Steps to set up a solo 401k

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401k accounts are retirement accounts that are set up and managed by your employer. However, if you are a freelancer or entrepreneur that runs your own business, you may want to set up a 401k just for yourself. 

Many people don’t realize they have this option, but it’s a great way to build up your savings for retirement. Setting up a solo 401k can be tricky at first – here are the basic steps to get started.

Choose a 401k provider

The first step to opening a solo 401k is choosing a provider. Many financial institutions offer solo 401ks to their customers, so they’re fairly easy to find. There are several things to take into account when choosing a 401k provider, but the most important factors are fees and investment options. 

You’ll want to make sure your provider has investment options you like, and that you have enough flexibility when putting your plan together. You should also look for a provider with low fees, as high transaction fees can really add up.

Fill out your application

Once you’ve decided on a provider, you’ll need to work with them to fill out your paperwork and get the account set up. 

You’ll need to fill out your employer kit with a plan adoption agreement for a solo 401k. These are complex and can be confusing to fill out on your own, which is why it’s so important to have a provider you trust walk you through them. 

You will also need to prepare your employee disclosures about your business to send to the IRS for tax purposes.

Open your account

Once you have all of your paperwork filled out, you can set up an account and make contributions as you see fit. Since you are both employer and employee, you can make one sum contribution instead of worrying about employer matching.

When you’re setting up a retirement account, it’s important to make sure you’re working with a reputable financial institution you can trust. 

Quest Trust Company offers an individual 401k as well as many other retirement savings options, including self-directed IRA and Roth IRA accounts. We offer truly self-directed investment options as well as fast processing times and low fees. Contact a financial expert at Quest Trust Company today to set up your account.

Four Advantages of Opening Multiple IRA accounts

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People who have set up IRA accounts know that the federal government sets a cap on how much individuals can contribute to these accounts each year. Not many realize, however, that there is no limit to the amount of accounts that can be set up. While there are some disadvantages to doing so, there are also some obvious advantages you should be aware of before you decide whether to do it.

1. A More Diverse Investment Portfolio

Setting up multiple IRAs can be used as a way to diversify your portfolio. However, in order for your portfolio to be truly diversified, make sure you use your IRA for different investments. Set up one IRA to focus on bonds and one for real estate. If you are someone that likes to be flexible in what you invest in then setting up multiple IRA accounts is an option you should consider.

2. Your Estate Planning Process Will Be Easier

Believe it or not, setting up multiple IRAs will take some of the guesswork out of your estate planning process. Setting up one account with multiple beneficiaries will generate less paperwork, but creating multiple accounts and assigning each different beneficiaries clarifies who gets what. When the time comes, the administrator of your estate has fewer disputes to deal with and more time to do their duties.

3. More of your investments are covered by insurance

Certain investment accounts (including some IRAs) do have insurance coverage, but only up to a certain amount – $250,000 for FDIC-insured accounts and $500,000 for SIPC-insured accounts. Having multiple IRAs allows you to spread out your retirement funds and ensures coverage for more of them in case something goes wrong.

4. Taxes

When setting up multiple IRA accounts, you can choose different types that give you various tax advantages. Some allow for tax deductions they are paid into. Others allow the taxes to be paid off in advance, so the money is tax-free when it is distributed. If you split whatever you were going to invest in one account, you can put half into the traditional IRA with tax deductions when you withdraw and half in the Roth IRA which has tax free earnings and withdraws.

In conclusion, if you’re considering opening an IRA account, ask your financial advisor any questions you may have before making a decision. Start taking control, at Quest Trust Company we give you the information you need about different types of investments. Contact a Quest IRA specialist today to discuss your options and determine the best one for you and your needs.

Things You MUST Know About Investing in Real Estate IRAs

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Are you thinking about using your self-directed IRA to invest in real estate?

No matter your experience level, investing with a self-directed IRA calls for a little self-education. Quest Trust Company is here to help you in the process, and make sure you understand everything you need to get started.

