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8 Tips to Prepare for Retirement

8 Tips to Prepare for Retirement

According to a recent Wells Fargo retirement study, more than one third of the US workers say that it would be financially difficult to live past 85 years of age. Experts advise people to plan 20 or 30 years in retirement with a target saving of $1 million. Does this worry you? Then you need to start planning for your upcoming retirement right now. These tips will help you have a comfortable stress-free retirement.

1. Make savings a non-negotiable item in your budget.

When you are at the peak of your career, you generate the highest income. And that’s the time you can save the most. Contribute as much as possible to your IRA accounts, or your employer’s retirement plan such as 401(k) plans.

2. Make the most of retirement accounts and catch-up contributions too.

You need to invest in your retirement accounts every month. However, if possible or whenever possible, contribute up to the maximum limit allowed in 401(k) plans or IRAs. If your employer matches your contributions, make sure you take advantage of it by contributing to your 401(k) as high as possible. If you are 50 years and above, take benefit of catch-up contributions.

As you close in on retirement, take time to have a look at your total retirement assets. Make decisions to make your portfolio stronger for better returns. Consolidate retirement accounts if required. You may want to check with your ex-employers if you have any 401(k) plans with them.

3. Reduce your debt.

As you are nearing retirement, you need to make sure you do not have a huge amount of debt to deal with in your retirement. If you have a mortgage, try to speed up with your payments. Avoid swiping a credit card to make new purchases, use cash instead. By reducing the existing debt and curbing the need to acquire new debt, you can save money on interest payments.

4. Determine other financial resources.

Other than the retirement accounts, you may possibly have other assets that can potentially help you to support your lifestyle in retirement. The financial assets you may possess may be a life insurance with cash value or an annuity. If you have a 401(k) account with company stock entitlement, you may take advantage of the Net Unrealized Appreciation (NUA) rules. You may also want to find out if your employer offers retiree health insurance.

5. Calculate your predictable retirement income.

It’s always good to estimate the income you are expected to get from your Social Security, employer pension schemes, your savings, and your retirement accounts. The general rule of thumb here is that if you want your assets to last for a lifetime, you can only afford to spend 4% of your retirement income. That means, if you have $1 million in retirement assets, you can afford to spend only $40,000 per year. A reality check here. Are your retirement assets generating enough income to support your retirement lifestyle?

6. Determine the amount you’ll need to support your lifestyle.
You’ll have to make hard choices and difficult decisions too. Decide how you will live in retirement. Most importantly, start putting aside the money to support that lifestyle. Will you be relocating or moving into a smaller house? Will you have grown up children to support? Will you be still having debt when you retire?

7. Make arrangements for future medical costs.

Your medical insurance may cover your routine health costs, but to cover your non-routine health expenses you may want to think of getting an add-on coverage. Your health expenses are likely to go up as you age. Most medical insurances do not cover long-term care costs. To ensure that you do not spend your retirement nest egg on health, consider taking a long-term care medical insurance.

Consider having a health savings account. It provides tax benefits. Consider contributing up to its maximum limit. But, if the money is used for non-qualified medical expenses, it may attract income tax and penalties. If you let it accumulate until you actually need it in retirement, you could have accumulated quite an amount that can cover your health expenses.

8. Create a withdrawal strategy.

There are different rules governing the withdrawal aspect of different types of retirement accounts. When you withdraw from a 401(k) or a traditional IRA accounts, your withdrawals are taxed. Withdrawals from Roth IRAs are not taxed as long as the withdrawals are done adhering to certain rules.

Withdrawal from an annuity account may or may not be taxed and that depends on the amount of money you withdraw. You need to make good choices as far as retirement accounts are concerned and create a withdrawal strategy that helps you maintain a good financial health in retirement.

Quick Takeaways

Picture your lifestyle in retirement. Then take an estimate of resources that you need to maintain that lifestyle.
Maintain a right healthy mix of stocks, mutual funds, bonds, and other assets so that your portfolio generates a good ROI throughout retirement.

Health expenses will increase as you age. Consider a health insurance policy that provides maximum coverage.

Are you reading for your upcoming retirement? Get in touch with Self Directed Retirement Plans at (866) 639-0066. Call now!

