Category: How To Retire Well | Self Directed IRAs

Estimated reading time: 5 minutes

With Tax Day this week, some people might be wondering about last minute deductions. last-minute tax deductions that you can take advantage of before the tax filing deadline. I want to share some information with you about saving for retirement and reducing your tax bill at the same time. As you may know, taxes can remove a large part of your income, but there are ways to reduce what you owe while also saving for your future. One of the best ways to do this is through an IRA.

How do tax deductions work?

Essentially, a deduction is the amount of money you can subtract from your taxable income. Instead of giving money to the IRS, you can put it in a retirement account – your traditional IRA. When tax time comes around, the amount of tax you owe is calculated based on your income minus the amount you put in your IRA. This means that you owe less in taxes and can keep more of your hard-earned money.

One of the deductions you can take advantage of before the deadline is contributing to a traditional IRA. As of 2022, you can contribute up to $6,000 a year, or $7,000 if you’re over 50. To get the full tax deduction, you need to qualify based on your income. For example, if you’re single and make less than $68,000 a year, you qualify for the full $6,000 tax deduction. Someone with a $50,000 base salary contributes $7,000 to a traditional IRA and qualifies for a deduction. Now only $43,000 is taxable income instead of the full $50,000, while keeping $39,250 as opposed to $38,000 because of the contribution made. See the example below. If your income is higher, there is a small phase-out range where you may receive a partial deduction. These numbers may change over time, so it’s important to stay up to date on the latest information.

Can a small business have tax deductions?

What about a tax deduction for small business owners or self-employed individuals? They may not have the traditional W2 income and wonder what options they have for saving for retirement. This is where the SEP IRA comes in, a retirement plan that is popular among small business owners. The SEP IRA is easy to set up and offers large contributions and tax deductions. It stands for a self-employed pension plan, and as the name suggests, it is designed for self-employed individuals. You can contribute up to 20% of your 1099 income or Schedule C income or 25% of your W2 wages after tax. The nice thing about this plan is that the contribution amount comes out to be the same, whether you have a W2 or 1099 income.

For example, if you pay yourself $100,000 a year, and after taxes and deductions, you end up with $81,000. You can contribute $20,000 to your SEP IRA, which is fully tax-deductible. This means that the IRS will calculate your income on the $81,000, not the $100,000, resulting in a lower tax liability. The SEP IRA allows contributions of up to $61,000 for the previous year, but to do so, you must pay yourself a high salary. So, it may not be feasible for everyone, but it’s good to know the potential for large contributions.

 

As a self-employed individual with a SEP IRA, it’s important to understand that the business is the one making contributions, not the individual. This means that the company would take the tax deduction, but as the business owner, you still benefit. Additionally, you can now make the entire contribution to a Roth IRA. If you have employees, you must contribute the same percentage of income to their SEP IRA as you do to your own.

HSA’s and tax deductions

One great option for self-directed plans is the Health Savings Account (HSA). When you contribute to an HSA, you get an immediate tax deduction and can spend the money tax-free on medical expenses. This includes not just doctor visits, but also dental visits, over-the-counter medication, and even COVID-related expenses like face masks and hand sanitizer. However, you must have a high deductible insurance plan to qualify for an HSA. Contribution limits for HSAs vary based on your insurance plan and marital status.

For example, let’s assume that you’re self-employed and have a W2 income of $100,000. We’ll also assume that you’re in a 25% tax bracket, meaning you owe $25,000 to the IRS. Additionally, let’s assume that you qualify for traditional IRAs and HSAs and that you’re married and filing jointly, which allows for certain deductions, with several potential savings options.

• If you set up a traditional IRA, you can contribute $6,000 for yourself and another $6,000 for your spouse, which saves you $12,000 and reduces your taxable income to $88,000.
• As a self-employed individual, you can also set up a SEP IRA and contribute some of your income or $10,000 in the example we used. The business you own would receive a $10,000 tax deduction, which is separate from your personal deduction. This brings your total retirement savings to $22,000, with a current taxable income of $88,000.
• If you’re 45 years old and not on Medicare, you can also set up a Health Savings Account (HSA) if you have a high-deductible health plan. In this scenario, you can contribute up to $7,750, which is fully deductible. Remember, these are general assumptions, and your specific circumstances may vary. If you have any questions, feel free to ask.

As you look at your finances for the year, you may realize that you are able to decrease your taxable income, and if you’re able to save money for yourself and decrease your taxable income, then you should take advantage of it. If you have more questions, please reach out to our staff and we can have a one on one conversation with you!

Estimated reading time: 6 minutes

Millennials, those born between 1981 and 1996, make up a significant portion of the US population. According to the US Census Bureau, there are 77.12 million millennials in the US, making up 23.6% of the overall population. With such a large demographic, it’s important for millennials to be well-informed about investing, particularly in regard to benefits plans. Investing for millennials can be a tricky process. Many are burdened with student debt and the high cost of living, making it difficult to save and invest for the future. However, it’s important for millennials to start investing early to build wealth and secure their financial futures. With the increasing cost of living and student debt, one option for millennials to build wealth over time is private investments.

