Buying Real Estate in an IRA: Understanding Why and How

As Americans have become more interested and involved in their retirement options, Self-Directed IRAs and the opportunity to invest in non-traditional assets have been gaining popularity. One of the more common alternative investment opportunities inside of a Self-Directed IRA are Real Estate assets. 

Many people are looking to diversify their retirement portfolios with tangible assets like Real Estate, after dealing with the often uncertain public stock market. With Self-Directed IRAs, you have the option to invest in all sorts of Real Estate assets such as single-family homes, multifamily and commercial properties, mobile homes, land, and so much more.

Real Estate in an IRA

Holding Real Estate assets in your Self-Directed IRA has many benefits. Many investors enjoy the freedom and security that comes with knowing all of your ‘nest eggs’ so to speak, are not sitting in one basket. Diversifying your portfolio with tangible and non-tangible assets is a great way to give yourself financial security, no matter what the markets may look like in the future. 

Self-Directed IRAs also allow you to hold assets with notably high returns on investments. Real Estate investments have been shown to produce results that are double and sometimes even triple the original price. When these transactions are done inside of an IRA– a tax-exempt vehicle– investors have the potential to grow their Self-Directed IRAs to the millions. 

When you’re ready to start investing in Real Estate in your IRA, it is important to read up on the structuring rules and limitations of the IRS, in order to protect yourself and your investments. For example, when doing a Real Estate investment in a Self-Directed IRA, many people assume that an LLC or other 3rd party entity is needed, in addition to the IRA. While this method makes sense for some investors, it is often not the simplest way to structure a deal. 

First, know that an IRA has the ability to purchase an investment outright– there is no need for a middle entity. Second, if an intermediary entity is created, you will need to be aware of disqualified parties to your IRA.  The term “disqualified parties” refers to those individuals that the IRS has said cannot benefit from or enter into transactions with your IRA. 

For more information on how to keep your IRA working for you and protecting your retirement, visit IRS.gov, and check out the many educational resources available to you at questtrustcompany.com.  Click here for an article on IRA Prohibited Transactions.

How to Use a Self-Directed IRA to Buy a Real Estate Investment

The process of buying a Real Estate asset in your Self-Directed IRA is quite simple. Since these accounts are Self-Directed, your first step is to locate an investment of your choosing. Once you have selected the property you would like to purchase within your IRA and you have completed the due diligence on your investment, you can complete your investment documents and work with your custodian to get your deal funded. 

Unlike when you make a Real Estate purchase from your personal funds, with a Self-Directed IRA, you MUST draw up the offer/contract in the name of the IRA. For example, if the buyer is a Quest client, the buyer’s name on the offer/contract reads: Quest Trust Company FBO [CLIENT’S FULL NAME] [IRA/HSA/ESA] # [ACCOUNT NUMBER]. It is important to make sure the vesting is correct to show that the purchaser is the IRA and to protect your investment. When listing the buyer’s address, it works the same way. Since the IRA is held by the custodian, you would use the custodian’s address. 

Oftentimes, custodians will have internal forms that will need to be completed at the time of investment. These forms will require the client to sign, giving their approval on the funding. Once all the proper documents are signed, the custodian will work with the 3rd party closing agent to close your Real Estate purchase. Since the custodian is the legal entity in administration of your IRA, the client will not have to attend any closings. Click here for steps on purchasing Real Estate in your Quest Trust IRA.

Maintaining Real Estate in an IRA

Real Estate investments usually come with ongoing responsibilities, such as property taxes or maintenance, and you will want to know what to do when those situations arise. First, it is important to understand that your IRA owns the investment, and it will need to be the IRA that pays for any expenses that are incurred. You cannot pay for any expenses out of your own pocket, as this would be a prohibited transaction. When an expense needs to be paid, you can contact your IRA custodian and follow the steps that they provide to have the IRA pay that expense. 

This may seem like an extra step, but it’s extremely important to maintaining your investment security. Paying any expense out of pocket for your IRA’s Real Estate asset is a prohibited transaction. You never want to jeopardize your growth potential by engaging in a prohibited transaction, so following all of the IRS’s rules and guidelines is imperative. If there is ever a situation that you have questions about, call your custodian and they will be happy to provide you with the education to help you make the best decision for your account.

When deciding to do a Real Estate investment in your Self-Directed IRA, be sure to choose a custodian that is familiar with the investments you plan to do. Time is a crucial factor in investing, especially in Real Estate, so finding a company that works fast and has ample knowledge on your types of investments will save you from missing out on a great deal. 