The Importance of 401(K) in Your Retirement Savings

The Importance of 401(K) in Your Retirement Savings

Earlier, private sector employees were depending on their employers to provide them defined pension benefits. In the 1980s, a good 60% of employees were entitled to receive pension benefits from their employers, but in 2017 the number dropped to only 4%. With the conventional pension schemes quickly fading, the pressure is now on the 401(k) plan to help you sail through your retirement.

How much you need to save to maintain your current lifestyle in retirement

To maintain the lifestyle, you are enjoying today in your retirement, it is important that you have 70% to 90% of your current income saved for retirement. Most employees have IRA accounts and savings put aside for their retirement, but most of the income is likely to come from social security. If you take your fund from social security at your full retirement age, you are likely to get about 40% of your income. The rest of the income required can come from your well-maintained 401(k). However, you need to ensure that your 401(k) account is purely used for retirement only. Try to avoid withdrawing small amounts from your 401(k) plan as it can create an imbalance in your financial health at retirement.

Importance of a 401(k) Plan

1. Matching Contributions

If your employer offers a matching contribution to your 401(k) plan, that’s easy and free money. Some employers offer 50% of your first 6% contribution towards your 401(k) plan. For example, let’s assume that you earn $50,000.

  • Your contribution is 6% of your income = $3,000
  • If your employer offers dollar-to-dollar match = $3,000
  • If your employer contributes 50% of your 6% = $1500

Moreover, your employer’s contribution to your 401(k) plan doesn’t count towards your annual contribution limit. Hence, you have all the money to gain and nothing to lose.

2. Lifetime Contributions
Once you turn 70 1/2 years of age, you can no longer make a contribution towards any of your retirement accounts, including traditional IRAs even if you are still working. April after you turn 70 1/2, you have to start withdrawing small amounts, which are called Required Minimum Distributions (RMDs) from your retirement accounts.

As soon as you start taking RMDs, it is considered normal income and could propel you to higher tax rates. A 401(k) plan works differently v.s. an ira. As long as you are still working, you can contribute to a 401(k) plan and as long as you own less than 5% of the business that employs you, you are not required to take RMDs from your employer.

3. Protection from Creditors
A 401(k) plan is an ERISA-qualified retirement account. This means that it is set up under the Employee Retirement Income Security Act. Therefore, a 401(k) plan provides creditor protection.

Having a 401(k) plan also offers some protection from federal tax liens too. Since 401(k) legally belongs to your employer, IRS cannot place a lien on your account.

4. Roth 401(k) Option
Since 2006 when the rules were changed, 401 k participants have the option to contribute traditional (before tax) dollars or Roth (after tax) dollars or any combination thereof. In addition, the plan participant has the power to a Roth conversion inside the plan. In either case the Traditional dollars and the Roth dollars will be in separate sub accounts all within the same plan.

By using Roth contributions and/or Roth conversions there are tax advantages to the participants. With a Roth contribution, your contributions are taxable at today’s tax rate, BUT your withdrawals in retirement are completely tax-free. This plan works best for people who would be in a higher tax bracket in their retirement. Roth 401(k) contribution limit is similar to a traditional 401(k) plan.

Year Contribution Limit
2019 Up to $19,000 (for 50 years and above catch-up contribution limit is of $6,000)

Traditional and/or Roth IRAs have income limits. You are allowed able to make a contribution towards a Roth IRA if your income is below a certain amount.

However, there are no income limitations affecting 401 k contributions. If you fall in the bracket of high earners, Roth 401(k) is the ideal retirement plan for you. This a huge difference between IRA’s and allows high income people to enter the Roth world. It is the best of both worlds, no income limitations and much higher contribution limits.

5. Backup Retirement Plan
Even if you have a lot of retirement savings plans to finance your retirement, it is advisable to have a 401(k) plan as a backup plan. From now until your retirement, a lot of things can happen. You may lose your job, you may go out of business or your health could make it impossible for you to work. These scenarios can adversely affect your quality of life in retirement. To make sure that you have a good life post your retirement, putting away some portion of your income into a 401(k) plan makes sense. With a well-financed 401(k) account, you are prepared to face the challenges of a retired life without compromising on the standard of your living.

Why Your 401(k) Matters – Final Words
If you want to sustain the lifestyle you have outlined for yourself in your retirement, you need to save aggressively. A 401(k) is a more efficient tool to save for retirement than a traditional IRA. Whether it is an individual retirement account or an employer-sponsored saving plan, the key to having a good retirement saving plan is to save consistently. Create a budget, calculate the percentage of salary you should be putting aside for retirement each month and stick to your budget.