You Cannot Benefit from the Property Before Retirement

When purchasing real estate using self-directed IRA funds, there are certain rules that come along with the property. You cannot live in the property or benefit personally from it in any way. This includes you, your family, and any other disqualified person such as service providers of the IRA. You also cannot earn personal compensation, so if you are a real estate agent, commissions aren’t allowed on the purchase or sale of these properties.

Due Diligence is a Must

As the account owner, you are personally responsible for all investment choices. Quest Trust can’t provide any tax, legal, or investment advice, but you can talk to a tax professional or investment advisor before you purchase property using your self-directed IRA. Quest Trust can help you after any relevant discussions you have with outside sources.

Do Not Work on the Property From Your Own Pocket

While mowing the grass, fixing up the interior, or doing general maintenance on your self-directed IRA real estate investment may seem tempting, be sure not to pay for it from anything other than your IRA funds. There are rules and regulations which state that funds from your IRA must be capable of paying for the expenses of the property. So, with that, it is important to ensure that your IRA has these needed funds before purchasing a property.

Know the Tax Rules

Like all other expenses of the investment, property taxes must also be paid using IRA funds. It is important to fill out tax documents correctly in order to ensure the proper funds are being used.

Why Quest?

All of these points are important to keep in mind when investing in real estate via a self-directed IRA, and we urge you to do your research. As always, Quest Trust Company is here for you. We work diligently to foster relationships with our clients and put you first. Unlike other companies, we offer three administrative options, giving you the most flexibility over your investments. We work hard to process transactions within 24-48 hours and offer multiple services for free. Feel free to contact a Quest IRA Specialist with any questions.

The SAFE Choice When Choosing a Self-Directed IRA Provider

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The last decade brought about a sweeping change to the world of investing. The genesis of this change occurred around 2007, when Americans faced the hardship of the financial crisis. Despite the struggles of many nationwide, Americans began seeking new opportunities to regain their financial stability. Though Self-Directed IRAs have been in existence since the 1970s, it’s apparent that there is a link between their dramatic increase in popularity and a change in mindset for the average American.

Self-Directed IRAs provide investors with the opportunity to use their knowledge and invest in private assets, such as real estate, promissory notes, private companies and more. As more Americans begin to realize that they have the ability to part ways with the traditional methods of investing and that they hold the keys to their metaphorical financial vehicle, it’s important to mention that not all Self-Directed IRA companies are created equal. The easiest way to identify the best Self-Directed IRA provider is by making the SAFE decision; an acronym that represents the provider’s Specialization, Account fees, Funding timeframe and Education.

Specialization

The investment interests of an individual should be one factor that dictates their selection of a Self-Directed IRA provider. Choosing a provider that specializes in a specific investment type is important, especially as a portfolio begins to grow into advanced investments. Investors may experience a learning curve when doing a new or advanced investment, however the Self-Directed IRA provider should already be well-versed in the investment type. Choose a provider that can educate you on their internal process for funding your specific investment, not the other way around.

Account Fees

When comparing Self-Directed IRA providers, the second factor to consider is the account fees. It’s imperative to read the fine print and ensure that the company doesn’t have the tendency to ‘nickel-and-dime’ their clients. The company must charge fees for their business to remain operational, however arbitrarily charging clients for services that should be included appears to have become a widely accepted practice for many Self-Directed IRA providers. Conversely, simply because a Self-Directed IRA provider has low-priced account fees, doesn’t necessarily equate to that company being the best provider for you. The ultimate goal in determining whether the provider’s account fees meet your needs should be the value provided, not just in fees you’ll incur, but also including intangible factors such as highly experienced professionals and responsiveness to client needs.

