term income source for your retirement accounts, especially if you buy rental property. You can also opt for a self-directed IRA LLC, which shields your IRA assets from attack by creditors and provides additional protection through limited liability.
  4. A Perfect Fit for Millennials’ Investing Style – Despite common belief that they don’t know how to save, Millennials are more financially conservative than any other generation. They’ve had no choice!
    If you’re like most Millennials, you’ve already dealt with loss of job security and economic downturns. Self-directed IRA accounts can give you the control, security and flexibility you need, for making investment decisions based on your unique goals, investing style and experience.

To learn more about self-directed IRA basics, IRS rules and tax implications of investing in alternative assets, contact the experts at Self Directed Retirement Plans today!

Is a Self-Directed IRA LLC the Right Fit for You?

Posted by on Aug 21, 2017 in Blog | 0 comments

A Self-Directed IRA LLC could be exactly what you need if you want to diversify your retirement portfolio, especially for asset classes not included in traditional IRA investing.

Self-Directed IRA LLC

This is a good option to consider if you want:

  1. Tax-Deferred Growth – One of the biggest advantages of traditional IRAs is that your gains are tax-free until you make a withdrawal. You get the same benefit with a Self-Directed IRA LLC. Taxes will be deferred on any income or returns from investments through the account, and only distributions are liable for tax.
  2. More Investment Choices – Traditional or Roth IRA funds are usually invested in stocks, bonds and mutual funds. Unlike traditional investing vehicles, a Self Directed IRA LLC allows you to choose from a wider range of asset classes. You can use a self-directed IRA to invest in real estate, precious metals, tax liens or even an unrelated business.
  3. Portfolio Diversification – Choosing different types of investments is the best way to secure your retirement accounts, and a Self-Directed IRA LLC allows you to do that more effectively. With a larger variety of asset classes to pick from, you can allocate funds to IRA real estate, alternative investments and more.
  4. Greater Access to Funds – If you want to access traditional IRA accounts for an investment, you have to wait for the IRA custodian to approve your request. With time-sensitive investment opportunities, any delay in this process could mean losing out. However, a Self Directed IRA LLC offers you complete control.
  5. Convenience & Efficiency – You can make investment decisions faster and more efficiently with a Self-Directed IRA LLC. For instance, if you’re thinking of investing in real estate with your IRA funds, all you need to do is set up an electronic balance transfer or write a check from the IRA associated bank account.
  6. Limited Liability Protection – Your investments are protected from attack with a Self-Directed IRA LLC, since your liability is limited. For instance, if you invest in IRA real estate, the IRA assets held outside the LLC are shielded against claims resulting from design or construction defects in your real estate investment.
  7. Protection Against Creditors – If you’re filing for personal bankruptcy, your Self Directed IRA LLC will shield up to $1 million of your IRA assets. Your self-directed IRA LLC investments will also be protected against creditor attack outside of bankruptcy in most states, so you can safeguard your retirement.

Factors before Choosing a Self-Directed IRA LLC

These 3 factors will help you decide if a Self-directed IRA LLC is a good fit:

  • Types of Investments – If you’re planning to purchase real estate, tax liens or other time bound investment opportunities, a Self Directed IRA LLC is ideal. For long-term passive investments such as precious metals, a self-directed IRA may be better.
  • Transaction Frequency – If you will often be making investments or transactions for active assets such as auctions or hard money loans, a Self Directed IRA LLC will help you save money on transaction costs, review fees, and other expenses.
  • Account Setup Costs – Setup and transaction costs depend upon the self-directed IRA custodian handling the account. Remember, in addition to custodian fees and setup costs, you may also be charged for storage, insurance or wire fees.

If you aren’t sure whether a Self-Directed IRA LLC is the right way to meet your retirement goals or want to know about tax compliance, prohibited transaction types and other IRS rules, consult a financial advisor or tax professional.

At Self Directed Retirement Plans, our experts will be glad to answer your questions. Contact us now!

Make Your Retirement Portfolio Greener with a Self-Directed IRA

Posted by on Aug 17, 2017 in Blog | 0 comments

Make Your Retirement Portfolio Greener with a Self-Directed IRA – Green investment is becoming the next big thing for modern investors, who prefer to do whatever they can to help protect the environment while building their retirement income. Some examples of “green” investments include renewable energy, waste management, transportation, manufacturing, agriculture, advanced materials and clean technology.Green investment is becoming the next big thing for modern investors, who prefer to do whatever they can to help protect the environment while building their retirement income. Some examples of “green” investments include renewable energy, waste management, transportation, manufacturing, agriculture, advanced materials and clean technology.