If you ever have a question about purchasing Real Estate in your IRA, call a Quest Trust IRA Specialist at 855.386.4727 and we can answer any questions you may have!

Paying for Educational Expenses TAX FREE – Comparison of the Coverdell and 529 Plans

With the new school season just around the corner, you have probably already started working on your schools supplies lists. However, the beginning of the year isn’t just the only time you spend money for school. 

Materials for projects, electronics for homework, maybe even school uniforms and tuition are things that come at all times during the school season. Wouldn’t it be nice if the money used for purchases were exempt from federal income taxes? They can be, and there are investment plans that allow you to do this! 

The Coverdell Education Savings Account and 529 are similar education plans that allow you to save for college and other education, but their differences can determine which one is best for you. Some plans, like the Coverdell ESA, allow you to diversify your investment portfolio by doing alternative investments like self-directed real estate or notes, for example. 

In this article, we’ll cover the main differences and similarities so that you can get a feel for which account may best fit your needs.

The Coverdell and the 529 are both used for education, and this is the most common similarity. What does education cover? The good news is… that answer is very broad. Educational expenses can cover everything from school supplies like binders and notebooks, to college textbooks and internet if the school program requires it for the class! 

Another important similarity is that the account holder always maintains control of the distribution of funds, and the taxes grow tax-deferred until distribution. If used for qualified educational expenses, these distributions are completely tax-free! Non-qualified expenses that are withdrawn could be subject to federal tax and 10% penalty. 

What can you use these accounts for:

Their differences are where the two accounts are set apart. Though they are both great accounts that can be used for education, one account allows you to begin using it earlier than the other. 

The Coverdell ESA funds can be used for qualified expenses from pre-k all the way up to college, whereas in the past, the 529 plan funds can be used for qualified college expenses only. With the recent tax reform bill, you’re now able to use $10,000 from a 529 to pay for expenses K-12. This is usually something to consider if one was needing to use the funds sooner rather than later. 

How much can you contribute?

Another difference is the contribution limits. With a 529 plan, the limit varies by state, whereas the Coverdell remains the same across the board (for 2020, it is $2,000 per child, per year until the child reaches age 18). 

One unique characteristic of the Coverdell ESA, is that even though contributions must stop at age 18, the account can remain in that child’s name until age 30 or it can be passed along to another child who qualifies. 

In order to contribute to a Coverdell ESA, the adjusted gross income of the depositor must be less than $100,000 if single, or $220,000 if married and with a 529, there is no restriction.  

It is important to note that gift contributions can be made to a Coverdell. This means that if a contributor had an income over the limit, another person could contribute in his or her place. For example, if a child’s parents made too much, but had grandparents who were under the income limit, they would be able to contribute to the Coverdell if they wanted.

What can you invest in?

The biggest difference is who is in control of the investments. With a Coverdell, the account holder has the option to choose his or her own investment. Oftentimes, Coverdell accounts are seen involved in real estate investments and even private loan partnerships. 

With a 529 account, the state government controls the funds and invests them for you. Deciding whether you want to take control of the account or let the state take care of it will be important when picking which education account is best for you. 

Coverdell ESA and 529 are both beneficial accounts to have for school savings and qualified educational expenses. However, both come with their own freedoms and restrictions. 

It’s up to you to decide how much control you want to have over the account and how you anticipate your future spendings. If you ever want more information about the Coverdell ESA or have questions about which plan might be right for you, call an IRA specialist at 855-FUN-IRAS (855-386-4727).

Tapping Into Trillions: Using Self-Directed IRAs for Private Funding

Whether you’re a first time home buyer, an experienced fix and flipper, or an expert in rentals, one aspect will be present for almost everyone: funding. Investors will always need money for deals and sometimes the traditional bank loans aren’t possible for everyone. Others just prefer the flexibility of being able to work out a deal on their own terms. 

There’s plenty of options available, but private lending by using self-directed IRAs has proven time and time again to be an option many investors seek out when it comes to their real estate or other alternative investments. 

According to a recent study from the Investment Company Institute, $28 trillion dollars were in retirement assets, and of that, $9.2 trillion dollars was reported to be in IRAs alone. With that much money available for use in IRAs, it’s nearly impossible not to be curious about how to use those funds for private funding. 

For lenders and borrowers alike, private loans with self-directed IRAs have provided opportunities for successful deals and have given investors the ability to have options. Whether you’re looking to borrow private funding or loan out your own, here is everything you need to consider when getting involved in a private loan!

Why Private Lending?

