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.

What Common Mistakes Can I Avoid When Setting up a Self-Directed IRA?

Do you want to take more control over your retirement investment accounts? Have you been considering a self-directed IRA but worried about the rules?

You want to diversify your portfolio – outside of the traditional investment markets such as stocks and bonds. That’s where a self-directed IRA comes into play. It allows you to diversify while also keeping control of your investments yourself.

However, you need to make sure to avoid some common mistakes and pitfalls that plague many investors.

Read on to make sure that you don’t fall into these common pitfall traps.

A self-directed IRA allows you to invest in alternative financial investments. These can include real estate, promissory notes, oil, and gas, tax lien certificates and more.

However, instead of being administered by a bank or brokerage you instead manage the fund yourself.

Take Control Yourself

You know you need to save your money for your retirement. But it can be daunting, to say the least when you are responsible for it yourself. 

When it comes to your retirement, the only person most invested in your success is yourself. Therefore, it stands to reason that you should be the one to make the final decisions regarding your investments. However, without the correct information, you can make some unfortunate mistakes in your choices

Take control of your financial future and get started with a self-directed IRA today. Contact a Quest IRA specialist and find out how we can help you take control of your retirement.

Avoid the Pitfalls of a Self-directed IRA

When you take control of your financial future with a self-directed IRA, you need to ensure to avoid these common pitfalls.

  1. Prohibited transactions – these can be tricky to navigate so it’s important to know the rules.
  2. Due diligence – As mentioned, the rules can be tricky, and it’s imperative that with a self-directed IRA you make the decisions yourself. Always ensure you do proper due diligence before getting into any investment.
  3. Lack of liquidity – with a self-directed IRA minimum distributions are required at 72, however, the alternative investments allowed can be hard to sell. This lack of liquidity can be a common pitfall if you find yourself in an emergency and can’t get your money out of your self-directed IRA.
  4. Lack of transparency – when it comes to your exit strategy for selling your alternative investments all parties involved must be in agreement. You also must be fully transparent as to the valuation of your investments. Without this full transparency, you can fall into another common pitfall of self-directed IRAs.
  5. Lack of diversity – as most successful investors will tell you: diversity is key to successful investment accounts. However, with self-directed IRA funds, sometimes investors forget to ensure that it is fully diversified.

With a self-directed IRA, you need a trustee or custodian that specializes in these non-traditional investments. However, remember one of the common mistakes with self-directed IRA funds is the self-directed IRA owner not performing proper due diligence on investments.

So this trustee is simply a custodian of your account, not your adviser. You need to work with a company that understands the IRA rules and you can trust.

Stay Educated and Stay out of Trouble

We set up self-directed IRAs to help you prepare for your retirement. The most prepared people for retirement are those that are best educated.Keep continuing your education so you can fully prepare for the best retirement possible. For answers to your questions, contact us today. We can help you open a Quest account to get you started.

How to Set Up a Self Directed IRA: A 5 Step Guide

Investing for retirement is something worth beginning as early as possible.

Current annual costs for someone over the age of 65 are approximately $50,000. So you’ll need a significant amount in your retirement account in order to live comfortably during this time.

One of the best ways to begin saving is a self-directed IRA, but not everyone knows how to go about it.

Not sure where to start? Don’t worry, we’ve got you covered.

Let’s take a look at everything you need to know about how to set up a self-directed IRA.

1. Select a Provider

In order to get started, you’ll need to work with a financial institution or firm that facilitates the opening of IRA accounts. When searching, though, there are some things you’ll want to keep in mind.

A provider with plenty of experience in this area that also offers a large range of investment opportunities is one you should prioritize. Additionally, your provider should also have experts willing to help you make the right investment decisions for your situation.

2. Choose What Type of IRA You Want to Open

Although you’ll be opening a self-directed IRA, you’ll still need to decide between a Roth IRA or traditional IRA.

Both allow you to invest in your retirement, but they have fairly different attributes. The best one for you will depend on your current finances and how much you plan to have invested by retirement.

