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The Benefits of Establishing an IRA for a Minor

Posted on by Rebecca Parker
Estimated reading time: 6 minutes

Every parent dreams of providing the best possible future for their child, filled with opportunities, security, and a strong foundation to chase their aspirations. Though, in a world of ever-changing challenges and uncertainties, it requires more than just a dream to achieve your goals. It demands strategic financial planning. Securing the best future for your child begins with a simple yet important (and impactful) step: saving early. One way this can be done is by establishing an IRA for the minor. That’s right – anyone can have an IRA as long as they have earned income, even those that are under the age of 18. With many creative strategies available, utilizing a minor IRA to save for your child’s future during their early years can create remarkable outcomes for years and years to come. In this article, we’ll discuss how you can start building a nest egg for your minor.

What Exactly Is a “Minor IRA”?

A Minor IRA is a type of individual retirement accounts (IRAs) that gives a parent or legal guardian the ability to contribute on behalf of a minor. Whether it be a Traditional or a Roth IRA, these accounts specialize in allowing parents and guardians to start building a retirement nest egg for their child from an early age. While minor IRAs are owned by the child, they are managed by the parent or legal guardian until the child reaches what is called “the age of majority,” which is typically 18 or 21, depending on the state laws. Then, once the child reaches the age of majority, control of the account is transferred to them, allowing them the responsibility to manage the account, make future contributions, and control their investment decisions.

Just as you would expect with a normal Traditional or Roth IRA, these accounts provide the same tax benefits to minors, such as the ability to get tax-deductions or qualified withdraws later in life (depending on the type of account the child has). It very quickly becomes clear to see how these minor IRAs can be valuable, not only as a way to save for your child’s future, but also as tools to teach kids a number of financial lessons.

Defining Earned Income

So, what is “earned income” as it relates to a minor? According to the IRS, “Earned income includes all the taxable income and wages you get from working for someone else, yourself or from a business or farm you own.” This means that if your child receives income documented on Form 1099 or W-2, that income qualifies. For a minor, this means that earnings from tasks like babysitting, yard services, or participating in a parent’s business may also be considered. For example, some real estate professionals will use their children as paid models for advertising materials, and this could be a way a child could gain income.

No matter what creative path a parent or guardian takes, proper documentation must exist that show the amount the child received, the type of the work, and the timeframe. It’s a good rule of thumb that parents should seek advice from a tax consultant or other financial advisor to confirm that their child’s income is actually considered earned income.

Knowing how much to contribute is also key. The contribution limit is the lower of either of these two options: 1) their earned income amount, or 2) $6,500 in 2023. And although contributors cannot claim a tax deduction for contributions made to a minor IRA, in this case a Traditional IRA, the child may be eligible for a deduction if they file a tax return in their own name.

Why Consider a Minor IRA for Your Child?

The biggest benefit of establishing a minor IRA is arguably the fact that your child can start growing their nest egg as early as possible, but there are other reasons why one might consider establishing a minor IRA. Another advantage offered by minor IRAs is the potential accessibility of funds for significant costs, especially if the account is a Roth IRA, which allows withdrawals of contributions if the account has been established for at least five years. Traditional IRAs, although they have stricter guidelines, can also allow for penalty-free withdrawals – under specific circumstances.

Another consideration might be educational expenses. Account holders can utilize funds for educational costs, but it’s still important to note that they will be liable for taxes on the earnings. Still, using the money for qualified education expenses such as tuition, fees, books, supplies, equipment, most room and board, and many other expenses do not incur the 10% early withdrawal penalty. Additionally, withdrawals before the age of 59½ for first-time home purchases are possible when a child has a minor IRA, provided the funds are employed for a down payment or closing costs. (Note – this withdrawal is capped at $10,000.)

Choosing the Right Account for Your Child

Once you’ve decided that a minor IRA might be the right choice for your child, you’ll want to decide which account will be best suited for them. Minors have the option to have a Traditional IRA or a Roth IRA. However, if they’re earning a lower income and don’t make enough to owe taxes, the tax advantages of a deductible Traditional IRA contribution might not be as helpful. Because many kids don’t make a lot of money, they don’t really get much advantage from the tax break you get upfront with regular IRAs. So, in most cases, it’s smarter for them to go for Roth IRAs instead and have tax-free growth. Roth IRAs are better for young people with low incomes now because they’ll probably end up in a higher tax bracket later on.

Let’s look at an example. If a child keeps money in a Roth IRA until they’re 59½ (according to today’s rules), they won’t have to pay any taxes when they take it out. When they retire, they’ll likely have more money and be in a higher tax bracket. That means they’ll get to keep more of their cash. Then, even if the minor child wants to use the money before that age, a Roth IRA is still a good idea. This account works well for those whose tax situation will probably be worse when they take the money out compared to when they put it in.

