Celebrating Over 19 Years of Excellent Service
Call Today : (866) 639-0066
Call Today :
(866) 639-0066
Celebrating Over 14 Years of Excellent Service

Self Directed Retirement Plans Blog

Investing Passively In Real Estate Online Via Your SDIRA

Investing Passively In Real Estate Online Via Your SDIRA

Institutional-quality, private real estate investments used to be nearly impossible for the self-directed investor to access. Since the JOBS Act of 2012, and thanks to the advent of web-based investing platforms, professionally managed real estate and other alternative assets are now much more attainable for individuals seeking greater diversification. Meanwhile, a number of forward-looking self-directed IRA custodians have adopted more efficient processes, embraced technology, and prioritized integrating with the “platform investing” model.

What types of alternative investments can I access with a SDIRA?

Self-directed IRA investors are legally permitted to invest in real estate, precious metals, hedge funds, or alternative assets. The only investment restrictions for IRAs are collectible items, life insurance, S-corporation stock, and prohibited party transaction (such as with family members). An IRA may leverage its investment with debt by using a nonrecourse loan to fund the balance of the investment. Online investment platforms that can accept self-directed IRA investments allow investors to passively invest in non-traded, alternative assets. Through EquityMultiple, for example, investors can access passive investments into debt, preferred equity, or equity positions in individual properties. This affords SDIRA investors a range of risk/return profiles and target hold periods.

When selecting real estate investments to allocate to via a SDIRA, many investors primarily consider their risk tolerance and time horizon with respect to retirement. Some SDIRA investors opt for payment priority — offered by debt or preferred equity investments — in advance of, or concurrent with, their target retirement date. Others seek longer-dated equity investments that will offer stabilized cash flow over a longer time horizon.

What are the best SDIRA custodians for passive real estate investing

Our more active investors typically choose a SDIRA custodian based on the following criteria:

● Fee structure
● Lack of red tape: how easy is it to obtain necessary approvals and fund investments?
● Tech integration: can the custodian interface with investing platforms to more efficiently complete investments and transfer funds?

There are a wide variety of fee structures among SDIRA custodians, so our investors will consider how frequently they plan on participating in EquityMultiple investment offerings and at what volume, seeking to minimize their aggregate transaction fee burden. The pros at Self Directed Retirement Plans, LLC can help you determine which custodian will be best given your investment objectives. Self Directed Retirement Plans LLC uses only “passive” custodians.

We also take the process a step further. We have been creating self directed IRA’s for over 15 years and ALL of our IRA clients benefit from “the next step. SDIRA’s are allowed to invest in LLC’s. We create underlying LLC’s for every SDIRA client. We structure the LLC’s as follows: they are manager managed LLC’s and our clients are the managers. The passive custodian is the member of the LLC FBO the IRA. We assist our IRA clients to establish a checking account in the name of the LLC. We then help our clients transfer all but $500 from the IRA account to the new LLC checking account. Our clients enjoy complete checkbook control, the passive custodian is truly passive and has no say on the day to day activities. This eliminates the above mentions aggregate transaction fees, asset based fees and saves time.The LLC basically has one purpose – to be the investment arm of the IRA.

How do investors use their SDIRA to invest in professionally managed R E investments such as EquityMultiple real estate offerings?

EquityMultiple facilitates investing in any of our investment offerings through a self-directed IRA: a custodian that allows real estate held in custody. With EquityMultiple and some other investing platforms, investors can rollover funds or fund this SDIRA directly. You will typically be required to instruct the custodian of your IRA to complete a written instruction, often known as a “buy direction” form attesting your (the beneficiary’s) intent to purchase an interest in this investment by the custodian (trust). The custodian will subsequently review the offering material or purchase agreement so that it doesn’t constitute a prohibited transaction. Lastly, the custodian countersigns the documents and wires proceed to the entity formed. Income, rental expenses, and sale from the asset are directed to the SDIRA and not directly to the beneficiary. The above is very true for most SDIRA’s. However, taking our “extra step” dramtically reduces the custodial expense and interference!

Tax Implications of SDIRA Real Estate Investing

A SDIRA account that invests passively in certain types of real estate asset can be subject to Unrelated Business Income Tax (UBIT). UBIT tax typically applies only when an IRA receives ordinary income as opposed to passive income from the investment held in custody. Passive income such as interest, rental income, dividends, or capital gain income is generally exempt and not subject to UBIT. There are two main instances where UBIT may apply:

If the real estate constitutes an income-producing business: UBIT tax is due if the real estate produces a service or product (for example a car wash, a hotel, or a restaurant.) If the intent was to sell immediately after purchase, then the investment can be subject to UBIT tax. Typically this timeframe is defined as less than one year.

Development: If the real estate activity is a ground-up development or a value-add investment that entails significant property improvements. In this case, a property that goes from land to structure and is sold will be required to pay UBIT tax.

When using the self-directed IRA in a transaction that will trigger the UBIT tax, the IRA is taxed at the trust tax of 10% – 37%. We encourage investors to consult with a tax advisor or IRA tax specialist to determine the tax implications of any particular real estate investment.

At Self Directed Retirement Plans LLC we also create self directed checkbook controlled 401 k plans. In fact we do 20 times more SD Plans the SDIRA’s. Ninety percent of our new clients wish to invest in RE using their retirement dollars. We ask two simple questions, Do you have any type of self employed income AND Do you have any fulltime employees. Self employed income can be consulting, Mary Kay, cleaning swimming pools etc. It is very easy to create self employed income.