You can learn more about the differences here.

3. Understand Your Investment Options

The main benefit that a self-directed IRA provides is the increased flexibility you’ll have when creating your investment portfolio. So, you’ll be able to fine-tune your investments to meet your long-term goals while remaining within your tolerated level of risk.

Working with a reputable provider will help you optimize your portfolio even further.

4. Apply For an Account

After you’ve decided who to work with and what type of IRA account you want to open, you’ll be required to complete an application.

You’ll need the following on hand in order for everything to go as quickly as possible:

  • Government ID
  • Social security number
  • Account information used for funding
  • Fee payment method
  • Info regarding your beneficiary

Depending on your provider, you may need to provide additional information.

5. Start Saving

After everything’s up and running, you can decide how you’d like to fund your account.

These come in three categories:

  1. Transfers: Funding your newly created IRA account from another IRA account
  2. Contributions: Sending money to your IRA account from a non-retirement account, such as from a checking or savings account
  3. Rollover: Transferring money to your IRA account from a different type of investment account, such as a 401K

Once you have money in your account, you can change how you’d like to contribute in the future if you need to. 

Understanding How to Set Up a Self-Directed IRA Can Seem Difficult

But it doesn’t have to be.

With the above information about how to set up a self-directed IRA in mind, you’ll be well on your way to financing your future as early as possible.

Want to learn more about how we can help? Feel free to get in touch with the team at Quest today to see what we can do.

Know the Difference: IRA Transfer vs. Rollover

In order to live comfortably during retirement, you’ll need to start saving as soon as you can. Opening an IRA account is widely known as one of the most reliable ways to invest in your future.

There are two major ways to fund your IRA: transfers and rollovers.

Not everyone understands the difference between the two, though. Not sure where to start? Don’t worry, we’ve got you covered.

Let’s take a look at everything you need to know about IRA transfer vs rollover.

An IRA Transfer

When you move money from one IRA account to another, it’s known as a transfer. The same concept applies as when you move money between two separate checking accounts at different banks.

When you move funds from an IRA at one firm to an IRA account managed by another firm, the transfer isn’t reported to the IRS and no taxes are incurred. This is due to the fact that the money in the original IRA account never actually reached the account owner.

If the owner were to instead withdraw the funds and then reinvest them into another account, they would incur taxes upon withdrawal. There may even be tax penalties depending on why the money was taken out of the account.

An IRA Rollover

A rollover occurs when money is either moved from an IRA account to a retirement plan or from a retirement plan to an IRA account. When the money never reaches the account holder, it’s known as a direct rollover.

This type of rollover differs from a conventional transfer because it involves two different types of plans.

Although direct rollovers are reported to the IRS, they generally aren’t taxable since the money was never made payable to the account holder.

During an indirect rollover, the money is distributed to the account holder. But, it isn’t taxed if the money is reinvested in an IRA account within 60 days. This will allow the account funds to remain tax-deferred.

How Should I Prepare For One?

Above all else, it’s important to understand that a rollover will likely take a couple of weeks to complete. This is crucial for those handling indirect rollovers to keep in mind, as penalties occur after 60 days from when the funds are distributed to the account holder.

Additionally, most institutions will require you to fill out paperwork in order to begin the process. Some providers may have specific requirements regarding rollovers that may become a factor when reallocating your funds.

Knowing The Difference Between IRA Transfer Vs Rollover Can Seem Difficult

But it doesn’t have to be.

With the above information about an IRA transfer vs rollover in mind, you’ll be well on your way toward putting money away toward a peaceful retirement.

Want to learn more about how we can help? Feel free to get in touch with us today to see what we can do.

3 tips for reducing taxes on your retirement income

Minimizing taxes for future retirement income is not always easy, but it is very important for putting together an effective retirement plan. For example, although many retirees expect to pay lower tax rates on their IRA or Individual 401k after they have left the workforce, their tax rates may still go up due to social security taxes and medicare taxes. 