Also consider the type of investments you would like the ability to make on your child’s behalf. Maybe instead of investing in the stock market, you want the ability to invest in real estate? With a self-directed IRA, the funds can be invested in a wide range of alternative assets. You can even partner their IRA with your IRA to be able to purchase larger investments.

Conclusion

As you can see, establishing a minor IRA for your child offers a strategic pathway towards securing their financial future. By starting a Roth IRA or a Traditional IRA on their behalf, you set the stage for long-term advantages that extend well into adulthood. The tax-efficient growth, compounded over time, can accumulate major savings that serve as a valuable resource for their education, life milestones, and eventually… retirement. In addition, financial awareness and responsibility from a young age empowers them with essential skills that will – hopefully – contribute to a lifetime of smart money management. Overall, it’s very clear to see the benefits of establishing a minor IRA. Start creating the journey to provide your child with a solid financial foundation and call or schedule a 1 on 1 with one of Quest’s IRA Specialists to learn how.

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

Posted on by Ingrid Chavez
Estimated reading time: 3 minutes

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

 

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

 

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

 

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

 

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

 

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

Growing Your Retirement by Investing in What You Know Best: Getting Back to the Basics

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

Building wealth and saving enough for retirement can get overwhelming, but it doesn’t have to be. Most people think that they can only invest in publicly traded investments like stock, bonds, mutual funds, and CDs… but that isn’t true at all. With self-directed IRAs, you can diversify your investment portfolio into private assets like real estate, notes, land, oil and gas, and other private entities. The best part? It’s all on your terms. Self-directed IRAs truly allow people to take back control of their retirement savings and invest in assets that make sense to them. 

What is a Self-Directed IRA?

Self-directed IRA custodians make investing fun while putting the control back in your hands. A self-directed IRA is like any other IRA account; the term “self-directed” is just used to describe the type of account it is. The difference between a regular traditional IRA and a truly “self-directed” IRA is the types of assets they hold. With a self-directed IRA, you have the ability to choose from the broadest possible spectrum of investments, including those not traded on a stock exchange. You get to make all the decisions about your financial future. Most people find that they make more money and feel more confident when they are able to invest into things they know and understand. 

What Can an IRA Invest Into?

A self-directed IRA can be used to purchase almost any private asset. Common investments include single family real estate, rehab properties, commercial and multifamily real estate, private loans, performing and non-performing notes, oil and gas, land, startup companies, LLCs, and other private businesses. The list goes on! The rules say that as long as you do not invest into collectibles, like art or cars, and life insurance you are safe. 

What types of accounts can be self-directed?

Every custodian will offer different accounts. At Quest, we offer seven different types of retirement accounts that can be self-directed:

  • Traditional IRA – With the Traditional IRA, your earnings grow tax-deferred. Only pay taxes on your gains when you make withdrawals in retirement.
  • Roth IRA – The Roth IRA is a special retirement account where you have the ability to grow your profits completely tax-free.
  • SEP IRA – This self-directed tax-deferred account can be great for self-employed individuals, allowing a tax deduction for contributions made to a SEP IRA.
  • Simple IRA – A SIMPLE IRA is an employer-sponsored retirement plan designed specifically for small businesses, giving employees and employers a simple way to contribute and grow this account.
  • HSA – Get the best of both worlds with an HSA, with the ability to get tax-deductions on contributions and tax-free distributions for qualified medical expenses.
  • ESA – Education isn’t cheap, but with a Coverdell ESA you can earn tax-free distributions on countless qualified educational expenses as you self-directed this account.
  • Solo 401k – With the extra benefits that come with this account, like checkbook control and more freedoms, many people are eager to learn how to get started – just make sure you qualify.

Self-direction can be a great option for those looking to take more control of their financial future. If you are interested in learning more about self-directed IRAs or would like to get started, schedule a free consultation with an IRA specialist today by clicking here!

How to Effectively Plan for the Future – Probate Discussion with Attorney Emily Bohls

Posted on by Quest Trust Company
Estimated reading time: 11 minutes

How soon is too soon to start planning for the future? Never! When it comes to making future plans and arrangements, most people seem to forget about potential probate scenarios that may arise. Although, your retirement account might have the potential to bypass probate, it’s important to understand how this process could affect your self-directed retirement plan.

Attorney, Emily Bohls, joins me in this article to help define and explain some of the basic Texas probate laws, which can be difficult to navigate for the common investor. 

Sarah: 

Thank you for joining me today. Can you give me a bit of your background? Tell us who you are, what you do, etc.

Emily:

I am an attorney, and I’ve been practicing for 14 years now. I went to law school in Houston – South Texas College of Law. My first seven years I was actually working for South Texas College of Law as a staff attorney at their legal aid clinic, primarily doing family law and probate. The model of the clinic was evolving, and I eventually became the manager of the clinic and an adjunct professor. In 2013, I decided that it was now or never to start my own practice, and that is what I’ve been focused on since then.

Sarah: 

So, that’s what you did next?