As mentioned, sometimes a normal loan from a bank or hard money lender just doesn’t work for unique situations. Especially in a market like real estate where investors are seeking to get creative with their strategies, having an option like private financing is almost necessary. 

With a Self-Directed IRA, investors can choose to loan out their retirement funds on their terms, as decided and agreed upon with the person borrowing those funds. These agreements are usually more customizable than regulated bank loans, and typically the interest works out in favor for the investor, making it a great investment for a self-directed IRA. 

Private loans also give the investors the ability to collaborate when doing the loan. Maybe one investor doesn’t have the ability to loan out the full amount of funds a borrower is needing, but the flexibility of a private agreement makes it possible for two or multiple people to come together to supply the total amount to loan out. This flexibility also comes into play with timing, too. 

Private loans are ideal when needing to purchase property in a short period of time, whereas it sometimes can take a while when applying for a traditional loan. 

Considerations When Private Lending

Just as banks have a certain set of criteria when vetting someone for a loan, private lenders typically do, as well, although the requirements are usually different and much fewer.  Things that a private lender may consider when deciding to lend are the borrower’s credit scores, the investment loan to value ratios, the amount of time the investment may last, and if in the event the money was not paid back, is that investment something the investor would want to own. These are just a few considerations a lender may have. 

As a borrower, it is wise to have a success book (if applicable) and be able to properly present your investment. Usually, when seeking a private loan versus a traditional loan, there is a higher approval rate for borrowers. 

Borrowing from a bank can be time consuming and stressful, but private lending doesn’t have to be. Whether you’re a borrower looking for capital, or an investor with money looking for a good deal, private loans with a Self-Directed IRA have proven to be great investments that are flexible enough to work for everyone. 

If you have questions about how Self-Directed IRAs can be a source of private financing, feel free to give one of our IRA Specialists a call today at 855-FUN-IRAS.

Making Money Moves: Understanding IRA Transfers and Rollovers

When you leave your job, one of the things you will have to consider is what you will want to do with your old 401(k). A common option is to roll it over into an IRA at a custodian who can help invest your money in publicly traded investments. For some people, this is great. However, for those who want to take true control of the hard-earned money they have been saving and have the options to diversify their investment portfolio… they take a different route. Moving your old 401(k) into a Self-Directed IRA, like the accounts we have at Quest, allow investors the option to put their money in alternative investments and privately held assets. Even for those who may already be investing an IRA and do not have a 401(k) anymore, your investment options expand whenever you perform a rollover or transfer into truly self-directed IRA.

What Account Do I Move My Money To?

Moving your money between accounts might seem like a daunting task at first, but we’ve broken it down to explain the way retirement accounts move. One of the first couple of things you will want to ask yourself are “What type of self-directed account do I want to have?” and “What type of account do I currently have?” Asking yourself these two questions will help you make sure you move your funds to the correct self-directed accounts. Not all IRA accounts have the same tax benefits, and it is very important to remember what tax advantages each account has, that way you can always do your best to accurately move your funds to the correct account, keeping the taxes the same. This eliminates tax reporting you could create for yourself and ensures the smoothest movement from one custodian or entity to another.

So, what’s the actual difference between a rollover and a transfer?

How do you know when to initiate a transfer or when to do a rollover? These terms often get confused and misused, but they have very certain traits that define the type of movement they perform. It’s important to know the difference between the two, also. The most distinguishable difference is that an IRA transfer occurs when you move funds between like accounts or one IRA to another IRA, for example Traditional IRA to Traditional or Roth IRA to Roth IRA. If you want to move money between two different types of retirement accounts, for example a 401(k) to IRA, that’s would be considered a rollover. Rollovers between IRAs can be done, but certain rules are attached when this movement occurs.

IRA to IRA rollovers can occur, but it’s very important to be aware of the rules. Often times, custodian processing times can vary anywhere from a couple of days to weeks; this will depend on your current IRA custodian’s transfer procedures. If you don’t want to wait on a custodian to go through the transfer process, you do have the option to do what is called a “60 day rollover”, meaning you have 60 days from when you get the funds to put the funds back into an IRA account In this scenario, the funds are sent to you and you are responsible for putting them into a retirement account. Whatever portion is not rolled back into an IRA will generally be taxable and subject to a 10% penalty. You are limited to doing only 1 of these IRA to IRA rollovers per year, and if you exceed this number, the second rollover is then treated as an excess contribution.

There are other characteristics that define the two, and rollovers have certain rules that must be followed. This chart outlines the common characteristics of a Transfer vs a Rollover.

How do I initiate a transfer/rollover?