Follow these three steps to reduce taxes on your retirement income and get the most out of retirement savings:

1. Learn about income tax advantages

Despite what many people think, certain types of income are taxed differently from others. A few examples include:

  • Capital gains
  • Real Estate investments
  • Earned income
  • Unearned income

If you buy a physical asset such as gold or an investment property, your tax rates for capital gains will be much lower than it would be for an ordinary earned income. 

Also, if you sell a home you’ve lived in for the past five years, you may qualify to have a large portion of your capital gains excluded from your taxes (double the amount if you are filing jointly as a married couple) by completing a 1031 exchange.

2. Create a budget to keep your expenses low

In order to reduce your taxes, you will want to stay in low tax brackets as much as you possibly can. One of the best ways to do this is to keep your expenses low so you won’t have to withdraw much from your retirement accounts. 

Create a budget to manage your annual spending and withdrawal habits, and if possible, move to a region with lower taxes and a lower cost of living.

3. Convert your traditional IRA or 401k into a Roth IRA

Another strategy is to convert your current retirement account into a Roth IRA. By doing this and paying taxes up-front when your marginal tax bracket is still low, you will reduce the amount of tax you will eventually pay in the future and you will be eligible for tax-free distributions after retirement.

Contact a Quest IRA Specialist today to learn more ways you can reduce taxes on your retirement or register for one of our events.

Three Employer-Sponsored Retirement Plan Options

If you want to supply your employees with retirement benefits, you have three major options. You can offer 401(k), SEP IRA or SIMPLE IRA plans. 

Each solution provides different advantages, so it’s wise to learn the details on all three options and carefully compare them before making a choice.

Contributions

The SIMPLE IRA limits total yearly employee deposits to $19,000 or $22,000 after the age of 50. Both 401(k)s and SEP IRAs permit substantially larger contributions. Total deposits are capped at $57,000. Staff members over 50 years old can add more money to their retirement accounts as a “catch up”.

Both 401(k)s and SIMPLE IRAs permit employees to contribute funds whereas SEP IRAs do not provide this option. The employer is fully responsible for funding an SEP program. Companies can deposit amounts equaling as much as one-quarter of workers’ wages in SEP or 401(k) accounts.

Complexity

Both types of IRAs are simpler to establish and maintain than 401(k) plans. This saves time while reducing administrative costs. 

The process of creating an SEP program involves several steps, such as:

  • Producing a legal document.
  • Supplying said document to staff members.
  • Opening separate accounts for individual employees. 

Pre-written, ready-to-use agreements are available.

Qualifications

A company must have no more than 100 staff members to use a SIMPLE IRA. On the other hand, a SEP IRA would be used for sole-proprietors or those with few employees or employees that may be seasonal. The solo 401(k) plan requires an individual to have NO employees in any companies they may own.

Employees must earn a minimum of $5,000 per year in order to enroll in the SIMPLE accounts. The income requirement for SEP IRAs is only $600 and contingencies for eligibility can be made. For example, being over the age of 21 and having worked for the company for at least 3 of the last 5 years.

Similarities

All three options have penalties for people who withdraw money at less than 59.5 years of age. This fee equals one-tenth of the withdrawn amount. Federal taxes are usually deducted from withdrawals, even after a worker reaches retirement age. Nonetheless, employer-sponsored retirement plans are treated favorably by the IRS.

Please contact us to speak with a knowledgeable IRA Specialist to set up accounts or learn more about the above-mentioned options.

We serve clients promptly, offer a wide range of employee retirement solutions and waive many of the fees that competitors charge.

References

https://www.investopedia.com/ask/answers/102714/what-are-main-differences-between-simplified-employee-pension-sep-ira-and-simple-ira.asp

https://twocents.lifehacker.com/the-sep-ira-limit-is-increasing-in-2019-1830310964

https://www.fool.com/investing/what-is-a-sep-ira.aspx

https://www.investopedia.com/ask/answers/10/why-employer-matches-401k.asp

How to Roll Over a 401k to Roth IRA

When you leave a job where you had a 401k retirement plan, you’ll need to determine what you want to do with your account. You have the option to rollover your account to an IRA or individual retirement account. Many people prefer a Roth IRA to a traditional IRA. 