5 Financial Beliefs of Wise Retirement Planning

5 Financial Beliefs of Wise Retirement Planning

This guest post is written by Vivek Shah

Who doesn’t want to retire with Ease and Comfort after the hardships of 1st Innings!!!

Retirement is one of the most important phases in a person’s life. It marks a tectonic shift from active income to passive income. The amount of savings and investments done during the youth and the middle age will determine the quality of a good 2nd innings. Many people think that whatever they have saved will be enough for their sunset years without accounting for the monster called inflation.

Unfortunately retirement planning generally comes last in all the financial goals of most Indians. Most of the people generally save for a dream house or a dream car they want to purchase or for exotic vacations. If a person were to start investing at the age of 30, with a sum of Rs 10000 per month and if it were to grow at 12% per annum, he would have an accumulated corpus of Rs 6.5 crores at the age of 65. However if the same person were to start at the age of 35, then he would accumulate just 3.5 crores. Thus it’s a whopping difference of Rs 3 crores. Hence the earlier one starts, the more he can accumulate.

The 5 financial beliefs of wise retirement planning are as follows:-

  1. Your expenses will not halve when you retire– A lot of people forget to factor in the healthcare expenses that balloon during old age. Life expectancy of an individual has gone up from 70 Years to 80 years. Moreover inflation points out that the cost of goods and price will keep moving up.
  2. You could live much longer than you think– Living too long is another problem that happens if one is not financially secure. Many people face the problem of depleting resources when it comes to old age since they did not accumulate enough. With the improvement in healthcare, the life expectancy of an individual has gone up. One could easily ensure at least 20 years post retirement.
  3. Buying a pension plan is not enough, your retirement plan needs to be your own plan– A lot of advertisements talk about retirement with pension income. One needs to factor in inflation when assessing the expenses which would start arbitrarily without any income in the old age. A corpus needs to be accumulated from which atleast 8% to 10% can be withdrawn per year equated on a monthly basis. This accumulated amount should be invested in a product which gives more than double digit returns per year so that it does not get depleted due to systematic withdrawals. A periodic Systematic Investment Plan would help in achieving the goal of meeting monthly expenditure during old age. Mostly the pension plans that are available in the market offer very low returns and moreover the capital amount is either blocked or is only released during death of the holder to the nominee. Commutation is restricted to only a part of the pension corpus.
  4. Get expert advice– One should take the help of financial planners while planning their retirement. Doing everything by yourself could lead to biased decisions and wrong investments and also investors might tend to squander their money over something which is for temporary gratification and the one which will not be useful for their planned long term goal. One could also study online about wealth management if one has difficulty finding the right financial advisor. One needs to follow the right asset allocation in order to achieve actual financial freedom. This only an expert would be able to guide to.
  5. Invest and shop smartly– It is extremely easy to spend frivolously as soon as one gets his salary paycheck on the latest gadgets and the fancy stuff. Any person who has acquired great wealth has done so by investing 1st and then spending whatever is left after savings. Investing leftover after spending is an incorrect method of financial planning. As soon as one gets his pay, it is prudent to allocate a percentage towards investment. Compounding plays a major role in wealth creation and it all depends on how much one invests and not splurge unnecessarily on the latest fads available in the market. This would ensure financial peace.

Why do we need to plan Retirement Early?
77% Indians do not save for retirement, most of the people depend on their children for support. The youth of the country does not save much; they tend to be spendthrift with their credit cards and hence are not focussed on retirement kitty. Considering that the Government in India does not provide retirement benefits like some of the countries in the Western world do, it is imperative to take financial planning seriously. With so much of information available online, one needs to start saving smartly. The investments should be in an asset class which beats inflation handsomely and thus equities and mutual funds happen to be the best avenues.

For people who are slightly risk averse, mutual funds are a better bet compared to direct equity. A decent life cover needs to be taken (atleast 10 times of annual income) and a comprehensive health cover also needs to be taken. These will be like a financial umbrella for one’s retirement corpus.  A lot of times people do not take adequate health insurance and life insurance and in case of any unforeseen circumstance stand to lose out big on their investments. Thus rightly said —

“Retirement is supposed to be the great escape from the stresses inherent in most jobs, a time to experience a fulfilling life derived from many enjoyable and rewarding activities.”Ernie J. Zelinski, The Joy of Not Working.