We steer almost all IRA “callers” into SD 401 k clients. There are many reasons but a big difference is”. Real Estate investments using leverage (non recourse loans) in a SD 401 k DO NOT attract UBIT. This is absolutely HUGE. As stated above this eliminates the trust tax of 10% to 37%. When you combine using a ROTH sub account in the SD 401 K and leverage for R E investments you basically eliminate all taxes.

Feature image credit: @jcomp

CARES Act: Considering 401(k) Withdrawal Because of Unemployment Due to COVID-19 Pandemic?

CARES Act: Considering 401(k) Withdrawal Because of Unemployment Due to COVID-19 Pandemic?

The effect of the COVID-19 pandemic lockdown is felt far and beyond. The lockdowns and quarantines that were necessary to curb the spread of the virus slowed the economy with unprecedented force and speed. Businesses racked up losses, and layoffs and pay cuts followed. With increasing rate of unemployment, many families are struggling to meet their day to day expenses. If you are facing financial hardship due to COVID-19, you may have considered making a 401(K) withdrawal early to cover your expenses.

Financial experts do not recommend taking money out of your retirement accounts early, but now taking into consideration the present economic scenario, most of them say that if you must, you should, as alast resort.

In the wake of the coronavirus pandemic, President Donald Trump signed the CARES Act on March 27, 2020, providing more than $ 2 trillion in financial relief for businesses and workers affected by the pandemic. If you are considering a 401(k) withdrawal, there are certain things you need to know.

Withdraw money of up to $100,000 without penalty.

Under normal circumstances, if you’re under 59 1/2, withdrawing from a 401(k) is a costly proposition because you are charged a 10% penalty on withdrawn funds. The recently introduced CARES Act changes that. This means you can make COVID-19 related withdrawals of up to $100,000 from your retirement account without incurring this penalty on early withdrawals.

Although the removal of this penalty takes off one of the substantial burdens of taking out the money from a 401(k) early, raiding your retirement accounts is still be a costly proposition because you lose out on the compound interest your money would’ve earned if it had stayed invested.

So, early 401(k) withdrawal is now penalty-free, but is it completely tax-free? No.

The CARES Act - Webinar

How to Leverage $400k Without Penalties or Taxes

In this 30-minute class, learn what the CARES ACT has changed and how it has presented a once-in-a-lifetime opportunity to leverage your retirement funds for alternative investments.

Here's What You'll Learn:

  • Exactly What Changed and How You Benefit.
  • How To Leverage up to $400k Before Retirement.
  • How It’s A Viable Solution To Current Financing Problems.
  • How To Avoid Additional Penalties, Taxes And Fees.
  • Why This Unique Opportunity Will Not Last.

Presented By:  Donnell Stidhum (Self Directed Retirement Plans LLC)

Income taxes apply to the withdrawal amount, but the repayment can be stretched out over three years.

Withdrawing money from your 401(k) will still have tax consequences. Regardless of how old you are, when you take out money from your retirement account, you will be taxed as normal. But the CARES Act allows you to stretch the repayment of the taxes over three years instead of paying the entire amount this year. This arrangement provides some financial relief as the taxes can be substantially large, even without penalties.

Can you put back the withdrawn money over the next three years?

Yes. If you’ve taken a coronavirus-related distribution, the CARES Act allows you to put the money withdrawn back into the account over the next three years. The money that you put back will not be counted against your annual contribution limits, and hence you will not be liable to pay any income taxes on that. But, if you are unable to repay the borrowed amount due to financial constraints over the next three years, income taxes will be applied.

You may have the option to make an early 401(k) withdrawal, but should you do it?

The best way to determine whether you should take an early retirement distribution is to check if you have enough money to cover your living expense for the next 3 to 6 months. If you don’t and you find it difficult to manage these costs, then you should consider taking advantage of this.

However, before you decide to take this step, think of the bigger picture. You are raiding into your retirement savings and losing out on money that would have accumulated due to compound interest if you would have let it stayed into your account.

So, before taking this drastic step, always look at other sources of income or options. You can also consider taking help from a tax professional or financial planner to weigh the pros and cons of withdrawing from retirement accounts. For expert help,Contact Self Directed Retirement Plans LLC at (866) 639-0066.

Should You Continue Saving for Retirement Even When Unemployed?

Should You Continue Saving for Retirement Even When Unemployed?

In the wake of the latest economic crisis, there's no such thing as true job security.With more than 10% of Americans unemployed, the last few months has seen a drastic fall in the employment rate. If you're one of the millions of Americans, currently unemployed and wondering how to manage your finances, one question is likely to linger on: Should you keep saving for retirement when you no longer have a job?

How to decide whether to continue saving for retirement when unemployed?

It’s simple. Can you afford it?

If you do not have the money to pay your essential bills, such as housing, food, insurance, home and car repairs, debt payments, etc. saving for retirement should be the least of your worries. You need to use whatever money you have to cover these expenses.

If you do not have an emergency fund, at least six months of living expenses, you cannot afford to save for retirement. Emergencies can strike anytime, and if you have no money to cover it, you will be forced to sell investments, withdraw from your retirement account or borrow at a high-interest rate – and none of these options are good financial decisions when unemployed. So, focus on putting extra money toward your emergency fund instead of saving for retirement.

How to save for retirement when unemployed?