Alternative Investing Options

Private investments, also known as alternative investments, are investments that are not traded on public stock exchanges. They include investments such as real estate, private equity, promissory notes, private LLCs, cryptocurrency, venture capital, and much more. While these investments typically have higher minimum investment requirements and are more exclusive than traditional stocks and bonds, they can offer significant potential returns, as well as other attractive options for several reasons.

• Alternative investments offer the opportunity to diversify Millennial portfolios.
• They can potentially earn higher returns than traditional investments.
• Private investments tend to have a lower correlation to the stock market.
• Less market involvement helps mitigate risk in a downturn.

Know Your Company Retirement Benefits

One way for millennials to gain exposure to private investments is through their benefits plans. Benefits plans, including 401(k)s and pension plans, are critical components of retirement savings. However, many millennials are not fully aware of the benefits of these plans, or how they work. In fact, a survey by the Transamerica Center for Retirement Studies found that only 16% of millennials are “very confident” in their knowledge of retirement planning. That’s why benefits plans are more important than ever for millennial investors. These plans offer significant tax advantages and can provide a reliable source of retirement income. Many employers offer 401(k) plans that allow employees to invest in private assets and many of these employers offer matching contributions, which can help employees maximize their savings.

Open an SDIRA

For millennials who are self-employed or do not have access to employer-sponsored benefits plans, there are other options for investing in private investments, like self-directed IRAs. A self-directed IRA is a retirement account that allows investors to choose from a wider range of investment options than traditional IRAs, including alternative assets like real estate, private equity, and more. Because there are numerous self-directed plans to choose from, millennials have options, though the Roth IRA is arguably the best.  Contributions to a Roth IRA are made with after-tax dollars, meaning withdrawals are tax-free once you hit retirement age. This is advantageous for millennials who are likely to be in a lower tax bracket now than they will be in retirement.

Benefits of Being a Millennial Investor

Financial Timelines and Technology

Millennials generally have a longer investment horizon than older investors, as they have more time to save and invest before retirement. This longer investment timeline allows for more aggressive financial strategies and higher risk tolerance, which can be better suited for self-directed IRAs that offer more alternative investment options. They are also comfortable with technology, and while this might not seem important, it plays a big role. Millennials have grown up with technology and are generally more comfortable using online platforms and tools. Self-directed IRAs are typically managed online, which can be more convenient for a tech-savvy generation of investors.

Autonomy and Investment Control

Millennials are also known for their entrepreneurial spirit and desire to take control of their financial future. Because self-directed IRAs offer more autonomy and control over investment decisions, they can be appealing to millennials who want to take a more hands-on approach to their retirement savings. And, of course, we’ve mentioned that self-directed IRAs offer a wider range of investment options, which can be particularly appealing to millennials who don’t want to follow in the footsteps of their parents, simply investing into what they had always been told to, like stocks and mutual funds. Self-directed plans are the perfect vehicle for millennials who are interested in alternative investments and want to build a more diversified portfolio.

Starting Small in Accessible Investments

Using a self-directed IRA to build wealth for the future does not necessarily need a lot of money to start!  While some alternative investments may require a significant amount of capital to get started, there are many private investment options that can be accessible to investors with smaller amounts of money. For example, real estate options allow individuals to invest in real estate properties with as little as $500, and other investments like private loans can be structured in a variety of ways, including short-term loans that might only require small amounts.

 Millennial Investment Challenges

With all the benefits that self-directed investing can offer, some people may be wondering why every millennial is not investing already! That is because millennials also face numerous challenges. Many millennials are burdened with high levels of student debt, which can make it difficult to save and invest in the future. This can delay the start of their investing journey and limit their ability to take on riskier investments that may offer higher returns. Millennials also came of age during the 2008 financial crisis and have experienced a challenging economic landscape in the years since. Often earning lower wages than previous generations at the same age, it can be difficult to save and invest for the future. It can also limit their ability to take on more aggressive investment strategies and pursue higher-risk, higher-reward investments.

Hindering Investing by Quiet Quitting

One challenge millennial investors are experiencing is “quiet quitting”. Also known as the silent resignation, quiet quitting refers to an employee leaving their job without making a formal announcement or giving any notice to their employer, usually because of dissatisfaction with the job or company culture, feeling undervalued or underpaid, or having found a better job opportunity elsewhere. According to a Gallup poll, 50% of works have engaged in quiet quitting at some point in their careers.

While many millennials might think quiet quitting is the answer to their problems, that couldn’t be farther from the truth. Quiet quitting can have serious consequences for retirement savings, particularly if employees have not vested in their benefits plans. For millennials who engage in quiet quitting, benefits plans can be particularly valuable. When employees leave a job without vesting in their benefits plans, they may lose out on significant retirement savings. However, if employees stay with an employer long enough to vest in their benefits plans, they can take those benefits with them when they leave. This can provide a valuable source of retirement income, even if employees switch jobs frequently.

What should millennials do to ensure they are taking advantage of investing?

With proper education and planning, millennials can take advantage of these plans and build wealth over time through private investments! Take advantage of free consultations and education with self-directed IRA specialists or talk to a financial advisor to develop a wealth building strategy that fits your goals. To learn more about starting a self-directed IRA, reach out to a Quest representative today.