Time to Ramp up Retirement Saving with these 6 Tips

If you are in your 50s, retirement is not in the distant future. It’s upon you. And if you haven’t actually focused on the looming reality, and have been procrastinating saving up for your retirement, the time to start is NOW!
It’s never too late, but the countdown has begun…

Let’s assume the retirement age for you is 65 and you are 50 now. The road to retirement security hereon seems challenging but it’s still possible if you follow these retirement planning tips:

1.  Ramp up your retirement savings with catch-up contributions

You are eligible to make catch-up contributions on top of your regular contribution limit, depending on the type of retirement account you have.

  • For 401K plans, 403b, SARSEP, and governmental 457b plans, you can make a catch-up contribution of $6,000 on top of the $18,000 limit.
  • For SIMPLE IRA or SIMPLE 401K plans, you can put in an extra $3,000.
  • For traditional or Roth IRAs, you can make a catch-up contribution of $1,000 on top of the $5,500 limit.

2. Invest in account with low investment fees

When you are 15 years away from retirement, you have to choose your retirement plans with caution. If you have started investing so late in life, it makes absolute sense to invest in a low annual expense ratio fund. Morningstar agrees to it as well. Their study has found that low-cost funds have consistently outperformed high-cost funds.

3. Consider settling in cities that allow you to retire with your social security

If you haven’t been able to build up your savings enough to retire comfortably, all hope is not lost. Social security can be your major source of income during your retirement. You can consider settling in any of the cities where you can retire with your social security.

4. Don’t invest in high risk financial plans

Age is not on your side. So, you cannot take risks playing with your retirement fund by investing it in high-risk stocks that promise high returns. Focus on picking up investment products that do not fluctuate much and provide a steady source of income.

5. Gather information on all your retirement pensions

Get an estimate of your Social Security benefits and also the benefits attached to your traditional pension plans. Also, go through your old files to check if you have any pensions due from your previous employers. Don’t claim them just as yet. Let them stay in for a longer time. The longer you wait to claim, the more benefit you will get.

6. Delay retirement

If you have traditional and Roth 401K plans, you are expected to take the required minimum distributions (RMD) once you reach 70 1/2. Taking a part-time job that offers a retirement plan can delay RMDs. Rollover your old 401K plan into a new 401(k) plan. By doing this, you will be able to continue contributing to the new plan and delay your first RMDs.

7. Consider retiring abroad

If you have to live on a smaller budget, then you can think of living a good quality life abroad where you have access to beautiful weather and generous tax savings. Consider settling in countries like Costa Rica, Nicaragua, and Panama, where there are special retirement programs for U.S. retirees.

Are you ready to start on your retirement savings strategy? Let’s talk! Contact Self Directed Retirement Plans LLC today!

Checkbook IRA: The Key to Taking Control of Your Retirement Investments

Checkbook IRA: The Key to Taking Control of Your Retirement Investments

image source:www.freepik.com

Assume you are a smart investor who has identified a number of profitable investments. But, you are being held back by your dependence on custodians and the rising administrative costs are slowing down your decision. This is exactly where checkbook control comes into play.

What is Checkbook IRA and how it Works?
The term checkbook control also known as checkbook IRA gives the self-directed IRA owner, total control over his retirement reserve by eliminating the need to depend on the custodian’s consent regarding any investment decisions. It brings you the freedom to invest in a variety of assets and the flexibility to manage your finances with ease and efficiency.

To take advantage of checkbook control, you need to establish an LLC that is owned by your retirement account and set up a business checking account in the LLC name. This account will then be linked to your self-directed IRA and you will be issued a checkbook that is directly linked to this business account. With this checkbook comes the freedom to exercise complete control over your self-directed funds.

Benefits of Checkbook Control
Time plays a crucial role when it comes to investing money in real estate especially when it is going up for auction. You don’t have the time to consult with the custodian and so, you lose the opportunity to invest. But, with checkbook control IRA, you don’t need to consult your custodian for making the purchase. Other advantages of using an LLC in your investment are reduced administrative costs and the flexibility to wire funds without having to go through tedious paperwork or waiting for approvals.