Funding Timeframe

Arguably the most important factor and item that separates a Self-Directed IRA provider from the rest of the pack is their funding and processing time. In the real estate industry it certainly seems that the phrase “time is of the essence” regularly applies. When a Self-Directed IRA provider cannot fund investments in a timely manner, an investor may stand to experience prolonged delays or worse, jeopardize the investment altogether. However, even a client with a lengthier funding timeframe should not be required to allocate sometimes up to a month for the processing of a deal. Investors on their quest to find the best Self-Directed IRA provider should do their due diligence and determine the timeframe for the establishment of an account, funding of an investment or disbursement of funds to pay an investment related expense.

Education

Good real estate investors continue to strengthen their skills by furthering their education, because the most educated investors usually become the best investors. As the saying goes, “knowledge is power.” However, the real estate industry is chock-full of clubs and gurus who aim to provide their take on the best methods for real estate investors. Seeking education isn’t difficult in this industry, however obtaining accurate, reputable and accessible education may prove to be a challenge. Gaining education from a Self-Directed IRA provider allows you to obtain unbiased information on many different topics. The best and most reputable provider will not only provide accurate education, but will also make it accessible to investors nationwide.

Quest Trust Company is the premier Self-Directed IRA provider, holding assets like real estate, promissory notes and private companies. With over 18,000 happy clients nationwide, Quest Trust Company prides itself in having account fees that provide clients with the best value for the outstanding level of service. Quest Trust Company processes everything from setting up an account to funding an investment in just 24-48 hours, and without the dreaded expedited funding fee either. Quest Trust Company aims to provide both clients and future clients alike with education on the need-to-know topics in the industry. Investors across the United States can take advantage of the free education provided by Quest Trust Company either by attending a class or seminar in their city or watching the weekly online webinars. Next time you’re reflecting on choosing the best Self-Directed IRA provider for your needs, remember to make the SAFE decision.

What’s the difference between nondeductible and deductible IRAs?

When setting up your IRA account to save for retirement, there are a lot of new terms you might hear. One of the most important things you’ll need to decide is whether you want a deductible or nondeductible IRA. These terms refer to when taxes are applied to the money you save in your account. Here’s what you need to know about the differences between these two types of accounts.

Deductible IRA

With a deductible IRA, you can deduct all of your contributions on your tax return each year. This is a huge financial benefit because it essentially reduces the amount you pay in taxes so you can grow your wealth faster. Many people covet deductible IRAs because they can help them avoid tax burdens and save more money. However, not everyone qualifies for a deductible IRA – it depends on a variety of factors including your income, marital status, and any additional retirement plans you might have through your workplace.

Non-deductible IRA

With a non-deductible IRA, you can’t deduct your contributions to your account on your tax return. This means that you don’t get extra money back come tax time. Non-deductible IRAs are much easier to qualify for than deductible IRAs. Anyone can contribute to a non-deductible IRA if they earn taxable income and are under the age of 702.

Traditional IRAs

Deductible and non-deductible IRA plans are both forms of traditional IRAs. This means that the money that you put into the account isn’t taxed until you make a withdrawal from the account in retirement. Since the account isn’t taxable, it can grow very quickly through the investments you make. Both types of traditional IRAs enjoy this benefit – it’s just that deductible IRAs also enjoy the added benefit of a tax return each year, which gives you money back and essentially rewards you for contributing to the IRA.

If you want to know if you qualify for a tax deduction by contributing to a Traditional IRA, contact the experts at Quest Trust Company. We will help you find the retirement account that is the best fit for your needs.

Setting up Your Future with an Inherited IRA

Whether you have just inherited an IRA from your spouse, parent, or grandparent, an IRA beneficiary can potentially stand to earn thousands, if not millions, on these investments. Inherited IRAs have a few more rules than an IRA you set up yourself, so you can’t just accept the money and forget about it until your own retirement. Depending on the type of IRA you inherit and what you decide to do with it, you may owe taxes on the money or be required to take a yearly required minimum distribution (RMD). Find out more about Inherited IRA rules and how to use them to grow your own retirement below.

What is an Inherited IRA?