 

Estimated reading time: 3 minutes

As the world becomes more uncertain and traditional investment options offer lower returns, many investors are turning to alternative assets like real estate investing, notes, and private equity to diversify their portfolios. One option for investing in these assets is through a Self-Directed IRA (SDIRA), which allows investors to take control of their retirement savings and make investment decisions that align with their financial goals. Investing in private assets like self-storage through a Self-Directed IRA has become increasingly popular due to their steady cash flow and low volatility. In this article, we will explore the benefits and considerations of investing in self-storage facilities through a Self-Directed IRA.

SDIRA Investment Options

Many investors are not aware that they can use the funds in their old 401(k) accounts to invest in non-traditional assets such as real estate, private equity, and other private assets through a SDIRA. A Self-Directed IRA offers investors greater flexibility and control over their retirement savings and investment decisions. Traditional retirement accounts, like 401(k)s, are typically limited to a narrow range of investment options such as stocks, bonds, and mutual funds. By contrast, an SDIRA allows investors to choose from a much broader range of assets, including real estate and other private assets. Because SDIRAs allow investors to diversify their retirement portfolios beyond traditional assets like stocks and bonds, this can help minimize risk, while potentially increasing returns. Self-Directed IRAs also allow investors to take control of their retirement savings and make investment decisions that make sense for their financial goals.

Self Storage as an Alternative Asset

There is no doubt that self-storage has become a popular investment option in recent years. Unlike other real estate investments, self-storage has low operating costs and requires minimal maintenance, making them an attractive option for investors. Self-storage facilities typically generate steady rental income, too, as people need storage space for various reasons such as downsizing, moving, or renovating their homes. As a result, self-storage facilities can provide a reliable cash flow stream, which can be particularly beneficial for retirement investors seeking a steady source of income and want to be passive. Self-storage also tends to be less affected by economic downturns than other real estate sectors like retail or office space. Even during a recession, people may still require storage space, and self-storage facilities can remain in demand.

Self-Directed IRA Funding

1. They must find a custodian that specializes in self-directed IRAs. These custodians are typically not affiliated with traditional financial institutions, but rather specialize in self-direction.
2. Once investors have found a custodian, they must fund their Self-Directed IRA. This can be done through contributions or by rolling over funds from an existing IRA or 401(k) account. Investors should work with their custodian to ensure that their Self-Directed IRA is properly funded
3. It is important to do their due diligence and understand the tax implications of their investment.
4. After the Self-Directed IRA is funded investors can begin looking for their investment, like self-storage.

Investing in self-storage assets through a Self-Directed IRA offers investors a unique opportunity to diversify their portfolios and potentially increase their returns. Investors can take control of their retirement savings by making financial decisions aligning with their financial goals through alternative investments. While investing in self-storage facilities carries some risk, careful evaluation and working with a Certified IRA Specialist can help investors make informed investment decisions. To learn more about how you can take control of your retirement investments and invest in self-storage, contact a representative at Quest Trust Company today!

Estimated reading time: 3 minutes

Which investment is right for you?

 Many investors are drawn to the idea of note investing, and understandably so. I feel that it can be quite a powerful asset class that deserves consideration for just about any investor’s portfolio. When it comes to getting started with note investing, there are two ways to get involved – the active investing approach, and the passive investing approach. We will compare the two approaches to help you decide what is best for your retirement savings.

 Active Note Investing

Active Note involves actively managing a portfolio of notes. This includes activities such as

• finding notes to buy
• analyzing notes
• performing due diligence
• managing the vendors, attorneys, and other service providers that are needed to support a note portfolio

Being good at building and nurturing relationships is also a crucial skill, since the notes business is a relationship-based business. Strong relationships are a key component to bringing in steady deal flow and access to notes in the marketplace.  Active investors rely on research, analysis, and market trends to make investment decisions. Active note investing is a full business which involves higher levels of risk and requires more time and effort than passive investing. 

 

Passive Note Investing

Fund managers professionally manage passive note funds. Structured very much like a real estate syndication, the passive investor places their capital into the note fund and receives a return on their investment. Passive investors fully benefit from the experience, the expertise, and the relationships that the fund operators have. Another benefit is that of greater diversification, since their investment capital is effectively spread out among many notes that are owned in the fund. 

The only work for the investor is performed prior to investing. This involves evaluating the fund parameters and performing the due diligence on the fund, and once they invest, they begin receiving their return payments or cash flow stream. 

 

Which investment is right for you? 

In conclusion, let’s maintain focus on the fact that this decision is largely based on how much time you decide to dedicate to the business of note investing. Yes, it absolutely is a business and it should be treated that way if you want to be successful. 

For those that like to be heavily involved, active investing is a great option. For others that may be busy professionals or business owners with limited time, then passive investing might serve you better. There is no right or wrong answer, and I have found that this is a very personal decision. I have even seen many investors successfully transition from one to the other. As we all know, individual circumstances change, and the seasons of life change as well.  