Investments Allowed in a Self-Directed IRA
A self-directed LLC allows you to invest in non-traditional assets like private businesses and real estate. Other options that you can consider for investment include stocks, bonds, mutual funds, private loans, raw land, other currencies, deeds, gold, mortgages, tax liens, precious metals, private placements, and LLCs. If you have extensive knowledge and expertise in any of these areas, then you can enjoy the returns of these beneficial investments with checkbook control IRA.

How the Checkbook Control IRA LLC Process Works

  1. You need to set up a self-directed IRA account. The account should be IRS-approved and you also need to appoint a passive custodian for the account.
  2. Next, you need to transfer your retirement reserve to your newly created self-directed IRA.
  3. Form an LLC while ensuring the account holder is nominated as the manager and the IRA is designated as the member of the LLC.
  4. Based on the directions of the IRA owner, the custodian will invest the funds of the IRA into the LLC.
  5. IRA LLC’s owner will be responsible for directing the funds in a self-directed IRA into other investments.
  6. The income and capital gains made from every investment will start flowing tax-deferred to your IRA LLC!

So, open a checkbook IRA LLC today and take control of your investment portfolio.

How to Set Up a Checkbook IRA
Checkbook control IRA is popularly known as a self-directed IRA LLC because to enjoy checkbook control, you must first establish a limited liability company. This LLC must be owned and operated by the IRA. Since you would be managing the checkbook control IRA, you will exercise complete authority over writing checks for your investments.

The Do’s and Don’ts of Checkbook Control IRA LLC

If you want to maximize the returns of your checkbook control IRA LLC, make sure you know these rules.

Do’s Don’ts
Create IRA and then establish  Limited Liability Company Don’t title checkbook IRA investments in your personal name
Use the LLC’s EIN (employer identification number ) when you are opening the account Don’t use personal funds for paying investment expenses that are associated with IRA assets
Deposit all the gains into the checkbook control IRA LLC account Don’t use the checkbook IRA assets and funds for personal needs or for personal property
Make annual contributions to the self-directed IRA first and not to your checkbook control IRA Do not transfer any personal funds into your checkbook control IRA

If you want to know more about checkbook control IRA LLC or have any queries, feel free to get in touch with Self Directed Retirement plans LLC at (866) 639-0066.

IRA vs. 401(k)? Which Plan Wins When it Comes to Estate Planning for HNIs

IRA vs. 401(k)? Which Plan Wins When it Comes to Estate Planning for HNIs

                                                                      image source: www.freepik.com

With most employers now offering attractive 401(k) plans with multiple investment options and a matching contribution, retirement planning funds have become easily accessible. On the other hand, anyone willing to invest a few thousand dollars can easily set up an IRA in an instant without much effort. These plans are easy to set up, the contribution deductions can be automated and you don’t need to put in any extra thought as the interest returns are bank declared on fixed investments. However, all of this can change if your IRA is based on mutual funds because then, your choice of funds can make a big difference down the line.

If you are a recent college grad or you’ve just started your career, both 401(K) and IRA can give you good returns. But as your career progresses and time passes things get complicated and financial priorities often change from saving for retirement to building wealth. Traditional retirement plans were the best option some 20 years ago but given the existing financial landscape, it is important to know how these retirement plans earn down the line. If you are a high net worth individual who wants to create a bountiful retirement reserve and pass on the assets, the 401(k) Vs. IRA comparison proves to be very useful in exploring the implications of each, for planning an estate.

Why Estate Planning is Important for HNIs
Unlike retirement planning, where you are creating a nest egg to cover the expenses of retirement, estate planning is about passing on the assets and wealth that took you a lifetime to build. However, even years of excellent financial planning and consistent contributions can be severely undermined due to poor estate planning.

Another key aspect of estate planning in curtailing the estate taxes that your heirs are required to pay on the legacy they’ve inherited. 401(k) and IRAs are tax-advantaged plans and so they are considered effective wealth-creation vehicles for both estate planning and retirement planning.

There are some excellent strategies that allow retirees to create millions in assets from their IRA and 401(k) plans and strengthen their savings portfolio.

Maximum Contribution IRA 401(k)
Below Age 50 $5,500 $18,500
Age 50 and Above $6,500 $24,500

Consistent contributions from top salaried professionals over a course of 30 years can create a reserve of more than a million in assets if investments yield good returns.