When a family member dies and leaves an IRA to a beneficiary, one option for the money is to transfer it to an Inherited IRA. Inherited IRAs have the advantage of allowing immediate penalty-free access to money. However, any distributions on a traditional IRA are subject to taxation and may bump you up to a higher tax bracket since it counts as income. Distributions from an Inherited Roth IRA are not subject to tax as long as the original account holder had the account for at least five years. Any money left in the account will grow tax deferred in a Traditional IRA and tax free in a Roth IRA.

A caveat to Inherited IRAs is that you must take an annual RMD based on your own life expectancy starting by December 31st of the year after the year of death. Spouses are allowed to wait to take their first RMD until the original account holder would have turned 70 ½ if that point comes later than the year after death rule. If the account was a traditional IRA and the original account holder was 70 ½ or older at the time of death, you must ensure they took their required RMD for the year to avoid owing a 50% penalty on that RMD. Even though annual RMDs are required for both Inherited IRAs and Inherited Roth IRAs, you can substantially grow the original amount for your own retirement.

Inherited IRA Growth

If a middle aged beneficiary inherits an account of $20,000 with a 6% return and only takes out annual RMDs, the account can grow to about $31,000 by the time that person reaches retirement. If a 20-year old inherited the same account and took only annual RMDs, the account could grow to $83,500 by the time they reach retirement. Some people name grandchildren rather than children on their accounts so the money has more time to grow. If the account holder names children and grandchildren as beneficiaries, the children can opt to defer the amount to the grandchildren if they don’t want or need the funds. Spouses and non-spouses can also name their own beneficiaries on an Inherited IRA in the event they die before all the funds are distributed. The younger the beneficiary is and the more money they inherit, the more money that person will have at retirement.

Inherited IRAs can be a significant gift to a beneficiary if used wisely. While a beneficiary could distribute all of the funds to themselves in one lump sum, most financial advisors would suggest keeping it in an Inherited IRA to make the most out of the money. Inherited IRAs truly are a gift that keeps on giving.

Roth Conversions — Who, Why, and How

There are many opportunities to help you maximize your retirement investment earnings. One technique many can take advantage of is converting assets from a traditional IRA to a Roth IRA. With a traditional IRA, your yearly contributions are tax deductable now, but you will have to pay income tax on all distributions later on. You will also be required to take a yearly distribution once you reach age 70 ½. With a Roth IRA, you have to pay income tax on your contributions now, but aren’t subject to a tax on withdrawals once you reach age 59 ½. While you aren’t required to take a yearly distribution for a Roth IRA, you still have to leave your funds in your account for at least five years before taking any distributions to avoid penalty, even if you’ve reached the 59 ½ mark. Depending on your income level now and what you expect your income level at retirement to be, a Roth conversion could make sense for you. Below are guidelines to help you decide if you should convert your traditional IRA funds to a Roth IRA.

Who qualifies?

The IRS recently lifted the income cap on Roth conversions, so even high income earners can convert their assets into a Roth. However, just because you can convert doesn’t mean you should. Because you will be taxed on any converted funds coming out of your traditional IRA and won’t be taxed later on distributions from a Roth, it generally makes more sense to convert if you are in a lower tax bracket now than what you expect to be at retirement. If you are in your peak earning years, the taxes you pay on your conversion will be higher than the taxes you would owe at retirement when you start your traditional IRA distributions. If you think you’ll be in the same tax bracket at retirement as you are now but think congress will raise the income tax by the time you reach retirement, it also may make sense to convert to a Roth now.

Why convert?

As explained above, one reason to convert is to save on taxes. Another reason why someone would want to convert is if they were planning on entrusting the IRA to children or grandchildren upon death. This way, the inheritors wouldn’t owe taxes on the funds and could withdraw any time as long as the account met the five year requirement.

