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Self Directed Retirement Plans Blog

Choosing Beneficiaries for Your 401k

Choosing Beneficiaries for Your 401k

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!  

Why Do You Need An IRA Custodian And Tips On How To Choose An IRA Custodian

Why Do You Need An IRA Custodian And Tips On How To Choose An IRA Custodian

Choosing IRA custodian is crucial for maintaining the tax-free status of your IRA account. The type of custodian you choose will depend on the IRA account you choose to invest in. Traditional IRA accounts may not need an extra effort for choosing IRA custodian but if you plan to explore non-traditional investments then you need a self-directed IRA custodian to diversify your financial portfolio.

  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.  

Self-Directed Retirement Plans LLC offers flexible retirement plans with multiple investment options that include asset protection, prompt support, limited custodial fees and complete check book control. Call (866) 639-0066 today to learn about alternate investment vehicles that will quadruple your retirement savings.  

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.

But there are options. If you want to avoid taxes on the money you gift to your family or loved ones, consider these options.

  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 policyConvert 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. 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!

Retirement Saving Plans When Your Military Pension Isn’t Enough

Many servicemen concentrate more on their current activities than worry about military retirement. They join the military force hoping that they will retire after 20 years of service with a pension for life. However, stats say that less than 18% stay in service that long to qualify for a military pension.

While many companies offer their employees phased-out pensions plans, servicemen get nothing in pension if they leave their jobs before they complete 20 years.

If you do complete 20 years of service, you’ll get a pension amount that is 50% of your base pay. For each additional year, you serve your pension increases by 2.5%.

While this may seem like a generous retirement scheme, it may not be enough money to take care of you and your spouse in retirement. You can use the military retirement calculator available online to check whether the military retirement pension amount is enough for retirement.

Regardless of whether you stay for 20 years in service or not, whether you have a pension or not, it is essential that you save on your own.

While you are in the military, you can take advantage of these special investing programs and tax breaks to supercharge your savings. Check out these options:

  1. Blended Retirement SystemThe government has introduced a new military retirement system on January 1, 2018, which is designed keeping in mind the servicemen who don’t stay in service for 20 years. This is called the Blended Retirement System (BRS).Anyone who joins the military from January 2018 gets automatically enrolled in BRS. The BRS allows you to choose a Thrift Savings Plan (TSP), a pension only, or both with a reduced pension.
  2. Thrift Savings Plan
    Thrift Savings Plan is similar to a 401(k) plan. It is a great place to start saving. 1% of your base pay automatically is contributed to a TSP. You can also contribute another 4% to get a total 5% match.The TSP has valuable tax advantages. Irrespective of how much you can afford to invest, you can tax breaks now or build up tax-free income for the future. You can choose between a traditional TSP, where you make the contributions with pre-tax income, a Roth TSP, where you contribute after paying the income tax, or a combination of both.TSP has very low costs. For every $1,000 you invest, you pay only 40 cents.
  3. Tax-Free Earnings From a Roth IRA
    A Roth IRA can be a great supplement to your retirement savings. You do not get a tax break for Roth contributions, but you can enjoy tax-free withdrawals in retirement.If you are a deployed servicemember, you have an advantage – while you are in the combat zone, if your pay is tax-free, the money that goes into Roth IRA is also tax-free. Moreover, the earnings that you withdraw in retirement also are tax-free.You can invest the maximum in both a Thrift Savings Plan and a Roth IRA in the same year. Finally, if your spouse doesn’t have an income, you can contribute to an IRA on his or her behalf.

If you need guidance on how to safeguard your financial future and supercharge your military retirement savings, call (866) 639-0066.