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

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

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

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

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

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

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

How the Checkbook Control IRA LLC Process Works

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

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

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

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

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

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

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

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

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

                                                                      image source: www.freepik.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Know this Before Borrowing Against your IRA

Know this Before Borrowing Against your IRA

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

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

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

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

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

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

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

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

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

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

Exceptions to the 60-day Payback Period

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

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

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

Borrowing from Your 401K

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

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

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

Should You Take the Risk of Owning Stocks in Retirement?

Should You Take the Risk of Owning Stocks in Retirement?

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

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

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

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

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

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

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

All that is Good

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

All that is Bad

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

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

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

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

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

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

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

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

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