Six things to keep in mind

  1. The deadline for converting your traditional IRA to a Roth IRA is December 31st. Don’t confuse this with the deadline to contribute to a Roth IRA, April 15th.
  2. If you need to take a minimum required distribution the year you convert, you must take the distribution before you move any funds.
  3. If you are younger than 59 ½ and use IRA funds to pay for the conversion tax, you will be subject to a 10% fee. It is suggested that you use another source to pay for the tax to avoid unnecessary penalty.
  4. Even though you may qualify for a Roth conversion, there are still income restrictions on direct contributions to the account.
  5. There are no restrictions on how much you can convert or how many times you can convert. If you are going to be in a lower tax bracket for a few years, you can make a conversion each year that doesn’t bump you up to the next tax bracket and save even more on taxes with this method.
  6. Any post-tax funds in your IRA aren’t eligible for conversion.

Converting IRA funds to a Roth IRA may be beneficial to you in the long run, but it is recommended that you talk with your financial advisor about your individual situation before making any final decisions.

Exceptions to the IRA Early Withdrawal Penalty

You might have hit a rough patch financially, or need an extra boost for a big expense, and remember that you have more than enough in your retirement account to pull from for an emergency. The only problem is you haven’t turned 59 ½ yet, so any money withdrawn from your IRA will incur a 10% penalty. Ouch. Luckily, there are a few exceptions to this penalty rule, and you may qualify for at least one of them. Read on to find out when you can accept an early distribution without suffering a stiff penalty for doing so.

  • Education. The IRS allows early withdrawals from an IRA to pay for college tuition, fees, and supplies. They even allow the distribution to be used on room and board as long as the student is at least half-time. The person using the money for education must be you, your spouse, your child, your grandchild, or your parent. One thing to keep in mind when using this method is that any extra income from the IRA may affect your financial aid eligibility.
  • Medical. If you are unlucky enough to need an expensive medical procedure performed that costs more than 10% of your adjusted gross income, you are allowed an early withdrawal to help pay for the expense. The catch is that the expense must not be reimbursed in any way by your insurance company.Another medical related category you may use your IRA money for is toward health insurance if you have been out of work for at least 12 weeks and have been collecting unemployment. The health insurance must be for you, your spouse, and/or your children.
  • Home purchase. If you are a first-time home buyer or haven’t owned a home within the last two years, you may use money from an IRA to use toward buying a home, building or rebuilding a home, for settling, financing, and/or closing costs. The money can also be used by you, a spouse, a child, grandchild, or parent, and must be used within 120 days of withdrawal. A single person can withdraw $10,000 without penalty, and a married couple $20,000 from their combined IRAs.
  • Military. Anybody in the military reserves who has been called into active duty for at least 180 days may take an early withdrawal without penalty. However, they may not take the withdrawal before their orders were given or after their active duty status ends.
  • Disability. A work-ending physical or mental disability will qualify you for an early distribution as long as a physician confirms the disability will result in either death or a continued or indefinite duration. There are no requirements as to what the money may be used for.
  • Death. If an IRA holder suddenly dies, a spouse, child, or other named trustee may make an early withdrawal as long as they claim it as an inherited IRA and refrain from rolling over the account into their own IRA.
    Substantially Equal Periodic Payments. If you’re really in a financial bind and need to use your retirement money for an extended amount of time, the IRS will waive the 10% penalty as long as certain criteria are met. You must take the same amount of money out each time, in which the amount is determined by any one of three IRS methods, for a period of 5 years or until you turn 59 ½, whichever comes later. If you fail to meet these criteria, you may owe 10% on each withdrawal taken.

It’s best to leave IRA funds untouched until you reach age 59 ½ to ensure you have enough to live comfortably at retirement. However, extenuating life circumstances may cause adaptations to the plan. Although the above mentioned exemptions will save you from the 10% early withdrawal fee, you will still have to pay income tax on any funds received from a traditional IRA since all contributions were made tax deferred. With a Roth IRA, you are allowed to make tax-free withdrawals at any time as long as the account is at least five years old and you are withdrawing on contributions only, but not earnings. Remember to always fill out your tax forms correctly to let the IRS know the funds were used under an exempted reason, and always know the rules and limitations of your own IRA.