Retirement Portfolio

A conventional IRA may not allow you to invest retirement funds in eco-friendly investment opportunities and alternative assets, but a self-directed IRA does. You still enjoy tax-deferred growth and income, but self-directed IRA accounts allow you to select exactly which types of investments are funded with your retirement savings.

Why is Green Investment becoming So Popular for Retirement Portfolio?

A large part of today’s workforce is composed of Millennials, who tend to be more aware of – and passionate about – environmental issues, sustainable living and business responsibility. This environmentally conscious attitude reflects in their investment decisions and style as well, leading them to choose green investments over traditional options.

Investing in Green Assets with a Self-Directed IRA

Here are 6 types of investments that will help you go green with your IRA investing strategy:

  1. Energy Efficient Real Estate – Look for commercial or residential structures with a low carbon footprint. These could be buildings powered with green energy, built with sustainable materials, or designed to reduce water consumption, heating and cooling costs, etc. Energy efficiency upgrades or redesigning projects can help boost the value of your existing IRA real estate as well.
  2. Green Energy Projects – Growing climate change concerns make renewable energy projects the ideal investment options for green investors. Consider biofuel, solar, offshore wind and water energy investments, as well as clean technologies for oil, gas and other natural resources. You could also make IRA investments in private capital for companies with good environmental practices.
  3. Clean Transportation Options – In developing markets as well as developed ones, the demand for greener transportation is on the rise. Investing in clean-emission public buses, light-rail vehicles, hybrid or electric vehicles, ride-share cars and even companies building carpooling or ride-sharing apps is a good way to promote clean transportation and diversify your retirement portfolio at the same time.
  4. Green Infrastructure Investments – Green bonds are a common investment vehicle used by cities and states for funding infrastructure upgrades, such as clean water, wastewater, waste and bioenergy systems, safer and more energy efficient public transportation, etc. Since they are backed by the local, state or federal government issuing them, green bonds are usually both tax-exempt and secure.
  5. Eco-Conscious Capital Markets – In addition to a wide range of conventional and alternative assets, you can also use a self-directed retirement account to buy private capital in companies that are environmentally conscious. Whether it’s a small business making eco-friendly beauty products or a startup manufacturing compostable bags, you can invest in green goods or services of your choice.
  6. Investment in Green Technology – If you’re looking for more ways to make a difference while setting up your retirement portfolio, consider investing in clean commodities that will help save energy or resources. These could include sustainable tree plantations, recycled construction material, solar power technology and more. You could also use IRA funds to buy a green business or set one up on your own.

If you want to explore other investment strategies that promote a greener and healthier environment, we’d love to help. Our retirement planning and tax professionals can also help you understand IRS rules that apply to self-directed IRAs, tax implications of alternative asset investments, and more. Contact us today!

How Can Self-Directed IRA Investing Help You Raise Capital for a Business?

Posted by on Aug 14, 2017 in Blog | 0 comments

Have you ever wanted to use your retirement portfolio for investments that really matter to you? For instance, you may be interested in an upcoming business or have one of your own that you want to invest in. However, all of your savings are sitting in your IRA!

Raise Capital for a Business

With a self directed IRA, you can choose where money from your retirement accounts is invested, and continue to enjoy tax-free or tax-deferred growth. Since these accounts offer more flexibility, they are a good option for those looking to fund a startup, grow their own business or buy a company.

Benefits of a Self Directed IRA

Here’s why you should consider using a self-directed IRA to invest in a business:

  • Tax-Advantaged Growth – A self-directed IRA offers either tax-free or tax-deferred growth. With a traditional IRA, income and gains will be tax-deferred since these accounts are funded with pre-tax dollars, while Roth IRAs give you tax-free gains since you’ve already paid income tax on contributions.
  • More Options & Control – Self-directed IRAs allow you to make investments in a wider range of asset types, since you aren’t limited to stocks, bonds and mutual funds. These accounts can be used to invest in everything from real estate, precious metals and tax-lien certificates to certain business types.

The main advantage isn’t just that you can invest retirement savings in your business, but that friends, colleagues and certain family members can invest in it with IRA savings as well.

Self-Directed IRA Investing: What Types of Investments Can You Make?