  • Get acquainted with IRAs
  • An individual retirement account (IRA) is a great option for people who do not have access to an employer-sponsored retirement plan such as a 401(k) account. In a traditional IRA, the contributions are deducted from whatever taxable income you have, much similar to a 401(k). However, in a Roth IRA, earnings are taxed upfront, but your withdrawals in retirement are not taxed. So if you’re not employed full-time, but have some earned income, IRAs can help save for retirement.

  • Rollover your old 401(k)

    If you are unemployed, you will not be able to contribute to your employer-sponsored 401(k). However, the account is still yours, and the money in it is also yours. You have two options: let the money in your 401(k) lie as it is or roll it over to a traditional retirement account (IRA). Rolling over your 401(k) into an IRA could be a better option because you will have more flexibility and better investment options. And you can begin contributing to it once you start earning income.

  • Focus on optimizing your investment portfolio

    If you no longer have a job, you may not be able to add to your retirement accounts, but you can definitely make sure that your portfolio is optimized. Make sure you have the right mix of investments and stocks in various asset classes and industries. Examine your investment portfolio to ensure that you are not under or over-invested in any area.

  • Consider reinvesting dividend income, if your finances allow

    If you own dividend stocks, you may be tempted to redirect the dividend income towards paying your bills and get through the rough phase of unemployment. But if you can get by without doing it, consider redirecting your dividend income to buy more stocks and other investments. These small contributions to your retirement portfolio can add up to significant savings over time.

  • Focus on long-term growth, if you can

    If you have some investments in a taxable brokerage account, you may be tempted to move them to dividend stocks or other income-generating investments for the extra income that you could use for covering your expenses. However, making this change can provide you the temporary relief, especially if you are unemployed, but it can harm you in the long run. Rather than making such adjustments in your portfolio, find some other sources of generating income or reduce your spending.

Losing your job after being gainfully employed for years can be a nasty shock. But the steps mentioned above can help you manage money and come out on the other side, financially stable and much in control of your life. 

If you have recently lost your job, and need advice on the best way to manage retirement accounts at this time, call Rick at (866) 639-0066.

Retirement Planning During Coronavirus Pandemic

Retirement Planning During Coronavirus Pandemic

Retirement planning is a daunting process, and with COVID-19 playing havoc on the stock market, causing 401(k) and IRA balances to plunge, it doesn’t make the process any easier. Due to the coronavirus outbreak, experts predict that another recession might be around the corner.

If you want the coronavirus situation to have a minimal impact on your retirement plans, here are some thoughts and ideas, depending upon where you are in your retirement schedule:

You are already retired.

Allow the income planning and generation process to run its course. If you have planned your retirement well and if you have a strategy for retirement income in place, keep the strategy. Your income strategy is designed to withstand the market fluctuations.

However, if you don’t have an income strategy or not sure where you are heading, it’s a good time to talk to your financial advisor.

You plan to retire in the next 10 years.

By now, you probably have assets arranged for future income. If you haven’t, please think twice before selling any of your assets, especially stocks. It’s not a good time. However, at this point, use the time to review the retirement planning you have already done.

You plan to retire in more than 10 years.

Take this as an opportunity to keep doing what you are doing – hopefully, making regular contributions to your retirement accounts. If you continue to make regular contributions, you are actually using dollar cost averaging to your advantage. Your contribution today will buy more shares than it did a month ago. Ride the curve back up.

Here are a few tips that will help you navigate these uncertain times:

1. Flexibility is the key.

The recent stock market crash may have changed your thougts about your retirement plan. If you were hoping to retire this year or next year, you might have to rethink your decision until the market recovers. However, it’s too early to tell when the full recovery might happen, but you need to be flexible. This situation may be an opportunity in disguise. For example, delaying your retirement may give you another year to boost your benefit and lock in a higher payment for life.

2. Think twice about selling your stocks.

At a time like this, it may be tempting to sell your stocks. Unloading your stocks when they’re down is a sure way of locking in losses. While it may be heart-wrenching to see the numbers dropping, you need to keep calm and not make rash decisions.

With the uncertainties that are prevailing in the world today, mapping out your retirement can be a stressful situation. The best thing you could do right now is to not panic and be flexible to make changes as the situation demands. Be mindful of the fact that this situation, too, shall pass. And when the market recovers, you’ll be in a stronger position to retire than before.

3. Keep cash reserves.

The recent market crash has taught us how important it is to have cash reserves at all times. Ideally, if you’re close to your retirement, you should have cash in your savings account, large enough to cover a year of your living expenses. Apart from that, you should ideally have emergency savings to cover your unexpected expenses.

4. Keep your future in focus.

Currently, the stock market is in pretty bad shape. But, it has a strong history of recovering. So, don’t panic or keep checking your IRA or 401(k) balance almost every day. Rather, focus on excelling at your job and plan the things you can control and things you’ll do once you retire. And don’t forget to continue funding your IRA or 401(k) retirement accounts.

Due to the market downturns, now is also a good time to invest on the cheap while sticking with your scheduled retirement plan contributions. So, when the situation becomes normal, you are in a better place financially.

Whether you are 25, 45, or 65, you should have a retirement plan that’s designed to withstand market volatility. If you don’t have a plan, the current market scenario has taught us that the time to get serious about retirement plans is NOW. Call (866) 639-0066 for retirement advice during coronavirus pandemic now!

How the Secure Act Can Be Beaten

How the Secure Act Can Be Beaten

Congress wants to force your heirs to take out your IRA within 10 years.