401(k) vs. IRA – Tax Implications
If you are investing in a traditional IRA or an employer-sponsored 401(k) plan, then your contributions are pre-tax and this can lower your existing tax liability. However, you are required to pay tax on withdrawals during retirement.

But, if you invest in a Roth IRA, you get the advantage of tax-free disbursements because all your contributions are taxed at the beginning.   This is why a Roth IRA is more beneficial as a component of estate planning as it allows you to pass on your wealth to your heirs tax-free.  Think of it like this:

You pay the taxes on the seed and you get the harvest tax free!

The Downsides of Both 401(k) and IRAs
When it comes to mitigating risk, both the plans are equally risky as the savings generally land in mutual funds, stocks and bonds that are subject to market volatility. Since the global stock markets are constantly fluctuating, one market slide can send the financial gains crashing, resulting in a loss of capital gains along with the principal amount invested. This is why financial advisors remind investors that both 401(k) plans and IRAs are intended for long-term growth.

Since none of these plans have a guaranteed return rate, it is best to consider your risk tolerance before you set up an IRA or a 401(k) plan. However, you do have the option of low-risk funds but again the rate of return is also relatively low. Young investors can be more aggressive at the start of their career with their choices and gradually move to conservative funds as they near retirement.

Leveraging 401(k) and IRAs for Estate Planning
The biggest benefit of both 401(k) and IRA lies in maximizing tax-advantaged savings and this can be realized by maxing out on the contribution limits. If you want to reap the full potential of your retirement planning funds, then make it a goal to hit the contribution threshold year-on-year.

The ultimate goal of planning an estate is accumulating a significant financial reserve that not only funds your retirement but also makes an impressive legacy that you can leave for your heirs. But the last thing you want to leave them is a big taxable balance that will reduce the assets to ashes.

If you want to tap the power of tax-deferred retirement planning funds with effective wealth maximization strategies, call Self Directed Retirement Plans at (866) 639-0066.

Know this before borrowing against your IRA

In your retirement days, your IRA is one of the most critical assets you have. At a time when you might need money, in case of an emergency, or otherwise, one of the first thought one gets is to take out a loan against your IRA funds. The most important thing you need to know about taking an IRA loan, is that you cannot. It is a common misconception among people that they can take up an IRA loan, especially since it is allowed to take loans against other retirement accounts.

Now that you know you can’t get an IRA loan, what else can you do to get the money you need? Here are a few options for you to consider

  • A 60 day rollover:
    A long term loan on the IRA is not permitted, instead, you can choose to utilize your IRA assets for a relatively much shorter period of time, like 60 days. To do this, you use an option called 60 day rollover. In order to be able to do this, you need to meticulously follow the rules laid down by the IRS. The rules have been tightened a lot lately, so understand what you are getting into completely before signing it out.
  • A 401(k) loan:
    Withdrawals from your 401(k) fund are discouraged before you turn 59.5 years, you need to pay a 10% penalty if you do so. The best thing about a 401(k) loan is that you are borrowing your own money, money which was deducted from your own paycheck. It is not the bank’s money, it is your own, so the interest you pay, would also eventually come to you. The tenure for a 401(k) loan is five years, with no early repayment charges. This borrowing has no impact on your credit and mostly the only cost involved is a small origination/administration fee. It is important to note that 401(k) funds should not be used for leisure spending such as holidays or home redecoration, or that new sports car. A useful tip would be to keep the 401(k) for unexpected expenditures. If you leave your job, voluntarily or involuntarily during the time you have an outstanding loan, you have a 60 day time limit to pay the loan back.
  • Roth IRAs:
    A Roth IRA is still an IRA. Taking funds from the Roth IRAs is not an option you can consider. For a rainy day, you can withdraw up to 100% of your original contributions to Roth IRA.

No matter what you do, when there is money involved, there is risk involved. IRA withdrawals require you to pay back the loan within 60 days in case you voluntarily or involuntarily quit your job. If you don’t pay back the funds of the rollover within 60 days, then IRS treats it as a distribution, inviting income tax on it, plus a 10% penalty if you are less than 59.5 years of age, save a few exceptions. So, make your decisions wisely. Make it a practice to save money outside your retirement funds and plan for the rainy days. For any unexpected occurrences, you always have options to help you.