Since IRAs are primarily designed to help you save for retirement, you may be penalized if the IRS suspects you’re using retirement accounts for benefits in the present instead of the future, such as a salary paid to yourself.

You can use your self-directed IRA to invest in:

  • Private Businesses – Your retirement savings can help you set up a private business, or raise funds by suggesting that investors use self-directed IRAs.
  • Existing Companies – Self-directed IRAs can be used to buy existing companies. You will pay “unrelated business” income tax, but equity growth is tax-free.
  • Alternative Assets – Self-directed IRA owners can invest in a private company, franchise, closely-held enterprise or other allowable alternative investment.

Here are three basic situations to avoid:

  • General Partnership/S Corporations – These legal structures may seem the same as other companies, but they are governed by specific taxation rules.
  • Prohibited Transaction Types – Your spouse, children and parents cannot invest in your business with a self-directed IRA, but siblings, business associates and friends can.
  • Key Investor and Employee – If you own more than 50% of a business or have a controlling interest in it, you can’t use self-directed IRA funds to invest in it.

The bottom line is that you MUST check what’s allowed and what isn’t. Even a small error can lead to major penalties, so do your homework or consult an experienced financial advisor about applicable IRS rules and regulations.

At Self Directed Retirement Plans, we’re here to help. Get in touch with us today!

401k Withdrawal Strategies : Which Moves Will Help and Which Ones Will Hurt?

Posted by on Jul 24, 2017 in Blog | 0 comments

401k Withdrawal

401k Withdrawal Strategies: What You Should and Shouldn’t Do

For most people planning their retirement, 401k plans are an important part of their financial toolbox. These accounts are considered the modern-day version of traditional pension plans, and most employers offer matching contributions to help their employees save for retirement.

If you’ve opened a 401k account with your employer or are planning to do so, it’s helpful to understand the best and worst moves you can make. Let’s look at what these are.

What You SHOULD Do

Here are the best moves to include in your 401k withdrawal strategy, to save taxes and maximize your retirement income:

  • Rolling Over to an IRA or a self-directed 401k – When you change jobs, rollover your 401k money into an IRA or401k.  IRAs and self-directed  401ks offer a much wider range of investment choices than 401k accounts, and investment fees are typically lower as well. They also allow you to choose other beneficiaries than just your spouse.
  • Converting to a Roth 401k – Convert your traditional 401k into a Roth 401k, for better post-retirement benefits. Roth 401ks are funded with post-tax dollars, but qualified withdrawals and earnings are tax-free. At 71 ½ when Required Minimum Distributions (RMDs) come into play, you will rollover the Roth 401k to a Roth IRA.  The Roth IRA does not attract RMD’s.  IMP.
  • Taking Distributions Early – Take distributions before you actually need them, but only if you can resist the urge to spend instead of investing the money. Ideally, make 401k withdrawals before you start receiving Social Security or other retirement income and move into a higher tax bracket.
  • Do Your Homework – Learn about retirement tax brackets, RMD requirements and early withdrawal penalties, so you can leverage these to your advantage. For instance, most people expect to be in a higher tax bracket by the time they retire, so investing in Roth IRA or 401k accounts could help you reduce taxes later.

What NOT to Do

Here are some of the moves that won’t help your 401k withdrawal strategy:

  • Not Making Withdrawals – Leaving money in your 401k account may seem like a good idea, but you need to keep track of RMDs to avoid penalties as well. Typically, you need to start making withdrawals starting at the age of 70½, but you can reduce the 401k amount that’s subject to RMDs if you start taking money at the age of 59½ and using it for investments not subject to RMD’s.
  • Taking the Funds Out – Cashing out your 401k isn’t the best idea either, since you will be subject to a heavy income tax bill if you take distributions before the age of 59½. You will face an early withdrawal penalty of 10% on the withdrawal amount PLUS income tax., In addition you will lose out on the interest you could have earned by leaving the money in the account!
  • Not Checking 401k Costs – Rolling over to a new employer’s 401k without first checking the cost of investments and brokerage fees is a bad idea. You could always choose the option of opening a low-cost IRA for these retirement funds if the fees for the new employer’s 401k are higher than those for your old account.
  • Handling Funds in Your Name – Taking a check in your name for the rollover is also a bad move. Request a direct transfer into the new 401k/IRA, or a check made out to the account’s custodian instead. 20% of the amount will be withheld as tax if you take a check in your name, refundable only if the rollover is completed within 60 days.