I want to give you at least 30 years. . . maybe even more.

Hi everyone, my name is Rick Pendykoski. For over 20 years I’ve been helping people learn the best ways to manage their retirement money. That is why when I read the latest tax law changes in the SECURE ACT. I was mad. Really mad.

Once again Congress has created a new law that forces people to overpay their taxes. Instead of incentivizing people to save money and build for their future, Congress wants to make sure they can tax your retirement plan within 5 or 10 years of your death.

That means those of you who planned on your family being able to stretch out the distribution of your retirement assets over their lifetimes, they are going to have to take much larger distributions each year. Because the distributions are going to be larger, the tax brackets are going to be higher as well. No one wins here except our do-nothing Congress!

Well, I have a secret for you. There is a way that you can use a trust to stretch out the payments for another 20 years at least. Now instead of your retirement money coming out in large clumps, just to be decimated by taxes, your kids can take over 30 years to spend down your earnings.

What is the Secure Act?

The Secure Act, which stands for Setting Every Community Up for Retirement Enhancement Act of 2019, was approved by the Senate on December 19, 2019, and was signed into law on December 20 by President Donald Trump.

The Secure Act came into effect since January 1, 2020, and it includes significant provisions that will prevent older Americans from outliving their assets.

How Will Secure Act Affect Your Retirement?

The Secure Act will inevitably affect many retirement account holders; the most immediate impact will be felt by those who have retired or nearing it. If you’re a saver or investor in your 50s or 60s, here are a few of the most significant provisions that you should be aware of:

1. Required Minimum Distribution Age Increased

Previously, 401(k) or IRA account holders had to withdraw required minimum distributions (RMD), when they turn age 70½.

With the implementation of the Secure Act, the RMD age has increased to age 72. However, this rule is only applicable to people who have not yet reached the age of 70½ by the end of 2019. People who already are 70½ years by the end of 2019 must withdraw their required minimum distributions this year; otherwise, they’ll attract a 50% penalty of their RMD.

2. Age limit for making Traditional IRA contributions eliminated

As life expectancies have increased, and more and more people continue employment beyond traditional retirement age, the Secure Act eliminates the maximum age for traditional IRA contributions. It also allows people of any age to continue contributing for as long as they are working (which previously prohibited people from contributing after they’ve reached age 70½, even if they were still working), thus enhancing their long-term retirement financial security.

3. Additional Roth IRA Planning Opportunities

With the increase in RMD age, the account holders have an additional two years to carry out Roth IRA conversions without worrying about the impact of required distributions. Converting to Roth allows the account holder to convert taxable money in an IRA into a Roth IRA by paying lower taxes than what they would be paying in the future.

4. “Stretch IRA” technique is eliminated

The term “Stretch IRA” describes a technique that a beneficiary uses to extend distributions from an inherited IRA over his or her lifetime. While stretch IRA allowed young beneficiaries to extend the payout over the decades, it also enabled them to spread out the payment of income taxes over a long period of time.

The Secure Act effectively eliminated stretch IRAs. For any deaths occurring after December 31, 2019, the beneficiaries must fully withdraw the funds from inherited IRAs within ten years of the account owner’s death.

However, the Act exempts certain kinds of beneficiaries from this rule: a surviving spouse, minor children, beneficiaries who are not more than ten years younger than the account owner, and those who are chronically ill and disabled. However, grandchildren of the account holder are not included among these exemptions.

5. Annuities as investment options in 401(k) plans

Considering the fact that Americans now live longer lives in retirement, annuities provide a guaranteed income over the course of a retiree’s lifetime.

The Secure Act allows more employers to provide annuities as investment options within 401(k) plans. Previously, the employer held the fiduciary responsibility to ensure the investment products are appropriate for employees’ portfolios, but under Secure Act, the responsibility of providing proper investment choices is now on the insurance companies, which sell annuities.

6. Encourages auto-enrollment

Auto-enrollment is effective in making people save more for their future. The Secure Act offers a tax credit to small employers (on top of the start-up credit they already receive) to offset the costs of auto-enrolling their workers into a 401(k) plan or SIMPLE IRA plan.

7. Easier for small businesses to form Multiple Employer Plans (MEPs)

Many small businesses are hesitant to offer a retirement plan to their employees because of compliance issues and high administrative costs. Multiple Employer Plan (MEP) allows small firms to collaborate and offer a retirement plan by sharing a plan administrator and administrative duties and reducing the costs. However, for businesses to join together, it requires them to have a common connection — for example, being in the same industry. So, many small businesses cannot collaborate with other businesses because of the lack of connection or similarity. With the Secure Act in effect, these rules are relaxed, making it easier for unrelated businesses to form an MEP.

8. Part-time workers can participate in 401(k) plans

Previously, employers excluded part-time employees from participating in 401(k) plans. But now, under the new rule, people who have been working for the employer for three consecutive years investing at least 500 hours or worked for at least 1,000 hours in one year is eligible to participate in retirement plans.