Consider this decision thoroughly, speak with experts, and evaluate your options. Equipped with that knowledge, you will surely make the best decision for you and for your lifestyle. Contact us  www.fredmoskowitz.com for more information and educational resources about note investing. 

 

Author Bio: 

Fred Moskowitz is a note investor and a best selling author who has trained countless investors from all walks of life on how to create passive income streams of their own. In the note industry, he manages a mortgage note investment fund and is considered an industry veteran within the note investing arena. Fred is an advocate for spreading awareness about self directed investing and enjoys teaching investors how to accelerate their financial growth using self directed investment vehicles such as self-directed IRA’s and self-directed HSA’s. 

Fred takes pride in educating investors to help them grow and profit in the note space, as well as being a trusted and valued resource in the arena of alternative investments.  You may also connect with him via his website.   

Estimated reading time: 4 minutes

A Solo 401(k) is a retirement account designed for self-employed individuals or small business owners with no full-time employees other than themselves and their spouse. While you must be self-employed and have no employees other than your spouse to be eligible for this account, if you qualify, they can be extremely useful for self-employed investors. A Solo 401(k) is sometimes considered the most sought-after account.

Employer vs Employee Solo401(k)

With a Solo 401(k), you can make contributions as both the employer and employee. As the employee, you can contribute up to 100% of your earned income, up to the annual contribution limit (click here to see the contribution limits for Solo 401(k)s). As the employer, you can make additional contributions up to 25% of your net self-employment income. One of the advantages of a Solo 401(k) is that you can make larger contributions than you could with other types of retirement accounts, such as a traditional or Roth IRA. Additionally, the contributions you make to a Solo 401(k) are tax-deductible, meaning you can reduce your taxable income for the year.

Unrelated Business Taxable Income

Another benefit of a self-directed 401(k) is provides an exemption from Unrelated Business Taxable Income (UBTI), which includes Unrelated Debt-Financed Income (UDFI). UDFI refers to income that is generated by debt-financed assets that are held within a tax-exempt entity, such as a retirement account. This type of income can be subject to UBTI tax, which can significantly reduce the investment returns within your retirement account. However, if you set up a Solo 401(k) plan, you may be able to avoid UDFI and UBTI tax altogether. It’s important to note that while a Solo 401(k) can provide exemption from UDFI and UBTI tax, you should still carefully consider any debt-financed investments and ensure that they align with your overall investment strategy and risk tolerance.

Checkbook Control over Your Account

A unique, and arguably the most sought-after, feature of a Solo 401(k) is that it allows you to have checkbook control over your retirement funds. Checkbook control is the ability to
write checks directly from your retirement account to make investments making you able to

• pay expenses
• manage your retirement funds.
• have direct access to your retirement funds, which can provide greater flexibility.

If you find a real estate investment opportunity you want to pursue, you can write a check directly from your Solo 401(k) to fund the investment, rather than having to go through a custodian or administrator. Having checkbook control also means that you can make investments quickly and efficiently, without having to wait for approval from a custodian or administrator. This can be particularly useful if you’re investing in time-sensitive opportunities, such as real estate or private equity deals.

In order to have checkbook control over your self-directed 401(k), you’ll need to

1. Set up a separate bank account for your retirement funds, known as a “Solo 401(k) checking account”.
2. Ensure that you follow all IRS rules and regulations for managing your retirement funds, including maintaining accurate records and avoiding prohibited transactions.
3. Familiarize yourself with IRS rules and regulations.

It’s important to note that checkbook control can come with some risks. Improper use of checkbook control could result in significant tax penalties and other legal consequences. Therefore, it’s important to work with a qualified financial advisor or tax professional who can help guide you through the process and ensure that you’re following all applicable rules and regulations.

Financial Responsibilities

While having more control over your retirement savings and investment decisions is a major benefit of a Solo 401(k), it also comes with additional responsibilities that must be carefully managed. As the plan administrator of a Solo 401(k), you’re responsible for ensuring that the plan is properly established, maintained, and administered. This includes keeping accurate records, filing annual reports with the IRS, and ensuring that all plan contributions are made on time. The reporting requirements and administrative responsibilities associated with a Solo 401(k) plan can be seen as a potential negative for some self-employed individuals.

Setting up and managing a Solo 401(k) plan requires time and effort. You’ll need to carefully consider the plan design, choose a custodian or trustee, and ensure that all plan contributions and distributions are properly recorded and reported. For some self-employed individuals, this additional administrative burden can be a barrier to setting up a Solo 401(k). You’re responsible for ensuring that the plan is fully compliant with all IRS regulations. This includes filing annual reports with the IRS, making timely contributions, and ensuring that all plan investments are permissible. If you fail to comply with these regulations, you could face significant penalties and tax consequences.

Opening a Solo 401(k)

It’s important to note that a Solo 401(k) has some administrative requirements and may require additional paperwork, such as filing an annual Form 5500-EZ with the IRS if your plan has more than a certain amount in assets. As always, it’s a good idea to consult with a financial advisor or tax professional before setting up a Solo 401(k) to ensure that it’s the right retirement account for your specific needs and goals.