Now that you know the difference between the two and have decided which is going to be the best for you and your account, you can begin moving your funds. To initiate a transfer, you will want to complete your receiving custodian’s Transfer Form by printing and sending back a completed copy to the office. This will allow the receiving custodian to send this off on your behalf. Some custodians will require original forms, notary or medallion stamps, and statements of your current; others will simply accept a fax. Calling your self-directed custodian can help during this process if you are unsure of a custodians requirements. Once the form is sent, the last step is to simply wait for the funds to arrive back at your new account. It is helpful in the meantime or even before, to let your current custodian know you want to liquidate your assets that way your account is in a cash state. This can eliminate rejections that can sometimes occur when transfer requests are made. Typically, within a few days or weeks, the transfer will be complete.

If you are going to be initiating a rollover, you will need to be aware that there are usually more forms for this movement, often at the former employer or custodian. Distribution paperwork from the employer you are leaving or the IRA custodian you are moving from is customary. Contacting them to provide your account number and any delivery instructions on their distribution forms will need to be done in order for this movement to occur. The custodian receiving the funds may have an internal form (like the Rollover Form) that will need to be completed for the incoming funds, but it’s important to note that this form does not initiate the actual movement. That is done by the account holder initiating the distribution/rollover request from the previous/former custodian.

If you ever have any questions or need assistance, call us at 855-FUN-IRAS and a Quest representative can help with this process.

There’s no need to be intimidated when rolling over or transferring IRA funds. From beginning to end, the process is quite seamless once you understand the different types of movements and their processes. At Quest, we have a whole department focused on the portability of your funds and can help with a transfer or rollover question you might have. If you’re ready to start moving your funds over to a self-directed account to invest, let us know how we can help with the process or simply provide more education! For more information, visit www.questtrustcompany.com .

Here is a helpful portability chart to help you decide which accounts can be move between each other!

Check out this video on how to fund your Quest account today!

Can I Move My 401k Into a Self Directed IRA?

Did you know 45% of Americans fear they will run out of money during retirement?

If you have started taking more steps towards planning for retirement, then you are already ahead of the game. Those who want to be more in control of their money typically like to explore the options available, like a self-directed IRA.

What Is a Self-Directed IRA?

In short, a self-directed IRA has many similarities with other traditional IRAs. With a self-directed IRA, you can get tax advantages that will help you save for retirement. 

However, it’s essential to keep in mind the IRS will limit the types of investments you make. The IRS will allow your self-directed IRA to make investments in real estate, developmental land, mineral rights, cryptocurrency, and livestock. 

How Does a Self-Directed IRA Work?

If you plan to switch to a self-directed IRA, the first step is to pick a custodian from a brokerage or investment firm. The custodian’s job is to manage the IRA assets and coordinate the sale and purchase of the investments. 

Keep in mind the same rules of a traditional IRA apply to self-directed IRAs. For 2020, the maximum IRA contribution is capped at $6,000. However, those over the age of 50 can make an additional contribution of $1000 to catch up. 

Who Should Switch to a Self-Directed IRA?

If you’re wondering about switching to a self-directed IRA, it’s important to learn if it’s the right move for you. Those who decide to switch to a self-directed IRA do it for several reasons. 

You want to diversify your portfolio and plan to split your savings between a conventional IRA and a self-directed IRA.

You’re worried about your retirement investments after the 2008 financial crisis and want a safer investment. 

You’re an experienced investor in a specific type of investment, such as real estate. 

How to Set Up a Self-Directed IRA?

To qualify to set up a self-directed IRA, you need to fulfill specific requirements. For starters, you need to prove you earned taxable income during the current financial year. 

Some employers might offer their employees the option of enrolling in a self-directed IRA.

To set up a self-directed IRA, you can start by requesting the transferring of funds from the traditional IRA to the new one. Some people choose to transfer any profits they make into a self-directed IRA. Another way to do it is by deferring income directly to the account.

Can You Move Your Managed 401k?

The short answer is yes. However, you need to consider if it’s the right move for you. Remember to learn how a self-directed IRA works, who can benefit from one, and all pertinent details. 

A self-directed IRA could be a great move for you. Contact a Quest Trust Company IRA specialist today for a consultation.

How to Invest for Retirement

Are you looking to start saving money for retirement? There’s no time like the present to build a nest egg. With a few key tips in mind, you can put yourself on a path toward retiring comfortably.

Keep reading to learn about a good retirement investment strategy!

Start Your Retirement Investment Strategy Early

By investing early, you can take advantage of compound interest, which is interest earned from interest. In other words, the beauty of compound interest is that it helps your nest egg grow more quickly. So start investing early!