Secure Act and RMDs

Value of Inherited Account  $1,00,000.00
Beneficiary Age50
Est Rate of Reurn6%
YearBefore Secure ActAfter Secure Act
One$2,923.98 RMD Amount$10,000.00
$1,02,900.58 Remaining Value$95,400.00
Two$3,099.42 RMD Amount$10,600.00
$1,05,789.23 Remaining Value$89,888.00
Three$3,285.38 RMD Amount$11,236.12
$1,08,654.08 Remaining Value$83,371.12
Four$3,482.50 RMD Amount$11,910.16
$1,11,481.87 Remaining Value$75,748.62
Five$3,691.45 RMD Amount$12,624.77
$1,14,257.85 Remaining Value$66,911.28
Six $3,912.94 RMD Amount$13,382.26
$1,16,695.60 Remaining Value$56,740.76
Seven$4,147.72 RMD Amount$14,185.19
$1,19,586.95 Remaining Value$45,108.90
Eight$4,396.58 RMD Amount$15,036.30
$1,22,101.79 Remaining Value$31,876.96
Nine $4,660.37 RMD Amount$15,938.48
$1,24,487.91 Remaining Value$16,894.79
Ten$4,940.00 RMD Amount $16,894.79
$1,26,720.78 Remaining Value$16,894.79
$38,540.34 Total RMD's $1,31,807.95
RMD Difference to the Feds$93,267.62
Choosing Beneficiaries for Your 401(k)

Choosing Beneficiaries for Your 401(k)

401k retirement plans began almost by accident in 1978. Yet today for many of us 401k plans play an important part of our retirement plans. According to the Investment Company Institute as of March 2019 there were $5.7 trillion invested in
401k plans.

A 401k retirement plan like every investment requires proper planning and management. That includes
understanding 401k word definitions, determining investments and selection of plan beneficiaries.

Who you choose to be a beneficiary is often an afterthought. We don’t plan on dying any time soon so who we select as a beneficiary is probably just academic. But there are a number of good reasons to choose carefully. Let’s examine some common questions about the subject.


  1. Can't I just let my will say who gets the money?

    You can. If no beneficiary is specified the assets will be placed into your estate and distributed per your will's instructions. In some cases this is your best solution. You only need to change one document (your will) to make changes. No need to get plan administrators involved. There are, however, some drawbacks. Often lawyer's fees are based on the value of the assets distributed by the will.  Letting your will dictate where the 401k assets go could add to the lawyer's fee. In some cases the value of the 401k assets will be considered probate assets. That means that they won't be distributed until the probate process is completed. It also may eliminate some privacy. Other beneficiaries will not know who received the assets from your 401k if those assets are distributed directly to the named beneficiaries.

  2. Do I have to choose my spouse?

    If you are married, the law (ERISA – the act that governs 401k plans) says that your spouse is automatically considered to be your beneficiary. You may choose other beneficiaries, but ERISA states that you must notify a spouse if they would receive less than 50% of the account in case of your death and a spousal waiver must be signed by your spouse.

  3. What if I'm separated from my spouse?

    Even if you've been separated for years your legal spouse is considered your beneficiary unless someone else is listed on your account and the proper spousal waiver has been signed.

  4. What if I remarry?

    Your current spouse would be considered as your beneficiary. If you would prefer to have your children from a prior marriage  inherit the assets you'll need to list them as beneficiaries and have the spousal waiver signed.

  5. Can I give it to my kids or grand kids?

    Yes, you can. It's up to you. And you aren't required to have a specific reason for choosing them. In some cases your spouse is set financially and it only makes sense to pass the 401k assets to the next generation. If your children are doing well financially you might even want to skip a generation and make your grandkids the beneficiary.

  6. What if my kids or grand kids are minors?

    You may list minors as beneficiaries, but you'll want to make sure you do it properly. Since a contract with a minor is usually not enforceable most plans will not transfer assets directly to a minor. A guardian or trust would need to receive the assets and manage them until the child reaches maturity. If you do not create a trust or list a guardian the court will appoint one. Remember, too, that when someone reaches adulthood they might not be very financially mature. It's easy for an 18 or 21 year old to blow through a significant inheritance in ways that would displease you.

  7. Can I choose more than one beneficiary?

    Yes, you can. You can also divide the account unequally between beneficiaries. For example 60% to one beneficiary and 40% to another.

  8. What happens if I don't choose anyone and leave the beneficiary line blank?

    If you die without listing a beneficiary it is assumed that your spouse is the beneficiary. If you are not married the assets of your 401k will be distributed by the terms of your will.

  9. What happens if I change my mind?

    You may change beneficiaries by filling out the proper forms with the plan administrator.

  10. Are there disadvantages to choosing a beneficiary?

    There can be. One problem occurs when the beneficiary dies before you do and you don't update the beneficiary. If no 'secondary or contingent beneficiary' has been selected the assets will be distributed per your will.

  11. Are distributions to a beneficiary taxable?

    Yes, distributions are subject to income taxes. There may also be an estate tax depending on the size of the total estate. There are strategies that you can use to delay or spread out the tax burden, especially if you're the spouse of the deceased.

  12. What happens when I begin to take distributions from my 401k?

    Distributions or loans from your 401k do not change your named beneficiaries, only the amount they would receive if you die. That may be important if you're attempting to balance inheritances to a number of people.

  13. How often do I need to review my beneficiaries?

    Many people have a 'set it and forget it' policy towards their 401k. You should review your beneficiaries at least as often as you or one of the beneficiaries has a major life event (birth, death, marriage, divorce, etc). It's a good idea to get in the habit or reviewing it once each year.
    Clearly, choosing your beneficiaries for your 401k account is an important decision. One that can have a major financial impact on people's lives.