Take charge of your retirement income and investments with a self directed IRA or a self directed 401 k. If you need help or advice with taxes and retirement planning, we’re here for you. Contact the team at Self Directed Retirement plans to learn more, today!

The Why and How of Investing in Startups with a Gold IRA

Posted by on Jul 17, 2017 in Blog | 0 comments

An IRA allows you to save for retirement and invest your money in real estate, stocks and bonds, mutual funds, and more. You can also use your IRA assets to invest in startup equity, through startup funding platforms or “accelerators” that bring investors together and provide other services to new businesses. An IRA allows you to save for retirement and invest your money in real estate, stocks and bonds, mutual funds, and more. You can also use your IRA assets to invest in startup equity, through startup funding platforms or “accelerators” that bring investors together and provide other services to new businesses.

Gold IRA

How Can You Use Your IRA to Fund Startups?

Investing in startups or precious metals such as gold and silver is not normally an option with traditional IRAs, but a self-directed IRA allows you to choose exactly where your funds are invested. You get far greater control over the division and investment of your assets, which makes this the perfect option for long-term startup investments.

Why Should You Invest in Startup Equity with a Gold IRA?

These are some of the main benefits of buying gold or other precious metals with a self-directed IRA:

  • Consistent Market Performance – With high demand for the metal in emerging markets such as China, negative interest rates and rising levels of debt, the value of gold has grown tremendously and consistently in recent years. Gold has outperformed the stock market by over 300% in the past 10 years.
  • Unaffected by Market Downfalls – Unlike mutual funds, stocks and bonds, gold is not affected by fluctuations in the market. It moves in the opposite direction to most other investment vehicles, which makes it less vulnerable to economic ups-and-downs. If you want to keep assets safe, gold is the way to go.
  • Keeps Pace with Inflation – The price of gold has continued to rise throughout the years, keeping pace with the rising cost of living. Since it’s not subject to market fluctuations and the Government can’t just print more, gold is a lot more dependable and offers more purchasing power than paper money.
  • Diversifies Your Investments – If you want to diversify your portfolio and balance high-risk investments with secure assets, purchasing gold is the right move. The precious metal offers more value and security than any other investment option, protecting your assets from market risk and fluctuations.

How Does the Process Work?

First, you need to set up a self-directed IRA with a custodian, which could be a bank, credit union, trust company, etc. The IRA custodian holds your assets, keeps a record of them and oversees the administration of your account.  You can also create an underlying LLC (owned by the IRA).  The LLC acts as the investment arm for your IRA.  Using this method, there are precious metal investments you can take possession of and store where you wish.

You can move any portion of existing IRA assets into precious metals in two ways:

  • Transferring to a Gold IRA – Assets need to move directly from one custodian to another when you transfer your existing IRA to a precious metals IRA, so you need a check from the old custodian made in the new custodian’s name instead of yours.
  • Rolling Over to a Gold IRA – You can withdraw funds from one IRA account and move them to another. The rollover needs to be completed within 60 days to avoid being treated as an early distribution, and it can only be done once in 12 months for each IRA.

If you want to know more about IRAs, 401k plans and tax/retirement planning, contact the experts at Self Directed Retirement Plans today!

5 Tips to Sustain an Advisory Business in a Challenging and Rapidly Evolving Industry

Posted by on Jul 10, 2017 in Blog | 0 comments

The independent advisory industry was experiencing a tough time back in 2014. The AUM revenues were going down due to a weak stock market, the competition was constantly increasing, the client bases of numerous independent firms were aging and there was a new wave of low-cost digital advice platforms mushrooming everywhere.

Moreover, this industry faces increased commoditization, escalating regulations and not many choose to enter this profession. Owing to all these factors, this industry had to make several changes to sustain and grow in a rapidly changing industry. If you are a retirement advisor or in the advisory business, you must follow these tips:

• Embrace Technology

Ditch the traditional ways of working. The current and future generations of investors are really tech savvy, which means that you, as a business owner, have to be technology friendly. Think of how you can reach your clients and digital audience by using technology. Social media, smart phones and tablets have allowed people to access content and connect with businesses at any time, from any location. Make good use of that. It won’t be long when businesses who refuse to adopt technology will disappear as the non-technology generation is slowly diminishing. Before you realize, you will cater primarily to those clients who have grown up with technology.