If you have even a few hundred or a few thousand dollars that you can stash into a retirement account, it’s worth doing that as early as possible. You could end up with a lot more money by the time you’re 65.

Invest For the Long Term 

Knowing how to invest for retirement means being patient. When you start to see returns on your investment after a few weeks, you may be tempted to withdraw money and start spending.

You might want to resist that temptation. You’ll make more money if you keep the money invested for as long as you can. Have enough money in your checking account that you can access for daily needs, but avoid touching the money you designate as retirement savings.

The More You Save, the More You Can Invest

Many experts recommend saving 20% of your monthly income each month. If you get a new job with a higher salary or find yourself with excess money to burn, stash it away — don’t spend it. The more money you can save, the more money you can invest in an account where it can grow.

Do the Research

Before you get started moving money around, put in some time to understand what you’re doing. Read up to know which IRA is a good choice, or what equities and bonds are best for your investment goals. Know what a brokerage account is, and also make sure that you talk with your significant other about retirement goals.

Randomly funneling money towards accounts that are not diversified is never a good idea. When in doubt, talk with a Quest Trust Company IRA specialist to make sure you’re clear about how your money can grow.

Take Advantage of Workplace Retirement Savings

If your company has a 401(k) matching program, make sure that you are enrolled. For example, if your company offers a 4% match, that means they will contribute 4% of your income if you do the same. That translates to 8% of your income going into a retirement account.

This is an easy way to start saving, and if you use it in conjunction with another account, you’ll be in good shape!

The Bottom Line

Make sure that investing is a priority in your life. If you want to have a comfortable retirement, it’s critical to get your money working for you. And with a little belt-tightening and a retirement investment strategy, you can do it!

When you’re ready to start learning how to invest for retirement, contact us to open a Quest account and we will be happy to help you!

Understanding Self-Directed Employer Plans and Which One Is Right For MY Business

Self-employment can be a blessing and a curse! On one hand, you control your own hours and you can proudly say that you are your own boss, but the privilege of being in charge also comes with responsibilities and the important matters always fall on your shoulders. The good news is that being self-employed in the world of IRAs is great! As a small business owner, you have plenty of employer plan options! From the common plans like the SEP IRA and the Simple IRA to the powerful Solo 401(k), there are plenty of options to save for retirement that fit each accountholder’s needs.

But how do you know which one is best for you?

As you begin researching all the accounts and their difference and similarities, you’ll want to examine exactly where you stand and what you’re aiming to accomplish. Take a moment and ask yourself…”How many people do I employ?”, “How much am I looking to contribute?”, and “How much management am I willing to put in?” There are no wrong answers, but they are all important factors to take into consideration when reviewing your options.

There are three main self-employed plans: The SEP IRA, the Simple IRA, and the Solo 401(k), all which are offered at Quest Trust Company. Each plan has something special to offer, so below we have listed the important information you should know about each one.

SEP IRA

The most common plan for self-employed individuals is the SEP IRA, or Simplified Employee Pension plan. Like the Traditional IRA, the plan allows for tax-deferred benefits for individuals who are self-employed, own a business, employ others, or earn freelance income. SEP IRA contributions are considered employer contributions, so the business makes them to you as the employee. SEP accounts are good accounts for business owners with one or just a few employees. Since you need to treat all employees the same as you, keep in mind that if you end up hiring people, qualified workers will receive the same percentage from your employer contribution as you do. With a 2020 contribution limit of up to $57,000 or up to 25% of your wages, this account is highly sought after for self-employed individuals who want to contribute a large portion to their retirement plan! Additionally, those contributions are tax-deductible, making this a great account for some!

SIMPLE IRA

The SIMPLE IRA is another plan, and there are many great similarities, and also differences, that make this another highly sought out self-directed employer plan. The taxes work the same way as a Traditional IRA account would, with the taxes being deferred, but contributions are able to be made by both employer and employee. Usually this plan is great for employers with about 100 or less employees. For contributions, the employer provides matching contributions up to 3% of the employee’s pay, not limited by any annual compensation limit OR make non-elective contributions equal to 2% of the employee’s compensation. One special characteristic that this plan has that the others don’t is it’s portability. When looking to move a SIMPLE IRA, employees must wait two years from the time they open the account before transferring those funds into another retirement plan. There may be a 25% early-distribution penalty if one were to withdraw money from a SIMPLE IRA during the two-year waiting period.