Do you want to learn more about employer plans or the contribution amounts for them? Read more about self-directed 401k, SEP IRA, and SIMPLE IRA contribution limits for 2023. We would also love to talk to you if you are interested in starting a Solo 401(k), so schedule your free consultation with an IRA Specialist today.

 

 

Estimated reading time: 5 minutes

Passive income has become a financial buzzword in recent years, and for a good reason. Building wealth through passive income streams using a Self-Directed IRA can provide financial security, freedom, and flexibility. Whether you are looking to grow your retirement for the future or are simply looking for an investment that isn’t as demanding and active, there are countless passive income ideas that can help you achieve your financial goals. Passive investing is a great approach for those looking to build wealth over the long term, because passive investors can benefit from market growth while avoiding the costs and risks associated with trying to beat the market through active investing.

Invest in a Private Fund

A private fund can be a good investment for building wealth long-term because of the many benefits it offers that can help you achieve your financial goals. Private funds are typically managed by experienced investment professionals who have a deep understanding of the market and can identify profitable investment opportunities that may not be available to individual investors.

Advantages of investing in a private fund:

• Portfolio Diversification – Private funds invest in a variety of asset classes (ex. real estate or private equity. This leads to reduced risk and increased returns over the long term.
• Long-term investment horizon – they can hold investments for several years or more. This can minimize the impact of short-term market volatility and provide consistent returns over time.
• Potential for higher returns– Private funds often have higher minimum investment requirements and may have more stringent regulations compared to traditional investment vehicles (such as mutual funds or exchange-traded funds). This can result in higher returns for investors willing to commit to the fund over the long term.
• Excellent for retirement savings– Private funds are great for those with a high risk tolerance and are willing to commit their capital to a professional management team with a proven track record of success.

Invest in Private Lending

Private lending is an online platform that connects borrowers with individual lenders, cutting out the traditional banking intermediaries.

Advantages of investing in a private lending:

• Portfolio Diversification – As mentioned above, private lending can also offer variety to your investment portfolio.
• Mitigate Risk – As a self-directed IRA lender, you can position yourself in a place of safety by offering secured loans.
• Accessible to anyone with a self-directed IRA – Private lending is an attractive option for individuals who may not have access to traditional investment options or who want to diversify their portfolio beyond stocks and bonds.
• Easy for small investors -Since the terms of the private loan are decided upon between the borrower and self-directed IRA lender, they can be done with small dollar IRAs, making it easy for individual investors to start investing with a relatively lower amount of money.

Invest in Storage Space

Like many real estate investments, self-storage facilities provide a steady cash flow through rental income, with little to no barriers to entry and few recurring costs for upkeep.

Advantages of investing in Storage Space:

• Steady Demand – Investors can count on a steady stream of rental income, regardless of economic conditions
• Low maintenance costs – Compared to other types of commercial properties, such as office buildings or retail spaces, storage spaces need few repairs. This is because tenants are responsible for maintaining their own storage units.
• High occupancy rates –  Investors can expect a low vacancy rate and a steady stream of rental income, particularly in areas with high population density or limited space for storage
• Hedge against inflation – Storage rental rates can be increased over time to keep up with rising costs and inflation.
• Scalability – Investors can scale their investment in self-storage facilities by purchasing multiple facilities or expanding existing facilities. This can help investors build wealth over time by increasing their cash flow and asset base.

Invest In a REIT (Real Estate Investment Trust)

REITs generate rental income from a diversified portfolio of properties, such as residential, commercial, and industrial properties, distributing a large portion of their income to shareholders in the form of dividends, which provides a steady cash flow to investors. REITs are professionally managed by experienced real estate professionals, who are responsible for acquiring, managing, and disposing of properties in the portfolio, which help provide comfort to you knowing that you are minimizing risk with a more secure investment opportunity.

As with many of the other investments mentioned in this article, REITs have the potential for capital appreciation over the long term, as the value of the properties in the portfolio increases over time.

Invest in a Carwash

Compared to many other businesses, a carwash is a pretty unique investment that also has relatively low overhead costs. The primary expenses are the equipment, utilities, and employee salaries, which can be managed efficiently to maximize profits. For example, the carwash owner can install energy-efficient equipment to reduce utility bills or use automation to minimize the need for additional employees.

Advantages of investing in a Carwash:

• Significant revenue – add-on services such as waxing, detailing, or engine cleaning, can generate revenue and further increase profitability while reducing overhead costs.
• Steady revenue – In some areas, there may be few carwash options, providing an opportunity for investors to fill a gap in the market This is particularly true in areas with a growing population or a high concentration of vehicles. A carwash that offers high-quality services, competitive pricing, and a convenient location can quickly gain a loyal customer base and achieve a competitive advantage over other carwash businesses in the area.
• Recession-resistant – car owners will continue to require regular maintenance and cleaning services for their vehicles regardless of the economic conditions. In fact, during economic downturns, people may even be more inclined to keep their existing cars clean and well-maintained, rather than purchasing new ones. This means that a carwash business can provide investors with a steady stream of revenue and minimize the impact of economic fluctuations on the business.

 

Ready to Grow Your Retirement?