• Be Where the Future Clients Are

Don’t be surprised to meet a lot of your future clients on various digital platforms. This means that you must have a strong digital presence. Build a modern website where your clients can learn more about you and contact you. Be relevant on various social media platforms such as Twitter, LinkedIn and Facebook. Blog and guest-blog on a regular basis. Apart from that, you must be comfortable with creating online videos, delivering webinars, using apps to communicate with your audience and engaging them through video conferencing. Interact with your clients on social media platforms instead of just ‘listening’ to them.

• Offer What You Can’t Commoditize

You cannot commoditize certain things, such as developing personal client relationships which extend beyond the tag of ‘strictly professional’, delivering and charging for real financial guidance, helping clients realize their goals by facilitating their journey with positive emotions, understanding what really matters and motivates your client, and making your clients’ time productive, fun and profitable. When you offer such things, your clients will become your advocates and stay loyal to you. Before you know it, you will find yourself handling new clients that have been referred to you by your existing clients.

• Go the Extra Mile and Keep Innovating

Innovation is the key to succeeding in any business. As an advisory business, you must make a constant effort to research new stuff so that you can always maintain a fresh perspective on things. Read something new — something that you normally wouldn’t, attend a conference that isn’t concerned with your industry or meet up with clients over a coffee to discuss their triumphs, challenges and insights. Look out for different ways in which you can implement ideas from other industries to your business. Don’t be afraid of failures or going the extra mile as they would eventually lead you to success.

• Attract Younger Generations of Investors, Including Women

It is true that most of your clients would be mature and boomer clients but, as an advisory firm, you must broaden your appeal to younger generation of investors. It is equally important to include women in your clientele as well. There are a large number of firms who alienate these two segments by failing to meet their needs, such as retirement planning. Understand the requirements of these demographics and offer them something that others have turned a blind eye to.

There comes a challenging time for almost every industry at some point or the other. The only thing you can do that time is to persevere and barge ahead with innovations and confidence under your belt. It is time you did that to grow your business to what it deserves to be.

8 Savings Tips for Millennials Who want to Retire Rich

Posted by on Jun 30, 2017 in Blog | 0 comments

saving-tips-for-millennials-to-retire-rich

source: govtechworks.com

The thought of retirement seems to be far-fetched for many young people and the numerous bills that you have to pay do not make it any easier. However, the reality is that postponing your retirement savings is a big mistake, as it is likely to translate to retiring under not so good circumstances or retiring later than the ideal age.

This is backed up by findings of the NerdWallet study that suggested the 2015 college graduates will retire at the age of 75 despite the current retirement age being 62. This is not cast in stone however and you can begin writing your retirement story today by simply making better savings decisions that will let your money work for you.

Here are 8 retirement tips to help you get started on safe retirement planning and earlier rather than later:

  • Create a Budget
    It is important to prioritize your retirement savings by beginning to save as soon as possible. Although you may feel overwhelmed by student loans that stretch your budget and make you feel like you cannot save for retirement, your financial plan should include retirement savings as this will allow you to have more savings by the time you hit your retirement age. While financial advisors recommend that 15% of your pay be dedicated to your retirement, you can save less than this percentage but be sure to increase with each month. Besides, this makes savings much easier as it becomes a habit.
  • If your employer offers you a 401(k) or similar retirement plan and contributes on your behalf, give priority to it and Save there First.
    You will do well to save enough in your 401(k) account to be able to capture your employer’s match that is as good as free money. For instance, where your boss is offering 50 cents for each dollar you put in your account up to 6% of your pay, which is an acceptable policy, then at least 6% of your pay should be deferred to that retirement account. This translates to 9% in savings translated as 6% from your contribution and 3% from your employer’s contribution. Today, you can contribute up to $18,000 to your 401(k) while individuals who are aged over 50 years will have to add an additional $6,000 to cater for catch up contributions.
  • Contribute to a Roth IRA
    If you have maximized your traditional 401 (k) contributions or your employer does not have a Roth 401 (k) provision, you will do well to consider Roth IRA. Besides the tax benefits, contributing to a Roth account comes with the flexibility of being able to withdraw contributions whenever you need it especially in the event of an emergency without attracting any tax or penalty fee if you are 59 ½  years or older.
  • Automate your Savings and Pay Yourself First
    Financial discipline can be such a huge challenge especially when you have too many bills to pay. As such, automating your savings is a sure way of ensuring that you save each month. That is, your company will ensure your pretax dollars are moved from your paycheck so that the money does not get to you to put it to the account, as this might as well not happen.
  • Invest Wisely
    It is critical to make smart investment choices with your Roth IRA and 401(K). That is, consider funds that allow a bigger return but come with low expense ratios. The best way to do this is to select index funds over varied asset classes to ensure proper diversification. You will do well to think about having a portfolio of between 80% and 100% stocks since you are young and can accommodate fluctuations in the market.
  • Invest in Equities
    Although you may have witnessed how people lost money during the financial crisis in the past decade, it is worth taking risks and investing in equities when it comes to investing for the future. That is, put your money in a long time horizon. The upside of this is that higher level risk will make up for potential short-term losses. Even then, you need to adjust the risk for your investment portfolio as you age by periodically revisiting your financial plans.
  • Boost and Increase your Savings Each Year
    Consider increasing the amount of money you put aside for your savings each year until you achieve a 10 to 15% target rate. You can increase your savings whenever your pay is raised, make extra income or when you make money from your side gigs.
  • Practice Good Spending Habits
    Being able to take control of your spending habits is a surefire way being able to save more. Consequently, you will be better placed to take charge of your retirement account to ensure that your future is secured. You may want to consider living below your means as this will enable you to strike a balance between your retirement and other issues that require finances such as your student loan.

