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Self Directed Retirement Plans Blog

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 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. 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.

How to Make the Most of your Hard-Earned Retirement Reserve

How to Make the Most of your Hard-Earned Retirement Reserve

Most of us build a retirement savings plan, but is this enough to live comfortably during the retirement? Balancing your retirement funds can be extremely difficult, given that your daily expenses rise as you age.
Just like it was mentioned in a recent Self Directed Retirement Plans’ blog post, for the majority of Americans, living past 85 years would be financially difficult. So, no matter if your retirement is still decades away or it’s approaching quickly, you need to plan and use your retirement fund strategically.

Here are a few tips that will help you do so.

Invest in the Right Retirement Plan on Time

Concerned about their student debt and bank loans, young people usually don’t think about their pension on time. According to the Bureau of Labor Statistics’ National Compensation Survey, only 15% of private-sector employees have a pension plan, while 44% of them have a retirement savings plan.

The perception of workplace retirement plans has also changed. The same report says that only half of employees in the private sector had a workplace retirement plan in 2017.

With the traditional pension benefits disappearing, your goal is to start saving up and preparing for your pension on time.

Start with a 401(k) plan.

The 401(k) plan that is financed through your contributions either via pre-tax or post-tax. The major benefit of this plan for employees is a high annual contribution limit that goes up to $19,000 for those under age 50 and $25,000 for people aged 50 and above.

Before you start contributing to 401 (k), always make sure your employer offers match programs. This means that a company contributes the additional sum of money to your account each time you make a contribution.

Open a Traditional IRA

If your employer doesn’t offer a company match, then skip 401 (k) and consider investing in IRAs, especially traditional ones.

Employees usually decide for traditional IRA plans, especially if they want to save money on taxes on their contributions. There are numerous significant benefits of traditional IRA plans
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  • Anyone can open and contribute to traditional IRAs – there are no income limits.
  • It provides wide investment opportunities.
  • Your investments are tax-deferred until you start withdrawing funds. A traditional IRA also allows you to deduct your contribution and save money on taxes upfront.
  • You can invest in a traditional IRA even if you if already have a workplace pension plan, such as the abovementioned 401 (k).
  • There is a limit to contribution amounts. In 2019, the traditional IRA contribution is up to $7,000 if you’re 50 or older

Additional IRAs to Consider

  • Roth IRA – This plan requires paying taxes on contributions you make. Still, you will reap its benefits later, given that you won’t pay tax on withdrawals.
  • Simplified Employee Pension (SEP) – designed for self-employed people and business owners.
  • Self-Directed IRA provides numerous investment options for your retirement fund. These include residential real estate, commercial real estate, stocks, bonds, mutual funds, currency, etc.
  • Savings Incentive Match Plan for Employees (SIMPLE) IRA is particularly important to small businesses. Workers can contribute a certain sum of money to their SIMPLE IRA funds and their dollars will grow at the determined interest rates.

How to Save Up and Use your Money Wisely after Retiring

When planning your retirement fund, you need to consider your current lifestyle and ask yourself if something is going to change once you retire. Knowing your lifestyle, you will be able to predict your expenses and determine whether they’re realistic when compared to your retirement income.

It’s also a good idea to plan your retirement pessimistically. Taking your worst-case scenario into account, you will be able to prioritize your expenses and make wiser decisions.

  • Estimate your future medical costs. As you age, your medical expenses will also grow. That is exactly why you should consider creating a health savings account to cover your medical expenses, as well as invest in a comprehensive, long-term medical insurance.
  • Know where you can save up. Seniors enjoy numerous benefits when it comes to payments. For example, when traveling, you can use seniors travel insurance that will cover most of your medical care costs, protect you against lost belongings, and even provide notable discounts or bonus days.
  • Cut where it doesn’t hurt. Are you still paying for that family membership at the gold club no one uses? Or, if your home is expensive to maintain, why not downsize?
  • Focus you 401 (k) and IRAs on safer investments. Many seniors decide to invest in stocks just to find out that their returns are not satisfactory. Remember that age is not on your side, so choose investments that will generate regular income and keep your funds safe. According to The Economic Times, some of these options could be tax-free bonds and mutual funds.
  • Know when and how to withdraw money from your retirement savings accounts. Just like I’ve mentioned above, when taking distributions from your traditional IRA account, you will need to pay a tax on withdrawals. Always make sure that you’re not withdrawing cash from an IRA at the same time you’re getting Social Security benefits. Otherwise, you will face high tax brackets.

Unsurprisingly, the sooner you start preparing yourself for retirement, the better off you will be. If you’re still a few decades away from retiring, this is a great opportunity to start investing in the right retirement plan and saving up. On the other hand, if you’re close to pension, then strategize your investments, choose the right insurance coverage, and minimize costs on multiple levels.

Guest Post – Keith Coppersmith is a business journalist with experience in numerous small businesses and startups. A regular contributor at Bizzmarkblog.com, he enjoys giving advice on both marketing and financial strategies.

The Most Profitable Retirement Investment for 20-Somethings

The Most Profitable Retirement Investment for 20-Somethings

Most 20-somethings don’t even give retirement savings a thought, partly because it’s too far and partly because they are already caught up with student debt. But, if you are not saving for retirement in your 20s, you are missing out on major opportunities to boost your nest egg into a massive retirement reserve.
So, if your goal is to retire on time and you want a financially secure future, then 20s are when you should start saving.