What You Need to Know about Borrowing Money from Your IRA Account

The main idea behind setting up an IRA or a 401K account is to safeguard your life after your retirement. So, automatically borrowing from this account ahead of time isn’t the most ideal way to go. However, sometimes you can be faced with situations where you need urgent cash on a short-term basis and borrowing from your IRA funds may be the best option at hand. In such cases, while you do have the option to borrow money from your retirement account, you must ensure you are fully aware of all the terms and conditions as well as the associated risks and penalties. Here are a few dos and don’ts you need to make note of before making the decision to borrow against your retirement funds:


Borrowing from Your IRA within the 60-day Rollover Period
If you are faced with an emergency and absolutely have to borrow money from your IRA funds, you can do so within the 60-day rollover period to avoid any additional penalties, while keeping the following pointers in mind.

Once you withdraw a sum of money from your IRA account, you must place the same amount back within the 60-day window as required by federal law.

  • Don’t miss the deadline because if you do, the transaction will be viewed as a distribution of cash and you will have to pay income tax on it. In addition, you might also have to pay an early withdrawal penalty if you are below the permissible age limit, i.e., 59½ years old.
  • Don’t pay back any amount lesser than what you withdrew either. This can also call for a penalty.
  • If you have previously rolled over money from your IRA, you will have to wait for at least 12 months before you can rollover money from the same IRA.

Exceptions to the 60-day Payback Period

  • While it is imperative that you pay back any amount that was withdrawn within 60 days, the IRS can waive the 60-day rule in case of medical or personal emergencies like unforeseen health expenses, medical insurance, educational expenses or due to physical disability.
    Pro Tip – Always consider looking into whether the reason you need to withdraw money from your IRA account can be accommodated under the penalty-free rule.
  • The IRS also allows you to withdraw up to $10,000 as a penalty-free withdrawal if it is being used to purchase your first home.

Borrowing from Your Roth IRA within the 60-day Rollover Period
Just like a regular IRA or a 401K, you cannot withdraw money from your Roth IRA penalty-free either, unless it is for a short amount of time and you have a valid reason to do so. While the IRS allows withdrawals from your Roth IRA for certain situations, do bear in mind that the IRS treats a Roth IRA withdrawal made more than five years after the first tax year in which you made a contribution as a qualified distribution. It is s not penalized if you meet one of the following conditions:

  • Withdrawing up to $10,000 to purchase your first home
  • Withdrawing money to pay for qualified education expenses.
  • Withdrawal to pay for unforeseen medical expenses or if you become disabled
  • Withdrawal to pay for non-reimbursed medical expenses or health insurance if you are unemployed
  • Withdrawal upon reaching the specified age limit, i.e., 59½ years old.

Borrowing from Your 401K

If met with a dire situation where you urgently need cash, you also have the option of borrowing funds from your workplace retirement plans such as your 401K, if your retirement plan permits you to do so!

  • Figure out how much you can borrow
    In case of your workplace retirement plans, the government usually sets a limit on how much you can borrow. However, generally you are only allowed to borrow an amount that is either less than or equal to 50% of the total amount deposited in your 401K with an upper limit of $50,000.
  • Determine how much interest you have to pay
    The interest payable on your 401K loan will be determined by your employer and must also meet the IRS requirements. It is important to note that in this case since you will be loaning the money to yourself, you will also be paying the interest to yourself.
  • Find out the repayment period and method
    Your 401K allows you to repay the loan within five years, but you can repay it in advance if you have the necessary funds. If you dip into your 401K funds to buy your first-home, your repayment period can get extended, based on your employers decision.

    As for the repayment methods, employers usually make regular deductions from your paycheck (after taxes unlike original contributions.)

If you are looking for more information on gaining checkbook control of your IRA, call us at (866) 639-0066 to learn how you can leverage your self-directed IRA to gain financial freedom!

Should You Take the Risk of Owning Stocks in Retirement?

Investing in the stock market can be a risky proposition because of the market’s potential to fluctuate taking the investors on a roller coaster ride. However, if you can pull off the risk, you can earn more than you had bargained for. If you are not much of a risk taker, investing in bonds or buying annuities would be a consideration.

During our investing lives, most of us try to achieve the highest returns possible with the level of risk we can tolerate. Most of our investing decisions are made in an attempt to accumulate a nest egg big enough to support us in retirement.

Once we reach retirement, we are apprehensive about investing in stocks. Our goal then is not to worry about growing savings but ensuring whether the accumulated fund is good to last for the next 30 years or so. So, the question arises: Should we invest in retirement stocks? If yes, then how much risk is too much?