Investing for retirement at a young age is the key to retiring comfortably as you will accumulate a sizeable nest egg. Thus, you will do well to seek the help of financial advisors to guide you through investing for retirement and ensure you get started on the right path.

Borrowing against Your IRA: 6 Common Questions about IRA Loan

Posted by on Jun 26, 2017 in Blog | 0 comments

IRA loans for property and investments may seem like a good idea, but there are some risks to consider. These 6 FAQs will help you understand more about them: IRA loans for property and investments may seem like a good idea, but there are some risks to consider. These 6 FAQs will help you understand more about them:

Can an IRA Loan Be Taken and is it a Good Idea?

Technically, you can’t borrow against your IRA or take a loan directly from it. What you can do, however, is use the “60-day rollover rule” as a method of financing expenses, loans or investments. Essentially, money taken out of an IRA can be put back into it or another qualified tax-advantaged account within 60 days, without taxes and penalties.

When Should You Borrow against Your IRA?

Honestly, never. The risk is too great. That being said, the 60-day rollover period can help with a financial emergency or time-sensitive investment opportunity.

For instance, it can be helpful when you’re negotiating a real estate deal that you intend to finance with a mortgage, when you have no other source of funds for medical expenses, or are expecting a tax refund or money from other sources.

Explore all other avenues first, such as:

• Making a tax-free withdrawal from the initial investment in a Roth IRA
• Taking a loan on margin against stocks in your investment portfolio
• Loans from friends or family, who won’t charge you interest if you’re late by a day

Also, make sure that mortgages, other financing options or incoming funds with which you plan to pay back IRA loans will definitely be completed within 60 days. Leave room for potential setbacks such as public holidays and delays in paperwork.

What Happens if You Fail to Pay Back the Loan?

If you fail to pay back your IRA loan within 60 days, the money will be treated as a taxable distribution from the account. If you’re under 59½ years of age, you will also be liable for a 10% early withdrawal penalty in addition to income tax.

There are a few exceptions to the 60-day rollover requirement, like receiving incorrect advice from a financial advisor or falling sick. However, there’s no guarantee that you will qualify for an extension or waiver.

There’s one more risk to consider. In case you use IRA loans to tide you over during a bad financial time but go bankrupt during the 60-day rollover period, you will still owe the IRS any tax and penalty applied to the amount withdrawn.

Is There Any Penalty for Taking IRA Loans?

As long as you pay back the loan within 60 days, tax and penalties don’t apply, but you may be liable for a 6% excess contribution fine if you make more than one rollover within a 12 month period for each IRA.

What are the Qualification Criteria for IRA Loans?

Certain lenders offer non-recourse IRA loans for the purchase of rental property, where property itself acts as security, instead of the account holder or IRA.

To qualify for an IRA non-recourse loan:

  • The property must be marketable and in rentable condition
  • The property must have a strong cash flow
  • You must have 30%-40% of the property’s purchase price in a self directed IRA, to cover down payment and fees

What is the Process for IRA Loans?