SOLO 401k

Lastly, one of the most powerful self-directed accounts is the Solo 401(k). Many people seek this account because of its many benefits, but it also has some downsides and things to be aware of. Something to note is that these plans are usually best suited to business owners who do not have any w-2 employees. As opposed to the other two plans, the Solo 401(k) boasts exemptions from certain UBIT tax, offers the ability to do loans to yourself, and even allows for checkbook control, arguably the most enticing. Additionally, the owner can make contributions as both employer and employee, allowing up to $57,000 in contributions, with a catch up contribution of $6,500 for those 50 or older. With so many positives, there will be negatives, too. One requirement is that the account holder has sole responsibility when it comes to tax reporting requirements; it’s important to make sure records are kept. Another important thing to note about the Solo 401(k) is that in order for it to be legitimized, the account holder must make a contribution in the year the account is opened. Once you have learned the benefits and dangers, deciding if the Solo 401(k) is right for you will be easy!

The main thing to understand and take away is that there is no one right employer plan. What works best for you may not be the most common, or the most well-known, but each employer plan has it’s unique benefits. And remember, one of the best things about employer plans is that you can use them for investing with your company, but if you want to create personal wealth for retirement, you can also have a Traditional IRA or a Roth IRA at the same time, allowing the best of both worlds! Once you have an idea of what you’re looking for, you’ll be able to measure which plan is the best fit for you, and if you ever need more information or help deciding which employer plan might be best for you, feel free to call a Quest Trust representative at 855-FUN-IRAs (855.386.47.27).

Want more information on how to invest with an employer plan? Check out this video about employer plans, who qualifies for them, and what it means for you and your small business.

The “Perfect Time” to Contribute to Your IRA might be TODAY!

A common question you hear in the retirement world is “how can I retire comfortably”, and we are constantly reminded how important it is to save for the future. IRAs (Individual Retirement Accounts) and Solo 401(k)s are some of the best tools created for those who choose to save money and create wealth for retirement through investing. Vehicles like this provide tax advantages for retirement savings, deferring taxes until distribution age or potentially making it to where an individual never has to pay taxes on growth at all!

But what do you do with your IRA when a global epidemic hits and all of your plans shift? More recently, THIS has become the most common question. At first glance, the thought of maximizing your IRA and the contribution limits of IRAs can seem intimidating. Setting aside hefty sums of money for the future may not seem all too appealing when you really need it now! The truth is, contributing to a retirement plan just may not be an option for each and every person right now and that is okay! For those who can take advantage of building their IRA during this time, understanding many different ways and options to maximize it to the highest potential is important.

As a savvy saver and intelligent investor, you know that there will always be benefit to maximizing your IRA contributions every year. In order to better your future, we have broken down how you can max out your contribution limits! In reality, maximizing your contributions now builds a more stable financial future for you and your family, especially when considering compound growth when each new investment makes a profit. The good news is, if you have not made or contributed all of your 2019 contribution limits, you still have ONE MORE DAY to do so.

Normally, Tax Filing deadline falls on April 15th every year, cutting off the ability to make any more contributions for that specific tax year. With the recent CARES Act the normal April 15th deadline has been extended, allowing individuals to make IRA contributions until July 15th 2020 for the 2019 tax year. Utilize the extended deadline! With that extra time, those who may not have been able to contribute or may have forgotten have one more day to contribute until the new deadline. That change could potentially have allowed some people more time to find a new job if they had been laid off, in turn giving them the ability to contribute to their IRA!

It is extremely important to understand how much you are allowed to contribute per year, though! In theory, it would be great to dump thousands of dollars into a tax sheltered retirement vehicle, but Uncle Sam has put some limits on how much we can contribute to our IRAs per year, and if those rules are broken, there could be excess contribution penalties for doing this transaction! Choosing a good custodian that will help you monitor this just like Quest, is very important, too. The table below outlines the contribution limits for 2019 and 2020 for the accounts that Quest offers.

Some of the things you may want to ask yourself are: “Have I maxed out my 2019 contribution?” and “With this extra days I have, could I contribute more and how much?” Understanding that COVID unexpected expenses are occurring for many people right now, considering how that amount can be divided as opposed to a lump sum deposit could be worth thinking about, as well.

Did you know you could have multiple IRA accounts and max them ALL out? Yes, you read that right! Quest and other custodians usually offer many different types of accounts, as well. Just as we mentioned above, just here at Quest we have 7 different types accounts and almost all of these accounts have varying contribution limits. Granted, there are certain limitations that still apply when maxing out different types of accounts. For example, you wouldn’t be allowed to open 20 Roth IRA accounts and contribute the maximum to every account; this would need to be spread across the accounts up to the limit. But as you can see, there are categories that show Personal Plans, Employer Plans, and Specialty Plans. Each of these categories, if you qualify for them, contain plans that can all get a contribution!