Start Saving as Less as a Latte a Day and Retire a Millionaire at 65

Yes, it’s true! All you need to invest is $3 of your latte every day into a retirement account and you’ll have a million in your retirement account when you hit 65. This is the magic of compounding interest. A small trade-off today will pay off in a big way tomorrow. So open up a retirement account today, start investing and set yourself up for a stress-free and financially secure future.
But before you get off to a good start, it is important that you know the types of IRA. There are 5 major differences between both the types of IRA and they include income limits, age limits, distributions, tax treatment and withdrawals.

1. Traditional IRA
• With a traditional IRA, you will be able to save on taxes up front but you’ll pay income tax on your contributions and earnings when you withdraw.
• The required minimum distributions in a traditional IRA kick in when you reach age 70 ½. So you must take it even if there is no need because if you fail to do so, the IRS will forfeit half the RMD that is due.
• The maximum contribution that can be made to a traditional IRA annually is $5,000 but those who are 50 years and older can contribute up to $7.000 and catch up.

2. Roth IRA
• The contributions made to a Roth IRA are not eligible for tax deduction at the front end but all your withdrawals are tax-free.
• The income phase-out limit for singles is $120,000 to $135,000 and for married couples is $189,000 to $199,000.
• With Roth IRA, you can make contributions at any age without being subjected to the rules governing required minimum distributions.

Now let’s understand both the types of IRA with an example. We will suppose that you contribute $5,000 every year to a traditional IRA starting at the age of 23 years and continue until you reach 63 years of age. Assuming that you are saving $5,000 for 40 years at a 10% rate of return, your traditional IRA will grow to $2,212,962. But, you will pay income tax on each withdrawal.

Now if you fall in the tax bracket of 25%, every $100,000 withdrawal will actually come down to just $75,000. On the other hand, if the same amount is invested in a Roth IRA, it will still grow to $2,212,962 and all your withdrawals made after retirement will be absolutely tax-free!
While Roth IRA is clearly the wisest long-term investment in this case, regardless of your investment choice, your 20s are the perfect time to take charge of your finances. So start sooner and maximize your retirement ROI!

Call (866) 639-0066 for expert guidance that will significantly improve your prospects of a stress-free and financially sound retirement.

6 Ways to Make Your Newfound Retirement Freedom Fun and Exciting

6 Ways to Make Your Newfound Retirement Freedom Fun and Exciting

After being in the workforce for decades, retirement finally brings you the freedom to spend your time your way. And if you are fortunate enough to be physically healthy, financially sound, and have little-to-no custodian responsibilities, then there are endless possibilities for you to make the most of your retirement.

But if your retirement plans rely on your IRA income, now is the time to test things out. Can you live frugally and still enjoy your retirement? You won’t really know until you automate a transfer to your savings account to mimic the income you would be receiving from your 401(K) plan or other qualified IRA.

Here are 6 good things to do with your time during retirement to make it more meaningful and enjoyable:

1. Explore the World
Now that you don’t have to worry about pending work and leave applications being approved, take that much-awaited extended vacation. You can go on one-day trips, take a long cruise and travel to foreign lands, or simply set off on a whiskey tasting tour to Tennessee and get back! If you feel a little adventurous, you can raft your way to the Grand Canyon or head out for a hike and hit the red rocks in Southern Utah or simply go live in a whole new country.

2. Remodel Your Home for a Refreshing Vibe
Whether you’ve always desired a complete overhaul or simply want to upgrade a part of your home; now is the time to make all the repairs and replacements. You can use the required minimum distributions from your 401(k) plans to pay for your remodel or you can also consider earmarking your renovation dollars in a savings account.

3. Make Retired Friends with Similar Hobbies
Join a meet-up group of retired people who are geared to interests or leisure activities you like. It can be a reading club, a social network, or a group that organizes camps like fishing, swimming, hiking, snow skiing, surfing, or kayaking.

4. Rekindle the Important Relationships of Your Life
If you both are retiring around the same time, you are going to be spending ample of time together. Working on the relationships that are important to you now will help you keep things fresh and enjoyable. At home, you can trade responsibilities with your partner and plan outings that enrich your life. You can also make plans with close friends with whom you have strong bonds so that this transition becomes more fun and exciting.

5. Start a Sport You Enjoy or Join a Fitness Group
Join a sports league where you can regularly participate in sports like tennis, soccer, or bowling. Or you can commit to a new active lifestyle by joining a group that is devoted to living a fit and healthy life. Joining a group where everyone is dedicated to getting into their best shape and staying fit, will improve your quality of life and help keep aging related illnesses at bay.

6. Learn a New Language or Learn to Play an Instrument
Retirement brings you a lot of time to make foreign trips so learning a new language will serve you well during extended holidays. Learning a new foreign language will also help you keep your mind sharp.

You can also consider taking piano or guitar lessons as it will help you uncover a new talent and put you in the spotlight at all the family get-togethers and parties. You can also make the most of your newfound freedom by volunteering, teaching, taking up a part-time job, or starting your own business.

Whatever you choose to do during retirement, make sure you know all the smart withdrawal strategies so you avoid penalties and pitfalls. Safeguard your financial future by knowing what to do and what not to do with your 401(k) plans or any other types of IRAs. Before tapping your retirement reserve, call (866) 639-0066 for expert advice.