Top 5 Reasons to Set Up a Self-Directed IRA this February

Estimated reading time: 3 minutes

We’re a few days into February and right now is a perfect time to begin taking the steps towards securing your financial future. There are countless benefits associated with self-directed IRAs, like tax advantages and investing in what you know best, but it’s important to take action so you can reap the benefits of the tax savings and investment options offered by a Self-Directed IRA. Ensure that you have enough savings to live comfortably in retirement and learn why starting a Self-Directed IRA during the month of February could make all the difference.


1. Widen Your Investment Options: A self-directed IRA provides the account holder with a greater level of control over their retirement investments. Instead of being limited to a select number of investment options offered by a traditional IRA or 401(k) plan, a self-directed IRA allows you to invest in a wider range of assets, including real estate, private equity, precious metals, and more. Of all the IRAs valued above $5 million dollars, 25% of them are self-directed IRAs invested in alternative assets.  In other words, self-direction can allow for exponential retirement account growth by giving you an opportunity to get out of the typical investment you’re used to.


2. Contribute for Last Year and This Year: One of the best ways to help your IRA grow is by making yearly contributions. The good news is that right now, we are in an amazing window that allows account holders to not only begin contributing for 2023, but also for 2022 for those that haven’t already contributed for the tax year. Until April 18th, 2023 you have the ability to contribute for 2022. So, if you haven’t made last year’s contribution, this is the perfect opportunity to maximize your accounts and contribute as much as possible.


3. Investment Diversification: A self-directed IRA can help diversify your investment portfolio by allowing you to invest in alternative assets that may not be available through a traditional IRA or 401(k) plan. This diversification can help reduce risk and improve the overall performance of your retirement savings. The biggest advantage here is that SDIRAs allow you to tailor your investments to meet your specific goals and risk tolerance. Whether you are saving for a specific purpose, such as a down payment on a second home, or simply seeking to maximize your retirement savings, a self-directed IRA gives you the flexibility to create a personalized investment plan that meets your needs.


4. Make More Money for 2023: By being able to invest in a wider range of assets, a self-directed IRA can offer the potential for higher returns than a traditional IRA or 401(k) plan. This is because some alternative assets, such as real estate or private equity, can offer higher returns than traditional stocks and bonds. You’ll also get tax benefits that can help you save for retirement. For example, contributions to a traditional IRA may be tax-deductible, and the growth of your investments within the account is tax-deferred until you withdraw the funds.


5. Take Advantage of Account Opening Promotions All Month Long: This month, you have the chance to take a trip on us as we share the love with our Valentine’s Day promotion! When you open an account with the $100 fee, you will be entered into a drawing with the chance to win a $500 Gift Card for AIRBNB! If you’re ready to get started or have more questions about self-directed, call our IRA Specialists by scheduling a free consultation today.

Everything You Need to Know about Excess Contributions

Estimated reading time: 2 minutes

Making contributions to your IRA is one of the most definite ways to ensure your account is growing each year, but with almost all self-directed accounts having different contribution limits, it can be hard to keep up with how much you are putting into your accounts. 

What happens if you accidentally put too much money into your IRA or contribute more than your earned income? As great as it would be to dump as much money as you’d like into your retirement accounts, there are rules surrounding these limits that can penalize you if not followed or corrected. 

What Is an Excess Contribution?

Generally, an excess contribution is a contribution that exceeds the stated IRA contribution limit, though there are many other ways an excess contribution can occur in an IRA. Reasons they can occur include:

  • Making a contribution that exceeds to annual contribution limit
  • Making a contribution to a traditional IRA after age 72
  • Making a contribution to a Roth IRA when your MAGI exceeds the income limit
  • Making a contribution that is more than your earned income
  • Making a contribution on behalf of an individual after date of death
  • Making ineligible or improper rollover contributions
  • Rolling over required minimum distributions 

Understanding when excess contributions occur is important, because contributions that are not corrected are taxed at 6% per year for each year the excess amount stays in the account. That means if you don’t fix the contribution, you’ll owe the penalty each year when you file your yearly income tax return. 

Correcting Excess Contributions to IRAs

The good news is there are solutions if you find you’ve made a mistake! If you discover that you’ve contributed too much, you can remove the contribution and any income it has earned before filing your tax return (including extensions) to avoid the 6% penalty. Or, if you find that you’ve contributed too much after the October 15 extended deadline, you can typically carry the excess contributions forward as an IRA or Roth IRA contribution for that subsequent year. Just be sure to reduce your contribution by the amount you carried forward, or you might exceed the limit again for the next year!