You may be wondering what the difference is between Personal Vs Special Vs Employer. When we talk about personal plans, we are referring to retirement plans that one can open as an individual with earned income. Employer 401(k)s often roll over directly into a personal plan like a Traditional or Roth IRA, making them very common retirement vehicles. Another plan category many custodians offer are Employer Plans. Some individuals work for themselves! For the certain ones who are self-employed and pay themselves self-employment income, they can qualify for specific accounts that allow for much higher contribution limits. Lastly, companies may offer Specialty Plans. At Quest, our specialty plans include the Health Savings Account and Coverdell Education Savings Account. These two plans have been deemed “special” due to the fact that individuals can take tax free distributions from these accounts for qualifying expenses! As the names may sound, the Health Savings Account allows for qualified health expenses, and the Coverdell ESA allows for education expenses. If you, your family, or your child qualify for one of these accounts, you may have the ability to open the accounts to max it out and then use it to partner it with your other accounts! Having a clear understanding of the many different types of accounts offered and which ones you can qualify for to contribute to will help you maximize your retirement vehicles to the very top!

The last thing you may want to consider is a Roth Conversion. A Roth Conversion is when a movement of assets from a Traditional, SEP, or SIMPLE IRA occurs and goes into a Roth IRA. This taxable event makes it to where anything else grown in the account thereon becomes tax free, as long as it is left in there for 5 years and the individual doesn’t take it out before retirement age. Is this a good time to do a Roth conversion? For more information about Roth Conversions, we recommend speaking with an educated IRA Specialist either at Quest or another reputable financial institution.

Lastly, you may consider if you have other accounts you can move over from other custodians? Diversifying your investment portfolio right now is a strong consideration many people are having. Public assets may not have as much control as private assets, and those who have had their accounts at more traditional custodians, are finding that Self-Directed IRA custodians can offer the ability for the individual to truly take control and invest in what they are knowledgeable and comfortable with. IRAs can always be transferred between other IRAs, so doing your research to see which custodian meets your specific needs and transferring an existing account to a different or new account may help you maximize your IRAs, too.

Times can be uncertain, but your retirement does not have to fall by the wayside. You still have time to maximize your future, and make the most of the contribution limits. If you don’t have an IRA or made a contribution for 2019, know that it’s not too late for you to get started either! Feel free to call Quest and we can provide more education for you, and see how we can help you get started maximizing your accounts to their full potential! Call us at 855-FUN-IRAs.

Check out this video to learn more about 2019 and 2020 IRA contributions, and how to contribute to your Quest account.

How to roll over your 401k plan into a Self Directed IRA

If there is one thing that 2020 has taught us, it is that nothing is as certain as it was before.  One of the biggest fears for many Americans right now is their job security.  Many people have already lost their jobs and are wondering what comes next for them.  A major effect of leaving a job, whether it be through retirement, layoffs or simply moving to a new company, is that your 401(k) from your previous employer becomes eligible to be rolled over to an IRA.  

There are a variety of different options that become available to you with your previous employer 401(k) and we have listed the 3 most common options:

1) Moving the funds into an IRA 

If you were a part of a 401(k) plan at your previous employer, one of the most common options available to you on what to do with the funds is being able to move the funds into an IRA at a new custodian. When you leave your job, you have the ability to continue investing those funds on your own in an IRA or Self-Directed IRA, and when moving those funds to another qualified retirement account, you don’t experience any tax hits. 

One thing you would want to consider is what type of investment you plan on doing because this will help you determine the perfect custodian for your needs. Some Americans choose to put their money in a regular IRA and hand their money to a financial advisor at a public custodian to make all the decisions about their account for them. Others choose to take control and invest with a Self-Directed IRA at a non-traditional custodian that will hold private assets. 

You may be thinking about what the difference is between those two types of IRAs. A Self-Directed IRA is simply an IRA in which the IRA owner directs all investments in the account. There is no legal distinction between a “Self-Directed IRA” and any other IRA except with a truly self-directed IRA the account agreement allows the broadest possible spectrum of investments, which could include real estate and private or start-up companies. Understanding the difference between these two accounts shows that there are many options available just within the first category!

A great reason why many people choose to move their funds to an IRA rather than pulling out their 401(k) money is the magic of compound interest when you continue to reinvest. To put it simply, compound interest is “interest on interest”. It may be easy to think that taking a distribution from your retirement account is a quick way to get a big portion of money, and although you may not be wrong, the amount of money you COULD have if you left it inside of your account is exponential. When you take a distribution, your IRA is no longer growing, but when you continue to do deals inside of your account and reinvest those funds, your self-directed IRA is still making money for you. 