Retired Lady reading about investment owning stocks in retirement

Whether you should own stocks or not depends on these 3 criteria:

  1. Can you take the risk?
    First, you will need to calculate the minimum return your investments need to earn for you to ensure that you sustain your lifestyle goals in retirement. If you are fine with no cash in your account when you die, and your saved amount is enough to meet your expenses for the next 30 years you should not take the risk. On the other hand, if you are left with extra funds after securing your lifestyle goals for the next 30 years, you can afford to take the risk by investing in stocks.
  2. Can you use risk as your holistic plan?
    Another approach you can employ is investing in laddered CDs or bonds that matures each year for the amount you need to meet your lifestyle goals for the next 20 years. The remaining fund can be invested in stocks. During the 20-year period, if your stocks do well, you would have reasonable profit that could ensure additional years of cash flow.
  3. Do you have an action plan if the risk materializes?
    If your stocks don’t do well, you need to understand the consequences and have an action plan ready. There are 2 things to keep in mind here:

    • Do not own stocks if you do not have the flexibility to keep them when the market is down.
    • If your stocks aren’t doing well for a prolonged time, you may have to think of cutting down on your expenses.

The good and the bad of having stocks as part of your retirement portfolio

All that is Good

  • Stocks are good retirement investments that help your investment portfolio and retirement income withstand inflation.
  • Stocks give you higher returns and thus higher income and the chance to live a better and secured retired life.

All that is Bad

  • The stock market is volatile. If your stock delivers lower returns, you may have to spend less than what you had in mind.
  • It causes emotional stress because of constant anxiety about fluctuating stock prices. If you are not careful enough, you may end up selling at the wrong time and thus lose out on the money which could be used to live well during your retirement.

To learn how you can make wise investment decisions about stocks, contact the team at Self Directed Retirement Plans today!

Is Bitcoin a Good Option to Consider While Investing for Retirement?

Are you tempted to invest your retirement savings in digital currency? Do you think Bitcoin could be your primary source of retirement income?

Bitcoin and other digital currencies seem to have become all the rage as an investment option these days. In addition to growing at an incredible rate over the last few years, the cryptocurrency has also become widely accepted in many areas, which only helps to make it more popular.

investing for retirement

However, there are a few reasons why Bitcoin shouldn’t play a significant role in your retirement planning:

  1. Potential Growth Isn’t Actual Growth – Many financial experts believe that the past and current growth of cryptocurrency is not sustainable over the long term. Treat these as you would any speculative investment, instead of looking at potential value alone. Like other speculative investments, it’s equally possible for the value to rise tremendously or drop to a fraction of the price at which you bought it.
  2. High Volatility Makes for High Risk – Bitcoin did extremely well in 2016 and 2017, but the sudden drop in prices at the end of 2017 left many regretting their decision to invest in it. At a time when the digital currency would double in value within a week, a number of small investors decided to jump on the bandwagon and put their savings at risk. Buying Bitcoin at a high price meant heavy losses when prices fell.
  3. Constant Fluctuations Are a Gamble – Most Bitcoin success stories came from investors who bought the cryptocurrency when it cost a few hundred dollars, or sold it when the process was its peak. There’s no way to predict when prices will rise or fall, so investing in digital currency is a lot like buying a lottery ticket. There’s little harm in spending ‘spare change’ on it, but avoid putting large sums at risk.
  4. You Need Steady Gains for Retirement – Cryptocurrency has no guaranteed rate of return. Yes, it might make you a millionaire, but it might also leave you broke, especially if you put all your money in it. It’s a good option for short-term speculation, but only as a small percentage of a diversified portfolio. For retirement income, you need smart long-term investments that offer steady, if slow, growth.
  5. Buy When You’re Financially Ready – If you’re considering Bitcoin or other speculative investments, you need to offset the risk by making sure your finances are in control. Ideally, you should invest in cryptocurrency when you’re free of debt, have good cash flow and a decent emergency fund, and have already set up a source of income for college, retirement and other financial goals.

Investing in Bitcoin works best if you already have a healthy mix of short-term and long-term assets in your portfolio, and are investing for retirement in an IRA or other tax-advantaged plan. If you need help with making the most of your investments for the future, get in touch with our retirement planning experts now!