6 Mistakes People Make with Their IRA

Whether you barely know what “IRA” stands for, or you’ve been contributing to one for years, you could be making mistakes with your retirement fund that are costing you big time. When it’s time to withdraw from your account, you don’t want to discover that you could have been saving more or saving smarter after all of those years of hard work. The earlier you educate yourself on IRAs, the better off financially you’ll be at the time of your retirement, or you may even get to retire early! Below are six common mistakes people make regarding their IRA and how to avoid them before it’s too late.

Not starting soon enough. It makes sense that the earlier you start saving for retirement, the more money you will have at the end. However, few Americans start saving for retirement right out of college, let alone during their first job. After college many people have loans to pay back, rent, bills, and maybe even credit card debt they need to bring down. Retirement might be the last thing on their minds. The thing is, most people won’t even notice a 3-6% decrease in their monthly take-home pay, which can in fact yield substantial future rewards. Teenagers have the greatest advantage because not only are they getting a head start with their savings, but they also have the least amount of expenses their paychecks need to cover.

If you are already well into your 30s, or even 40s, and are becoming increasingly nervous about how far behind in your goal you’re slipping, there are still a few options to give your IRA a boost. Immediately deposit any bonuses, raises, or other extra sources of income into your account as if it never existed. You alone are responsible for your retirement funds, so always research different ways you can increase your bottom line. Some examples are explained in points below; and the more disciplined you are with these actions now, the more comfortable you will be in retirement.
Not saving enough. Few Americans reach the age of retirement and think, “Wow, I have saved so much money for retirement. I could live comfortably for decades!” Sadly, the opposite is often true, and many are forced to work longer than they planned or scramble to find another source of income just to survive. Not only do people start saving for retirement later than they should, but when they do start saving, they don’t contribute enough to meet their goals. In fact, the gap between what the average American actually has saved for retirement versus what they should have saved widens as age increases, suggesting it gets harder to save the older we get. With child related expenses and caring for aging parents, along with life’s typical bills, the average middle-aged couple may find it difficult to justify a partial pay decrease to use towards retirement. However, not contributing at least the maximum amount your company is willing to match (for your 401K) is basically refusing to take free money. If your budget can handle it (usually it can), always contribute your company’s maximum match to effectively double your funds. If you have enough to contribute to both a 401K and an IRA, do so.

Neglecting spousal contribution. You may think that if one spouse doesn’t work, they can’t contribute to retirement; but that’s not the case. As long as a couple is married, file jointly on their tax return, and earn enough money to make double contributions, the non-working spouse can use the working spouse’s income to make payments into their own IRA. Many couples don’t know they can double their funds this way. And, if the spouse ends up working at a later time, they can use the account they’ve already set up to contribute their personal income into.

Neglecting retirement education. From different types of IRAs to when withdrawals should be made, there are many facets of your retirement you need to learn before you make a mistake that can cost you thousands. Know the difference between a standard IRA and a Roth IRA, and which one you qualify for. You might even qualify for both! Learn how and when you can make penalty-free withdrawals and how much you need to be taking out annually once you reach 70 ½ years old. Not adhering to the rules can majorly reduce your hard-earned savings. Lastly, educate yourself and your family members on how the transition of your funds will occur if you were to die suddenly. If they wait too long, they may not have access to the money left to them. Again, you are responsible for your own finances, and learning more now can save you time and money later.

If you don’t have an IRA or 401K, get one immediately. The sooner you start the habit of saving for your retirement, the easier it will be to continue the trend, plus you’ll thank yourself for it later. If you have an IRA, be actively involved in growing it. Never stop researching ways to increase your funds. With a little work and smart decision making, anyone can set themselves up for a comfortable retirement.