If you think you’ve made a contribution that exceeds your annual limit and need help correcting it, or you’d simply like to get more information about excess contributions, we can help! Schedule your free consultation with an IRA Specialist today by clicking HERE.

How to Make a Contribution to Your Account

Estimated reading time: 3 minutes

One of the easiest ways to help your account grow is by making yearly contributions. Putting in a set, allowable amount every year can propel your account forward without the funds ever touching an investment. Of course, doing investments in the account will help you make the most of your self-directed IRA and the compound interest from investments, but remaining diligent with your contributions is always one sure-fire way to know your account is growing each year no matter what. 

With half of the calendar year gone, the amount of time you have to contribute for the 2021 tax year is creeping closer than it might feel like! Rather than waiting until the last minute to get your contributions in, decide if it makes sense to send your yearly contributions in now. The last thing you want is to be left scrambling at the last minute, so make sure you’ve done all you can to maximize your accounts for the year and plan accordingly for your yearly contributions. 

How Much Can I Contribute to My Self-Directed IRA

Every year, the IRS sets certain limitations on the amount you are able to contribute to your IRA per year and there are specific requirements and rules that must be met in order to contribute to certain account type. Contributions aren’t required, though, so you don’t have to make a deposit every year. If you do choose to maximize your IRA contribution for the year, make sure you’re aware of how much you can put in each account.

Find the amounts below by clicking on the account for more information:

How do I Make a Contribution to My Self-Directed IRA

When preparing to make your contribution, it’s important to remember that all IRA contributions must be made via check, wire transfer, or ACH. Quest Trust Company cannot accept cash or 3rd party services, such as Paypal. We also ask that you always note which tax year the contributions are for. 

When sending in your contributions, all funding methods should have the correct vesting (Quest Trust Company FBO [Client Name] IRA [Client Account #]. If you plan to send your contributions electronically, you can find the Delivery Instructions in your Client Portal.

If you prefer to send in a check, you can send those to: 17171 Park Row Drive, Suite #100, Houston Texas 77084

As always, if you have questions, feel free to call in to our office at 281.492.3434 or schedule a consultation with an IRA Specialist HERE.

2021 Contribution Limits: IRAs and Beyond

Estimated reading time: 5 minutes

Self-Directed IRAs (SDIRAs) are some of the best vehicles when it comes to receiving tax benefits when we use them to invest. Common ways to fund an IRA are by using methods such as rollovers from previous employers or transfers from other IRA accounts, but personal contributions may also be another way to help these accounts grow. 

Although it would be nice to contribute as much as we wanted, every year specific limitations are set by the IRS on how much money individuals can contribute to their IRAs and other tax advantaged retirement accounts. Now that the 2021 contribution limits have been announced, we’ve listed those limits here for you.  

Personal Plans

Traditional and Roth IRAs are both considered personal plans, and often follow similar guidelines on their limits. For 2021, the contribution limits for Traditional and Roth IRAs remained the same as 2020, but some other accounts did see an increase. 

The 2021 contribution limit for Traditional and Roth IRAs is $6,000, with a catch –up contribution of $1,000 ($7,000 total) if you’re age 50 or older. In order to make a contribution to these two accounts, one must have “earned income”. Earned income includes money such as wages, salaries, bonuses, commissions and self-employment income. Disability retirement benefits can also be considered earned income in some cases. 

Anyone can contribute to a Traditional IRA if they have earned income, but in some cases, you may not be able to directly contribute to a Roth IRA if you make too much money. Certain limitations have been placed on Roth IRAs that state if your income exceeds a specific amount, you are ineligible to directly contribute. 

2021 Traditional IRA Deduction Limits
2021 Roth IRA Income Limits

If you find that you do make too much money in 2021 to contribute to a Roth IRA directly, there’s always another option. A “Back Door Roth Conversion” could allow you to fund a Traditional IRA by making a non-deductible contribution and then convert it to a Roth account afterward, allowing you the benefits of a Roth IRA. If you have questions on Roth Conversions, don’t hesitate to contact one of our Certified IRA Specialists.

Remember. You are never required to contribute the maximum amount allowed, but in order to contribute up to the contribution limit, you must have enough earned income to cover the contribution you make. 

Employer Plans

Traditional and Roth IRAs are not the only plans with contribution limits. Self-employment plans are also subject to potential income changes. Retirement accounts such as the SEP IRA, SIMPLE IRA, and Solo 401(k) contribution limits were also reviewed for 2021. 

For SEP IRAs, the IRS increased the limit from $57,000 in 2020 to $58,000 for 2021. Like the SEP IRA, Solo 401(k)s followed the same pattern. The Solo 401(k) salary deferral amount stayed the same at $19,500 but the defined contribution maximum limit increased from $57,000 to $58,000, with an additional $6,500 catch-up contribution ($64,500 total) for those 50 or older. 