The most important part about moving your funds to another custodian is making sure you find your fit. Not all custodians focus on the same thing. Where some custodians like Quest have a focus in free, expedited funding times and IRA education, others boast flashy software or new automated phone lines. Being comfortable with your custodian will make you more comfortable and confident as you take the next step for your financial future. 

2) Leave the funds in a 401(k) 

If the thought of dealing with your 401k is too overwhelming, you may have the option to leave the funds in a 401(k), whether that be with the employer you just left or with your new job. Some employers allow you to keep your plan with them even if you no longer work for them. Even though you’re unable to contribute to the account, your money can still be invested and grow tax-deferred, but contacting the HR department of your previous employer to learn more about the restrictions and opportunities your plan has is recommended. You may also have the option to take your 401(k) plan with you to a new job if you find one.

3) Take a distribution 

During this time, if you need funds to help cover costs like a mortgage payment and immediate expenses, you may be considering taking money from a 401k account. Using 401k funds now to pay for expenses could mean that later when facing retirement, you don’t have that same amount available. The funds in the account also won’t be given a chance to grow during the next decades to build up for your future retirement.

Usually, taking money from your 401k leads to penalties and taxes, but the good news is that the recently passed CARES Act may help with some of these costs. Before the act, rules stated that those who were not 55 years old yet would face a 10% penalty on the amount taken out of a 401k after being relieved from/leaving your job. The CARES Act addresses the COVID-19 crisis and offers temporary adjustments to 401k withdrawals. This allows withdrawals up to $100,000 from your 401k account without paying the 10% penalty provided your distribution meets the criteria. The CARES Act also allows you to spread out the taxes on the withdrawal over the next three years. If the money is paid back within three years, you can avoid being taxed on the distribution that was taken out. This could be a good option for those who need money now.

Being aware that there are many different options, especially with a Self-Directed IRA, may be able to provide some peace of mind in knowing that not all is lost and that you can take control. If you need an IRA specialist, at Quest we are here to provide education no matter what option sounds the best for you. With our weekly webinars featuring investing education or our certified IRA specialist just a call away, rest assured knowing that your money is safe!

A Simple Guide on Investment Due Diligence

When opening an investment account, it is important to do your due diligence. Investment due diligence will help you make the right investment choice for you. 

Don’t be a victim of investment fraud. Read this simple guide on investment due diligence and protect yourself and your investments today. 

What Is Investment Due Diligence? 

Due diligence is basically doing your homework before you make an investment to make sure you are protected against fraud or risky investments. So, how do you perform due diligence? Keep reading this due diligence guide to learn more.

Start With General Questions

First, start off with some broad general questions and narrow them down to specific questions about your investments. If these questions lead you to find that the investment risk is too high or has a poor return perhaps you should think twice about investing. 

If the investment appears too good to be true it usually is. If an investment boasts above-average returns check and see if a competitive advantage exists. If not it could be a sign. 

Understand the Company’s Business

Take a look at the information given about the investment. Is it complete? Is it understandable? Try explaining the company’s business model to a friend and talk through exactly how the company works. This will help you understand the company better and know if it will in fact be a good investment. 

Look at the ten warning signs of investment fraud and be sure the investment is a legitimate company before you invest. 

Think About the Risk

After understanding the company’s business model think about the risk. Every investment has some level of risk. Understanding the level of risk can help you understand if this is the best investment for you. 

If you do not see a risk associated with the investment, this can be a red flag. Marketing tactics that guarantee profits are designed to lure investors in quickly without giving them adequate time to do their due diligence analysis. 

Ask yourself how much money can you afford to lose. Think about the environment at the time that you make the investment. Brainstorm possibilities that could go wrong with the investment. 

Look at the Track Record

A sound investment will have a proven track record of success. Take a look at the company’s history and prior payouts to investors. 

Read about the company’s executives who lead the company and make the business decisions. Do they have the experience needed to lead the company to success? Review the company’s financial statements given to investors. 

This will verify if the company is financially sound and has the leadership it needs to succeed. 

Investment Due Diligence Is the First Step

Investment due diligence will help point out if an investment is too risky or a fraud. By doing your homework and asking questions you can learn more about the company and make the right decision on whether to invest or not. 

Contact a Quest IRA Specialist today with any questions you’ve come across as part of your due diligence. We are happy to help you with your quest for investment security.