With a traditional IRA, you don’t pay taxes on your contributions, but you will pay taxes on your distributions in retirement. 

With a Roth IRA, you’ll make your deposits after taxes, but then you won’t need to pay taxes when you make your distributions. Here’s how to roll over your 401k to a Roth IRA.

Decide on an Account

Many financial institutions have Roth IRA options, so you’ll need to decide which one is best for you. Look at providers to see the fees they charge, the types of investments they offer, and the level of customer service they offer to their clients. 

Ideally, you’ll want an account that won’t charge you unnecessary fees, and that offers an investment option you are knowledgeable about. 

Ask for a Direct Rollover

When transferring your 401k to a Roth IRA, make sure to ask your 401k plan to give you a direct rollover. This means they will transfer the funds directly to your new account, instead of writing you a check directly that you would need to deposit. You will need the account information for your new IRA in order to do this. Most of the time, this will trigger a taxable event. 

Most 401k’s or employer sponsored plan contain pre-tax money. The amount you move to a Roth IRA will become taxable income for the year in which you made the conversion. From there on our, your earnings will grow tax free and ideally your distributions in retirement will be too. 

Pick your Investments

Once you have transferred the funds to your new account, it’s time to pick your investments. Different Custodians offer different opportunities, for example you may move funds to a Brokerage firm that offers mutual funds, however if you locate a “Self-Directed” custodian, you could use retirement funds for alternative assets such as Real Estate. 

If you’re unsure of which investments to choose, talk to an advisor to see what they’d recommend.

If you’re planning on rolling over your 401k to a Roth IRA, consider using Quest Trust Company to set up your new account. Quest offers truly self-directed IRAs with flexible investment options, as well as short processing times of less than 48 hours and minimal fees. Contact a Quest IRA specialist today to rollover your 401k to a Roth IRA.

How does a Solo 401k Work?

Solo 401k plans are employer-sponsored retirement accounts that offer self employed individuals with no common law employees other than a spouse the opportunity to establish a Profit Sharing Plan. 

Many companies offer solo 401k accounts to their employees, but not many people understand exactly how they work. 

Here’s what you need to know about your solo 401k before you get started:

You are the Employer and Employee of the Account

Although your solo 401k is an employer plan, it allows the business owner to be the Trustee of the plan, granting them access to make fiduciary decisions.

The Trustee will work with a financial institution to set up the account, and they will determine where to hold the funds, how much you contribute to the plan, and what investment to partake in. 

Rollover of previous accounts into the Solo 401k

You may have pre-existing 401k plans or IRA’s that you may want to consolidate inside of your Solo 401k. As long as those funds are pre-tax they can be rolled into the plan.  

If you are looking for a Roth Solo 401k, you may conduct “in plan Roth conversions” to convert your pre-tax funds to Roth. 

You are not able to move Roth IRA’s or previous Roth 401k’s into your solo 401k. However, You are able to contribute to a separate Roth IRA if you have one while continuing to make contributions to your Solo 401k. 

Taxes Advantages

By Contributing to your solo 401k and possibly to another Traditional IRA, you may be eligible to receive a tax deduction. This all depends on your modified AGI (adjusted gross income) in determining if you are eligible or not. 

Keep in mind that Solo 401k accounts are retirement accounts and non-qualified distributions are subject to penalty and taxation. The Solo 401k does have an option to take a loan out but it is limited to 50% of the account balance and cannot exceed $50,000.

If you’re looking to set up a retirement account, contact the experts at Quest Trust Company today. We offer Self-Directed IRAs and Solo 401k plans for individuals looking to invest into alternative assets. Our financial experts can help you find an account that makes sense for your financial needs.