Author Bio: Gary Foreman is a former financial planner and the editor of TheDollarStretcher.com and
After50Finances.com. His After50Finances email newsletter shares ways to make the money you worked hard for work harder for you!

Opening a Self Directed IRA? Don’t Make These Costly Mistakes

Opening a Self Directed IRA? Don’t Make These Costly Mistakes

Setting up a Self-Directed IRA is a smart move to secure your future. A Self-directed IRA is a versatile retirement plan that lets you invest in a wide range of profitable assets unlike traditional retirement accounts. But this same lucrative IRA account can prove to be a financial disaster for you if you don’t do your due diligence. 

So if you don’t want to fall victim to costly mistakes that most people make, avoid these 6 pitfalls

  • Using a Self-Directed IRA for Personal Use or for a Disqualified Person

    This is the most common problem that self-directed IRA account holders face. As a rule, an account holder cannot use the funds in their IRA account for personal use or for a small group of people who are considered disqualified persons.  Generally, the group consists of the account holder, spouse, children, grandchildren, parents, grandparents and their spouses. A disqualified person cannot receive any immediate benefit nor extend any immediate credit to the plan.

    For instance, account holders are prohibited to purchase a property for personal use using their retirement funds. The same rule prohibits IRA account holders to give loans to a disqualified person or have any business dealings with any person who can benefit directly from the loan including family, personal connections, and friends. 

  • Not Knowing the Types of Investments Allowed in a Self-Directed IRA account

    Setting up a self-directed IRA gives you the freedom to invest in alternative assets but it is very important that the IRA account holder has complete clarity on the allowable investments. One more thing that account holders need to be updated with, is the off-limits issued by the IRS. There are three investments which are prohibited transactions – life insurance contracts, collectibles and shares of an S Corp.

  • Not Staying Updated on the Prohibited Transactions

    It is also very important to have thorough knowledge of prohibited transactions as they can disqualify your IRA account immediately with your lifelong savings in it! If the IRS identifies that an IRA investor is involved in a prohibited transaction then it may be treated like a distribution and taxed with additional penalties for an untimely distribution. You run the risk of having your entire fund can be disqualified. The best way to safeguard your fund is to consult a financial advisor when you are investing in different alternate assets.

  • Not Doing Your Research Before Setting up a self-directed IRA

    One of the biggest pitfalls of IRA account holders is also the easiest to avoid: lack of knowledge. So before setting up a self-directed IRA, do your due diligence and educate yourself. A few questions that you would want to find answers to include the following:

    • Is your financial portfolio diversified between the traditional and non-traditional world?
    • Are you sticking to specific investments that involve more risk? 
    • Are the assets you want to invest in, approved by the IRS? 
    • Are your contributing too much or too less to your IRA account? 
    • Who are the custodians of your IRA account? 
    • Do you have a financial advisor to give you expert guidance? 

    You should have answers to all of these questions before setting up a self-directed IRA.

  • Mismanaging Repairs and Upgrades of a Real Estate Property

    There are certain rules that apply to a self-directed IRA for governing how the account holder pays for repairs and renovations made to any real-estate property in the IRA account. You are not allowed to pay out of your own pocket or from the earnings of your personal assets. You are allowed to manage the repairs but you should not do them yourself.

  • Choosing the Wrong Self Directed IRA Custodian 

    If you end up with a wrong type self-directed IRA custodian, your entire IRA experience becomes more risky and complex. So before choosing a self-directed IRA custodian, make sure you check their license and registration against the state regulatory resources. Also read through and understand their fee structure.  The right custodian will guide you through the complexities of setting up a self-directed IRA and protect you from the pitfalls of prohibited transactions and frauds.

When you are investing money to secure your future, do it with an expert and make sure that your retirement dollars are giving you the maximum possible returns. Self-Directed Retirement Plans LLC has helped thousands of clients take check book control of their retirement funds for over 15 years. Call (866) 639-0066 today for honest advice on how you can make the most of your money without making costly mistakes!  

How To Choose An IRA Custodian

How To Choose An IRA Custodian

There are different types of Individual Retirement Accounts (IRAs) that are designed to meet your needs. But all of them have one thing in common – they must have a custodian.

An IRA custodian is a financial institution that holds your account’s investments and ensures that all government and the IRS regulations are adhered to all times.

It’s not difficult to find IRA custodians, but the best custodian for you will depend on what type of IRA you want and what sorts of investments you want to make with it.  

Traditional IRAs vs. Roth IRAs

The main types of IRAs that most individual investors set up are the traditional IRA and the Roth IRA. However, there is one basic difference between the two. A traditional IRA is a tax-deferred account. This means your contributions are tax-deferred until you start withdrawing your funds at retirement. With a Roth, your contributions are taxed. This means the money you withdraw from your account at retirement is tax-free. Additionally, both traditional IRA and Roth IRA allow your money to grow free of income tax.

Self-Directed IRAs

With traditional or Roth IRA, you can have your account self-directed or managed through a custodian. In a self-directed IRA, you have the freedom to choose the funding methods and a wide variety of investment instruments. The custodian allows you to make investments outside the traditional world of investments including bonds, stocks, exchange-traded funds, and mutual funds.

Types of Custodians for Standard IRAs

If you choose to go with a non-self-directed IRA, there are a number of different financial institutions that can serve as custodians, once you’ve set up your account with them.

Banks: If you want to invest in money market funds or FDIC-insured security of CDs, the bank can be a good option. However, banks generally do not offer many investment choices outside the traditional ones. Some banks offer broker-types services, but they charge a high fee, probably higher than the brokerage.