While it’s important to understand the risks and limitations of passive investing, many investors have found success and achieved their financial goals using their self-directed IRA to passively invest! To learn more about how to use a self-directed IRA to invest in one or all of these passive investments, schedule your free consultation with an IRA Specialist today  

 

 

Estimated reading time: 6 minutes

You’ve taken the first step! You have opened a Self-Directed IRA, a type of individual retirement account that allows you to invest in a wider range of assets beyond the traditional investment options, and you are now ready to do your first investment. Where do you start and what are your options? While Self-Directed IRA custodians like Quest do not sell investments (they simply allow you the possibility to find the investment yourself),  we provide education to help you make the best decision for your situation!

If you have recently opened your account or are considering what diversification possibilities are out there, Quest wants to provide you with ideas of your investment options. While you are not limited to any of these, below are the top 5 categories you can invest into with a Self-Directed IRA:

Commercial Real Estate Investing

You can use your Self-Directed IRA to purchase real estate, like commercial properties and even land. When considering commercial investment options, it’s important to evaluate the location, condition, and potential investment, like any associated costs such as maintenance, repairs, and property management fees.

• Multifamily/apartment buildings: You can invest in an apartment building that contains multiple units, ranging from a few to hundreds of units. These properties generate steady rental income and are typically managed by a property management company.

 

• Duplexes, triplexes, and condos: You can purchase a property that contains multiple units, such as a duplex or a triplex. Smaller than apartment buildings, duplexes still offer the potential for rental income. It’s also possible to invest in a building that contains multiple condominium units, which can be rented out to generate income and typically require less maintenance and management than other multifamily properties.

 

• Vacation rentals: You can purchase an Airbnb, VRBO, or other vacation rental home in a popular vacation destination to rent to vacationers. This investment option can generate higher rental income during peak vacation seasons. Remember, you must abide by all rules involving prohibited transactions and disqualified persons. If your IRA owns the vacation rental, you cannot stay in the vacation rental personally, nor can anyone who is disqualified.

 

Private Entities

You can invest in private companies or startups with your Self-Directed IRA. This can be a risky investment, but it also has the potential for high returns.

• LLCs (Limited Liability Company): An LLC is a type of business entity that combines the liability protection of a corporation with the tax benefits of a partnership or sole proprietorship. One of the key advantages of an LLC is the protection it provides to its members. With LLC investments, members are not personally liable for the debts and obligations of the business, which can help protect their assets.

 

• Joint Ventures: A real estate joint venture is a business arrangement in which two or more parties come together to undertake a specific real estate project or investment. In a joint venture, the parties typically pool their resources, expertise, and capital to pursue a common goal, such as developing a new property or acquiring an existing one. Joint ventures can take many forms, and the specific structure and terms of the agreement will depend on the goals of the parties involved. It is important to carefully consider all potential risks before entering a real estate joint venture, like who you are doing business with.

 

• Limited Partnerships: A limited partnership is a type of partnership in which two or more individuals or entities come together to invest in a real estate project. There are two types of partners: general partners who are responsible for managing the partnership and making all the day-to-day decisions related to the real estate project and limited partners who do not participate in the day-to-day management of the partnership but instead, they receive a share of the profits and losses of the partnership based on their percentage of ownership.

 

Single Family Real Estate Investments

Single-family investment options refer to investments in residential properties that consist of a single dwelling unit, usually designed to house one family. They can be great investment options for active investors, such as the following:

• Property Rentals: You can purchase a single-family home as a rental property and generate income by renting to tenants. You can either manage the property yourself or hire a property manager to handle the day-to-day operations.

 

• Fix-and-flips: You can purchase a distressed single-family home, renovate it, and then sell it for a profit. This strategy requires a higher level of expertise and experience in home renovations and real estate market trends.

 

• Subject-to and Lease-to-own property: You can purchase a single-family home and offer it to tenants under a lease-to-own agreement. This option allows tenants to rent the property for a specific period with an option to purchase the property at the end of the lease term.

 

Private Loans

You can lend money using your Self-Directed IRA. This type of investment can generate regular income through interest payments without requiring the investor to be very active. These are passive loans in which an investor lends money to a borrower who uses the funds to purchase a property. There are secured loans and unsecured loans that can be done at Quest.

• Secured Loan: A secured loan is backed by collateral, typically the property that is being purchased by the borrower. Generally, it will mean if the borrower defaults on the loan, the lender has the right to foreclose on the property and recover their investment. Secured loans are generally considered less risky for lenders than unsecured loans because the collateral provides a way to recover their investment in the event of default. This makes secured loans more attractive to lenders and can result in lower interest rates for borrowers.

 

• Unsecured loan: An unsecured loan, on the other hand, is not backed by collateral and is based solely on the borrower’s creditworthiness, income, and other financial factors. Because there is no collateral involved, they are considered riskier for lenders than secured loans.

 

Real Estate Notes

Notes can be created from scratch or they can be bought after the agreement was created. As mentioned above, real estate notes, also known as promissory notes or simply “notes,” are a type of passive investment option that allows an investor to loan funds to someone with set terms.