The Savings Incentive Match Plan for Employees, also known as the SIMPLE IRA, is the final employer plan offered at Quest. This account, often used by small businesses, did not see a change for 2021. The contribution limits for SIMPLE IRAs remained the same for 2021, which means employees under 50 can contribute up to $13,500, while those 50 and over get a $3,000 catch-up ($16,500 total). 

SIMPLE plans typically require the employer to match each employee’s salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee’s compensation, also. For more information about employer matching contributions and any 2021 changes, visit the IRS website on SIMPLE IRAs. 

Special Plans

Health Savings Accounts (HSAs) and Coverdell Education Savings Accounts (ESAs) are the two final tax-advantaged accounts that Quest offers, both which follow the IRS contribution rules and guidelines. For these accounts, when you take the funds out for qualified medical or educational expenses, the distributions are tax-free! So, how much can you put contribute to them in 2021?

The annual limit on HSA contributions for 2021 saw a minimal increase. It will be $3,600 for self-only and $7,200 for family coverage, which comes out to be right around a 1.5% increase from limit in 2020. For those over the age of 55 or older, there is an additional $1,000 that can be contributed to the account. 

Minimum deductibles for HSAs saw no change for 2021, yet maximum out-of-pocket amounts did increase by $100 for individuals with self-coverage. It increased by $200 for those who have family coverage.

Lastly, the Coverdell ESA has a contribution limit of $2,000 per year per child. This means, each child in one household could each receive a $2,000 contribution to their ESA per year. There was no change from 2020 to 2021. 

Key Takeaways

Although each plan works a little bit different, the existence of a contribution limit remains a similarity. Understanding contribution limits will not only allow you to maximize your retirement account each year, it will also help you grow you future wealth faster! For more contribution questions, check out the helpful chart below or call an IRA Specialist at 855-FUN-IRAs (386.4727) and start preparing for your 2021 contributions!  To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

2021 IRA Contribution Limits

Getting the Most Out of Your Annual Self-Directed IRA Contributions

Estimated reading time: 3 minutesSelf-Directed IRA ContributionsContributing to your self-directed IRA every year is vital for your financial future. But not everyone does all they can to extract the most value out of their annual retirement contributions. With that in mind, here are some tips for doing so.

Invest Early. You can get the most out of your annual contributions by depositing them into your self-directed IRA as early in the tax year as possible. Ideally, you should deposit the full annual limit (for 2023, $6,500 for most taxpayers, and $7,500 for individuals age 50 or over) on January 1 of each year.

Consider two individuals, one of whom makes a $5,000 annual contribution to their IRA every year in January 1, and another who waits until December 31 to make the same contribution. Assuming a modest 6% return, after 20 years the first taxpayer will have over $10,000 more in their account than the second, even though they deposited the same amounts during the same tax years. Simply by virtue of giving their money a little extra time to grow, the first taxpayer has a noticeably larger nest egg. When the rates of return are higher, and the timeframe longer, the difference is even more pronounced.

Diversify and Balance Across Your Other Accounts. Another way to get the most out of your self-directed IRA and the contributions you make each year is to use your account to diversify and balance your investments across all of your accounts.

Think of it this way: there’s a good chance that your overall investment portfolio (taking into account not only your retirement accounts but also your taxable investment accounts) include a range of asset types –income-generating assets as well as non-income generating assets that are more focused on capital gains. By prioritizing more of the income generating assets in your self-directed IRA (where such income will either be tax-deferred or tax-free), you may be able to save significant amounts on your tax bill.

Target Your Retirement Timeframe. You can also maximize the value of the annual contributions you make to your self-directed IRA by taking advantage of the freedoms you have with this account. Self-directed IRAs allow you to invest in highly illiquid assets such as real estate and private equity, which are ideal for some longer-term investors.

The True Value of a Tax Deduction. Remember that many other factors can impact your tax burden. One way to see exactly how much a contribution to a traditional self-directed IRA versus a raw self-directed IRA can save you on this year’s taxes is to prepare two different draft versions of your tax return and compare the numbers. If a $6,000 contribution to a traditional self-directed IRA only nets you a couple hundred dollars savings on your tax return, then you may wish to make a contribution to a Roth account instead. Some taxpayers maintain one of each account type, and then make their contribution to whichever account maximizes their utility in any given year.

The bottom line is to contribute to your self-directed IRA every single year, to the greatest extent possible. You can’t go back and catch up later if you miss the opportunity to make the maximum contribution in a particular year.