Brokerage Firms: If you want to invest in individual bonds, stocks, mutual funds, or ETFs, you can opt for brokerage firms to be your IRA entity.

Mutual Fund Companies: Mutual fund firms also offer their ETFs and mutual funds for you to invest in.

Insurance Companies: Insurance companies offer their flexible premium annuities as basic IRAs. These annuities offer automatic account management, account value protection, and death benefit options. They are either variable or fixed.

That said, IRAs are already tax-advantaged accounts. Insurance companies offering tax advantages of annuities is redundant. Additionally, you may have to pay high fees for having these annuities. 

Robo-Advisors: Robo-advisors are relatively new online investment platforms that offer algorithm-based portfolio management advice. These platforms are automated. This means there is no human intervention. Hence, the fees and other expenses are low.

Custodians for the Self-Directed: If you want to choose a self-directed IRA, it can be a little complex. For a self-directed IRA, there are three types of providers: custodians, administrators, and facilitators. However, only the custodians have direct approval from the IRS and are authorized to hold assets.

The other two, administrators and facilitators, are actually intermediaries between you and your custodian (the one that holds your assets). Therefore, if you want to go ahead with a self-directed IRA, it’s better to stick to a true custodian.

All the institutions mentioned above can theoretically serve as custodians for your self-directed IRAs. But if you are leaning towards making non-traditional investments that are open to your self-directed IRA, you need to be particularly careful about your choice of custodian. If you are not careful, you can easily violate the IRS rules and pay severe penalties.

  1. Why Do You Need a Qualified IRA Custodian?

    With an IRA account, your investment options extend beyond mutual funds and ETFs to include precious metals and real estate. But to invest in non-traditional assets with an IRA account, you need a licensed self-directed IRA custodian. A passive IRA custodian is a firm that allows you to choose your own investment vehicles.   
    You give the IRA custodian your investment and then the custodian invests your money in any of the allowable assets chosen by you. The custodian is then responsible for ensuring that your account adheres to the IRS guidelines and also issues all the required tax forms and statements. 

  2. What is an IRA Custodian Responsible For? 

    The IRA custodian serves as your asset manager and is responsible for monitoring your IRA funds. From tracking your IRA contributions and 401(k) rollovers to transfers and distributions, every activity made through your IRA is monitored by your IRA custodian. The IRA custodian is also responsible for reporting every IRA transaction to the IRS.

Tips for Choosing IRA custodian

Your chosen IRA custodian can either be an IRS-approved, non-financial firm or a financial institution given IRS approval. And if you are choosing a bank for setting up your IRA account, then the bank becomes your IRA custodian. The same stands true if you invest in a certain mutual fund family. Using such IRA custodians will save you a lot of money as their fees are relatively lower in comparison to institutional accounts. 

But, if you are choosing IRA custodian for a self-directed account, then make sure you choose an IRA custodian keeping the following 5 factors in mind. 

  1. A Wide Range of Investment Options
    The bigger the assortment of alternate investments, the more options you have to diversify your funds. So if you want to invest beyond stocks, bonds, ETFs and mutual funds, then your chosen IRA custodian should be able to help you look for non-traditional options like real estate and privately held companies.  

  2. Low Maintenance Fees
    Fees come in various forms – annual maintenance fees, commissions for making trade, loads for mutual funds and the like. So, if your chosen IRA custodian charges a certain type of fee, check if it is uniform across custodians because these fees are not a “given”. And if you are investing in mutual funds, make sure your custodian offers different types of no-load mutual funds.  

  3. Knowledgeable About the Rules
    If you have multiple IRA accounts then according to experts, you should consolidate your accounts into one fund and delegate a single IRA custodian. Your IRA custodian should be knowledgeable about the rules of the IRS, the rules based in tax law, and also know which types of IRA accounts cannot be consolidated.  

  4. No Restrictions on Investments
    Certain IRA custodians limit your investment options because the nature of their charter is restricted. These limitations may not be the same as the restrictions imposed by the IRS. So, make sure you choose an IRA custodian with no restrictions. When you are opening an IRA account, make sure your choice is based on the type of account you prefer – Traditional or Roth. If you want to diversify your portfolio then a self-directed IRA will give you the freedom to take check book control of your finances. 

  5. Prompt Services
    Unless you are fine working with a robot advisor, easy access to a knowledgeable and experienced financial advisor is very important. When you are managing a self-directed IRA, a vague or incomplete answer is the last thing you’d want to deal with.  

Call Self Directed Retirement Plans LLC at (866) 639-0066 today to learn more about the alternate investment choices you can make with a self-directed IRA. 

3 Ways You Can Gift Your IRA or 401(K) Retirement Savings to Your Loved Ones

3 Ways You Can Gift Your IRA or 401(K) Retirement Savings to Your Loved Ones

You may not be a millionaire, but you may have reached a stage in life that makes you think that you have done all you possibly can to have a blissful retirement.

You are fortunate that your retirement planning has accumulated more than you need. Probably you don’t need to rely on IRA or 401(k) plan; your pension and Social Security benefits are enough to sail you through your retirement smoothly.

So, because you don’t need the money held in IRA or 401(k), it gets piled up. But IRS doesn’t want you to keep your money as it is in your retirement accounts. When you turn 70½, the Required Minimum Distribution (RDMs) kicks in. This means you have to withdraw a certain percentage from those tax-advantaged accounts each year, whether you want it or not. The worst part of it all – the percentage increases as you age.