• Performing notes: A performing note is a loan in which the borrower is current on their payments and is paying back the loan according to the terms of the agreement.

 

• Non-performing notes: A non-performing note is a loan in which the borrower is delinquent on their payments, and the loan is in default. These notes can offer the potential for higher returns but also carry a higher level of risk.

 

• Owner-financed notes: An owner-financed note is a loan in which the seller of a property provides financing to the buyer. The buyer makes payments directly to the seller, who acts as the lender.

 

• Wrap notes: A wrap note is a loan in which the buyer takes out a new loan that wraps around an existing loan. The new loan combines the existing loan with additional funds and is paid to the seller, who acts as the lender.

 

Cryptocurrency

Cryptocurrency, like Bitcoin, Ethereum, and Litecoin, can be a good investment for self-directed investors. Cryptocurrencies provide diversification and have the potential to generate significant returns in a short amount of time due to their volatility. However, it’s important to note that this also means they can experience rapid and significant losses. Some other risks include lack of regulation and security concerns. It’s important to do thorough research and understand the risks before investing in cryptocurrency.

You now know some of the most common Self-Directed IRA investment options and can feel confident starting your next investment. Of course, investing requires due diligence, research, and knowledge of the investment you are considering.

If you still need to open your account, you can reach out to a Quest Self-Directed IRA Specialists and we can help. Be sure to give us a call and ask about our current promotions; you just might get your first transaction fee waived! Schedule your consultation today!

Estimated reading time: 3 minutes

Your IRA is one of the most important tools you have when planning for the future, and one of the best ways to help your IRA grow while reducing your taxable income 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.

Contribute for 2022 and 2023

If you are eligible to contribute to both tax years, you can make a contribution for the 2022 tax year before the tax deadline (April 18, 2023 for this year), and then make a separate contribution for the 2023 tax year once the contribution period begins (typically January 1 of the tax year).

Be sure to indicate the tax year to which the contribution applies to avoid confusion with your financial institution or the IRS. If you haven’t made last year’s contribution, this is the perfect opportunity to maximize your accounts by contributing as much as possible.

Depending on your personal financial situation and retirement goals, it makes sense to contribute every year to your account so that your investment funds have the most time to receive the maximum growth potential.

If you have the funds available and haven’t yet contributed the maximum amount for the 2022 tax year, it may make sense to make a contribution before the tax deadline to take advantage of the tax benefits and help boost your retirement savings.  If you have already contributed the maximum amount for the 2022 tax year and for 2023, you’re ahead!

What are the Current Contribution Limits?

 

How Do I Make a Contribution to my Quest Account?

You have a few different options to contribute to your retirement account

• Mail a check to our corporate office in Houston at 17171 Park Row, Ste 100, Houston, TX 77084
• Drop off your contribution check at one of our offices in Houston, Dallas, or Austin with a Deposit Coupon attached.
• You can also send contributions via ACH or wire using the delivery instructions . Contact our office for more information.

 

What Are Some Other Ways to Fund My Account No Matter the Time of Year?

Contributions aren’t the only way to get funds into your SDIRA. If you have already made your yearly contributions and are still looking to move funds into your account, you have the options to either transfer from another IRA or you might be able to rollover all or a portion of your employer sponsored retirement plan. Here’s what you’ll need to know for each:

• Transfer funds over from your current IRA:
  • Print out the Quest Trust Transfer Form,
  • Upload your completed forms to our Secure Document Upload.

• Roll funds from your existing 401(k), 403(b), TSP, or other retirement:
  • Contact your current plan provider to initiate a Direct Rollover to your Quest account.
  • Complete Quest’s Rollover Form.

(Note: our Rollover Form does not initiate any movement of funds.)

It’s important to consider factors such as your current income, tax bracket, and other retirement savings when deciding whether to make a contribution to an IRA. It may also be a good idea to consult with a financial advisor to determine the best course of action based on your individual financial situation and retirement goals. As always, our certified specialists are available to help answer your contribution questions, so give us a call today!

 

Estimated reading time: 3 minutes

The Setting Every Community Up for Retirement Enhancement (SECURE) Act expanded the options for retirement savings by allowing SEP IRA and SIMPLE IRA contributions to be designated as Roth IRAs. This “rothification” means that contributions to these types of savings plans can now be made on a post-tax basis, allowing the funds to grow tax-deferred and to be withdrawn tax-free in retirement. This provides additional flexibility and tax planning opportunities for small business owners and self-employed individuals who participate in these types of plans.  

It’s important to note that there are general guidelines and other factors that may affect an individual’s eligibility to contribute with a Roth component, including the type of plan they participate in, their income, and other factors; the biggest unanswered question is how and who will track the contributions.

SEP IRA: only the employer is making a contribution, therefore easier to track the Roth component side.

SIMPLE IRA: two people are making a contribution, both employer and employee.

Can only the employee make Roth contributions to a SIMPLE IRA? Can only the employer make Roth contributions to a SIMPLE IRA? Or is it a combination of both? These are just some of the questions with answers that are unclear at this point in time. Regardless, this could be a huge opportunity for those that have spoken to a knowledge tax professional and are eligible.  