  • Check if the property is eligible for financing, complete the loan application, and provide recent IRA statements to the bank. If you’re married, include your spouse’s name.
  • Review the procedures and documents required by your IRA custodian. Complete and sign these, and get the real estate contract signed by the custodian.
  • Coordinate with the custodian to get funds directly transferred from your IRA to the financing bank for fees and appraisals.
  • Ensure that the IRA is listed as insured, with a minimum policy term of one year. Provide the bank with invoice and policy copies at least two weeks before closing.
  • After the bank reviews your application, verifies your documents, orders an appraisal and confirms the closing date, you will be notified if your loan is approved.
  • After approval, your IRA custodian should execute your real estate documents as “read and approved” before closing, and then transfer the down payment and closing fees directly from your IRA to the title company.

5 Ways to Make your Money Last During Retirement

Posted by on Jun 19, 2017 in Blog | 0 comments

You have worked and saved your whole life to retire and sometimes the thought of running out of money can cause a degree of anxiety. There are, however, strategies you can implement to make sure your money will last you for your entire retirement. This may seem overwhelming and difficult but the simple steps below can help you lead a comfortable and stress free retirement.

 

1. Meet Periodically with a Financial Advisor

Similar to going for your physical, a retirement “check-up” is critical to making sure you stay on track. When you were younger, getting away with an annual review might have been okay but it’s advisable when you are getting close to or in retirement that you meet with your financial advisor quarterly, and at the very least semi-annually, as a lot can happen in a year.

This is important so that you and your advisor can make adjustments for any new money coming in or any unexpected expenses you had that will impact your long-term objectives. A simple forecast based on your current savings and expenses can be re-evaluated taking into account any changes.

 

2. Make a budget and stick to it
This one may seem obvious however until you track what you spend, most people have no idea what is going out. This is especially true when you are retired and you have more free time to go out to eat, shop and go on vacation. Having a budget and reviewing it at least monthly, and ideally weekly, can ensure the plan you made with your financial advisor is on track.

Having a budget also does not mean you can’t enjoy your retirement so definitely plan trips, have date night and buy stuff for the grandkids, just make sure it fits within your allotted annual spend.

 

3. Spending Money on Family
One of the best parts of being retired is that you can spoiler your grandkids. While this is every grandparents’ right and makes them feel good they also need to make sure they don’t go overboard. Buying gifts for birthdays and the holidays is great however buying gifts all the time may not be the best idea.

Another area where this gets a little tricky is paying off your child’s college. While this may be something you feel you are obligated to do, it’s not something that should be done to the detriment of your own retirement. If you have extra money and can afford it, then it’s your right however if you have to take from money you need to live on, that may not be the best solution. There is also the thinking that if your children have some skin in the game, they may work harder and be more appreciative.

 

4. Take social security as late as possible
It is natural to want to take social security as soon as you are eligible, after all you did put a good chunk of money into it throughout your career. This, however, may not be the best strategy to maximizing your income. According to the Social Security Administration those born between 1943 and 1954 can increase their monthly payments by 32% if they delay taking social security to age 70 instead of age 66. This would mean that by age 73 you would have broken even and every year after that you will continue to get 32% more benefit. The only time you may want to consider taking social security earlier is if you are not in the best health.

 

5. Get a part-time Job
Some of you may be thinking that this one does not belong but the truth is while the thought of doing nothing during retirement sounds great in theory, most people find that in practice it is actually very boring. The first 3 months, 6 months maybe even a year you will enjoy getting up when you want to, relaxing all day, going to see your grandkids, going to the park, whatever you feel like doing. However once that initial excitement of having all this freedom goes away, the thought of doing that for the next 30 years, can be difficult.

This is the opportunity to think about what you want to do that would be fun and exciting. This does not have to be a full-time, 40-50 hour work week with all the travel that you dreaded during your working years, this could be a part-time job at a hardware store or maybe a tour guide, something that you have a genuine interest in. If you have a particular skill and some good connections, you could also do some consulting work. This will allow you to make your own schedule and make some extra money. One thing to note, be sure to review with your financial advisor and accountant the impact your job may have on your social security benefits.

In conclusion, being prepared and having an understanding of your situation will make living in retirement far less stressful than it has to be. The key to it all is being honest with yourself with what you can and can’t afford and to continue to review and update your plan with you financial advisor.

About the author: Joseph Scalice is a freelance writer and runs the website www.retireeworkforce.com.