And If you fail to withdraw the RMD, you may need to pay 50% of your Required Minimum Distribution amount each year as a penalty.

However, the issue is taxes. If you wish to gift your money to your child or your loved ones, you have to pay income taxes on what you withdraw, and also pay tax if you let the amount stay in the accounts as it is.

Here is how your IRA or 401(K) can become tax free gift for your loved one.

#1 Gift money after reviewing the gift tax rules

Beginning in 2018, you can gift up to $15,000 (or $30,000 if you’re married) to a person in a year without IRS interfering with your transaction. If you are gifting more than that amount, you need to file a gift tax return. That doesn’t mean that you have to pay a tax on the gift. It means that $15,000 is eligible for lifetime exclusion. This is the amount you can gift away during your lifetime without incurring a gift tax. The total lifetime tax exclusion for gifts is $11.2 million per individual; so, gift tax rules are not much of a concern for most people.

#2 Convert your retirement savings into a life insurance policy

Convert your retirement savings into an income tax-free gift (life insurance) for your spouse, children or grandkids.Here’s how it works:

    • You can withdraw the RMDs from your IRA. Pay the tax applied on distributions. The balance amount, you can use to pay the premiums on a life insurance policy. By doing so, you are turning a 100% taxable investment into 100% tax-free.
    • If you gift your IRA or a 401(k) to your loved ones, other than your spouse, they have to take distributions the next year, whether they want it or not. And if they are withdrawing, then they have to pay taxes on the withdrawals. The best part of life insurance is that the beneficiary doesn’t need to pay taxes on the amount they receive. It is a true gift.

#3 Can you gift money from an ira without paying taxes.

Let your children inherit your IRA. While you are alive, you have no tax benefit to gifting an IRA. Rather, consider passing it on as part of your estate plan. If your kids inherit your traditional IRA, you get to avoid the taxes while they benefit from the funds you have saved for years. However, they need to pay income tax on the amount they withdraw. A Roth may be a great way to leave your money to your kids without them paying the tax because you have already paid it.

Tax rules involved in the gifting your retirement money to your family or loved ones can be confusing. If you need more information, call (866) 639-0066 for expert guidance.

Stretch Your Retirement Savings to Make it Last: Here’s How

Stretch Your Retirement Savings to Make it Last: Here’s How

When the market goes erratic, it’s only natural for people who are close to retirement or already in retirement to get anxious. It then boils down to one single question. Do my retirement accounts have sufficient funds to last through your retirement?

It’s brutal, isn’t it? You invest in 401(k) plans and IRAs to build up your nest egg only to see it destroyed with one market gyration.

It’s heart-wrenching to see people who have planned for a financially secure retirement ending up losing their assets due to unforeseen market fluctuations or events.

Some of the unforeseen or unknown events that can affect your retirement funds are:
• Your life expectancy
• Inflation rates
• Healthcare costs
• Investment risks

There are ways you can stretch your retirement savings for almost as long as the years in which you accumulated those investments. Read on to know more.

1. Figure out When You Want to Retire

While 65 years is the retirement age, a survey by Willis Towers Watson says that nearly one in five Americans work beyond age 70. Delaying retirement has several benefits:

• It gives you the opportunity to save more for retirement and continue investing in your employer retirement accounts like 401(k).
• It helps you to delay withdrawing from your retirement savings.
• You can also take benefit of the employer’s health insurance coverage.
• It helps you to reduce your overall debt, such as credit card debt, and even your mortgage.

2. Consider Working Part-Time

If for whatever reasons you can’t work full-time during your retirement years, you can earn income from a part-time job.

Working part-time not only helps you financially but also keeps you physically and mentally active. However, you need to keep your skills up-to-date to be employable.

3. Tap in Social Security Benefits at the Right Time

If you want to stretch your retirement funds, don’t claim your Social Security benefits as yet. Delaying it can provide a long-term boost to your retirement funds.

A mistake most people make is that they start taking their benefits as soon as they step into retirement. The longer you wait, the better it is for your bottom line. Each year you delay claiming your benefits, they increase by 8% until age 70.

4. Strategize Your Spending

The key to making your retirement fund stretch is to have a budget. Cover your fixed expenses with your Social Security benefits, an annuity or a pension. Try not to withdraw from 401(k), IRA or other retirement accounts for discretionary spending.

• Reduce spending if the market fluctuates.
• Schedule withdrawals strategically. You may want to take help from a financial advisor to help structure your withdrawals so that you minimize your tax bill.

If you don’t have a tax strategy, it can cause a substantial dent in your retirement savings and affects its longevity.

5. Diversify Your Investments

Here are some tips on how you can diversify your investments

• Keep some cash as an emergency fund. So, if at all you face an emergency, you do not have sell stocks at a loss when the market is low.
• Do not over-invest in the employer’s stock.
• Make sure you have a good mix of stocks, mutual funds, and fixed-income bonds.
• Consider keeping an annuity in your portfolio. It can provide guaranteed lifetime income for some, if not all your fixed expenses.
• Consider seeking help from a professional advisor if you’re unsure about your investment allocation.

Retirement planning is more than just saving. It is more about making your savings last long enough for you to have a long and comfortable retirement.

Are you ready to make your retirement savings last for long? Then, we need to talk. Call Self Directed Retirement Plans LLC today!