 

Pros and Cons of Designating a SEP IRA or a SIMPLE IRA with a Roth Component: 

Pros: 

• Tax -free withdrawals: With a Roth component, contributions are made on a post-tax basis, and qualified withdrawals in retirement are tax-free. This provides more certainty about the amount of income that will be available in retirement, since taxes won’t eat into the retirement Imagine paying money on your ‘acorn’ so you can grow your ‘money tree.’

• Eligibility: Those who previously were unable to contribute or benefit from a Roth IRA because of their income limits may now be able to participate via their SEP or Simple IRA.

• Required Minimum Distributions (RMDs): With a traditional IRA, you are required to start taking distributions once you reach a certain age. With a Roth component, there is no such requirement, which means that you can leave the money in the account to continue growing tax-free for as long as you While SEP and Simple’s will still have RMDs, eligible individuals will be able to continue making contributions.  

 

Cons: 

• Higher taxes upfront: Since contributions to a Roth IRA are made on a post-tax basis, you’ll pay taxes on the contributions upfront, which could result in a larger tax bill in the year the contributions are made.

• No tax deductions: You can’t deduct contributions from a Roth, because you already paid taxes on the money before adding it to your account.

 

In conclusion, designating a SEP IRA or SIMPLE IRA with a Roth component can provide a number of benefits, but it’s important to consider the trade-offs. It’s always a good idea to consult a financial advisor or tax professional to determine what’s best for your unique situation. If you have more questions or are ready to open your SEP or SIMPLE IRA, Quest representatives would love to speak with you so schedule a free one-on-one chat with your certified representative. 

 

Estimated reading time: 3 minutes

While most of us spent the Christmas holiday eating fruit cake, opening presents, and spending time with the ones we love, Congress was busy making decisions that would affect SDIRA retirement account holders. If you haven’t heard yet, Congress has passed a massive piece of retirement legislation that will have a significant impact on IRAs and the entire retirement industry. The SECURE 2.0 is a collection of provisions intended to build on the SECURE act of 2019. The act was part of a 1.7 trillion omnibus spending Congress approved right at the end of 2022.   While this post won’t cover everything, we will highlight the main points and significant changes Quest specialists believe are the most crucial for alternative investors to know.    Does 2023 SECURE Affect Retirement Accounts Self-Directed IRAs and 401(k)s alike will be affected by the SECURE Act 2.0. Some changes you can expect to see are regarding Required Minimum Distributions and other distributions, contributions, and prohibited transactions. Other things to be aware of will be changes to enrollment and employer matching for 401(k) holders, finding lost benefits, and Saver’s Credit.     RMDs/Distributions  One of the biggest changes is the increase for Required Minimum Distribution age, which was 72. The age increased to 73 effective in 2023. If you turned 72 in 2022 or earlier, you still have to take your 2022 RMD. It’s also important to note that the RMD age will increase to 75 in 2033.   The penalty for not taking an RMD has also been lowered from 50% to 25% (or 10% if corrected in a timely manner), and there will be no more in-plan RMDs for Roth funds in 401(k)s starting in 2024. For distributions, there is no penalty tax on distributions of income on excess IRA contributions.   Contributions  There are also some changes surrounding contributions, too. One of the most notable changes will be for SEP and SIMPLE IRAs. Before, these accounts could only hold pre-tax contributions. Now, they can hold both pre-tax and post-tax funds. Catch up contributions saw a change, as well. Currently, catch-up contributions are stagnant at $1,000, but with the new act, they will now be indexed with inflation starting in 2024.  401k/General Retirement Accounts  Pre-Secure Act 2.0, employees needed to elect to enroll in a 401(k) plan and then determine their contributions. All new 401(k)s must automatically enroll participants to contribute at least 3% and not more than 10% and automatically increase contributions 1% per year to 10%-15%. Participants can still opt out but this will start in 2025. Another change is that, before the new legislature, the employer matching was strictly based on employee contributions. Now, it allows employers to match student Loan payments into 401(k)s. The act makes changes to the Saver’s Credit, too, effective after December 31, 2026. Saver’s Credit offered a tax deduction for those who participated, and now Saver’s Credit is going to be a matching system that will deposit funds into an individual’s retirement account.   Where employees needed to keep track of all QRP accounts from past employers, that is no longer needed. The Department of Labor will create a Retirement Savings Lost and Found no later than two years after the date of enactment of SECURE 2.0 to help individuals locate their pension or 401(k) benefits.   Prohibited Account Transactions  The last topic we will cover is about is prohibited transactions. The final bill that passed into law “clarified” to affirm that each IRA is a separate contract. In other words, if you do a prohibited transaction in one IRA, that gets blown up under the regular rules. But this doesn’t affect other IRAs of the same person. And, of course, this provides no relief for prohibited transactions done prior to 2023. As Shakespeare would say, this is “much ado about nothing”!  As you can see, there are some very big changes that SDIRA and retirement account holders need to be aware of. While it provides a lot of increased opportunities, every situation is different. If you have more questions about the SECURE Act 2.0 changes,  call our IRA Specialists for more information.