Emily:

I remained an adjunct, teaching the probate clinic. It was a practical course where the students got actual cases, and they were legal aid cases. I think I gave that up in about 2018, because I needed to concentrate fully on my practice. Now, I’ve been focusing on my practice and growing that. I’m primarily a probate practice. I also do guardianships, which is kind of under that umbrella. I’m working on merging/forming with another firm that offers family law, but that’s probably six months away from coming to fruition.

Sarah: 

You wear all the hats! Jack of all trades! What made you want to get in to this type of career? I feel like most people aren’t thinking, “let’s do probate”, so what was it that interested you?

Emily:

I always thought it was interesting. I’ve experienced death in my family, and we had to go through these processes. Some experiences were good, some were bad. When I was working at the legal clinic, since it was one of the things that we did, I gravitated towards it. I find it so fascinating because you have to know something about everything, since it really depends on what people die with. In some ways, it’s formulaic and very code driven. I appreciate how well organized the area of law is, especially in Harris County. The courts are great; they have a judge, associate judge, and a staff attorney that make sure everything’s perfect all the time.

Sarah: 

Having a good system always makes things a little bit easier. If you’re already having to deal with something that’s complicated, you don’t want to have a complicated system, as well!  I’ll jump right into my first question. For those here that are familiar with probate but are reading to get a better understanding, can you define probate for us and why it’s important to understand in relation to Self-Directed IRAs?

Emily:

Probate is the formal process of getting assets out of a deceased person’s name and into that of his/her heirs or beneficiaries’ names. So, as it relates to Self-Directed IRAs, if a deceased person had any asset that listed a designated a beneficiary, then the formal probate process is not necessary and the beneficiary can deal directly with the asset holder. Usually, I’m talking about financial assets, but you can have a piece of property that you’ve acquired in your SDIRA but that account has a beneficiary. If your loved one dies and leaves you as the beneficiary, then you would contact Quest and ask them information and what you need in order to change this account over into your name.

Sarah: 

How involved is the custodian when somebody passes away? 

Emily:

The custodian is mostly passive, waiting for notification and then receiving the notification. They’re not going to find it by looking through the death records or from the obituaries. They’re going to need to be notified by the beneficiary, and the beneficiary needs to contact that institution. Whether it’s a custodian of a Self-Directed IRA, if it’s an insurance company, if it’s a bank, an investment firm – all of those are different entities and the beneficiary needs to reach out to them. If you don’t know you’re a beneficiary, that’s where it gets kind of tricky. Nowadays, no one really has paper statements anymore. In the past, you could rely on looking through the loved ones’ mail, but now you have to look through their computer, passwords, and usernames.

Sarah: 

Oh man, I never thought about that. 

Emily:

Yes, so you can see how tricky that can get. And there’s no harm in digging around!  But, if you contacted Quest because a loved one died and you’re not the beneficiary, Quest is not going to tell you any of the asset holder’s information if you’re not the beneficiary. 

Sarah: 

Thanks for answering that. It’s so important that clients understand our role as the self-directed IRA custodian.  

Emily:

If you’re really lost and have no direction, then it’s possible to open probate and to get an executor/administrator with the authority to act on behalf of the estate and perform the necessary inquiries. Now, if I was an executor/administrator and I inquired, I have authorization. I could potentially find out who the beneficiary was or get them going. But, that would be a lot of work. For planning purposes, you should write your assets and accounts down or print out a statement of account and have a folder to keep everything in one place. Even if you have old stuff in your folder, like a closed account, there’s still no harm. Try to have all of your accounts in one place, so that [your beneficiary] knows who to contact.

Sarah: 

It definitely sounds like it could get complicated. Especially if you didn’t know you were a beneficiary! Is it possible to avoid this probate process all together?

Emily:

It is possible, but it requires planning. I think you need to sit down and write out everything you own as an asset. And don’t say cash! If you have life insurance policies, financial accounts, self-directed IRAs, IRAs, homes, boats, whatever – list it all out! Then go through your goals. If your goal is to avoid probate, then you need to make sure each asset is planned in such a way that that’s what would happen. The first step is listing out everything, so that you know what to do to plan for each asset.

Sarah: 

Let’s say a family has done poor planning, and they do have to go through the probate process. Can you explain that process for us? Is it long? Is it complicated? Does it differ for everybody? 

Emily:

It can be long and difficult, but sometimes it can be quick and straightforward. It really depends on the types of assets the decedent has and how well the heirs/beneficiaries/personal representative get along. An attorney will advise your executor/administrator or interested party as to the proper probate process for your estate, but, generally speaking, an application is filed, all interested parties are notified, a hearing is held and the executor/administrator gets court authority to officially commence his/her role as fiduciary. The executor/administrator then begins collecting assets, paying debts, taxes, etc. After everything is accounted for, debts/taxes paid, then the executor/administrator will distribute the assets according to the will or the laws of descent or distribution.

Sarah: 

Okay. Yes. It does sound like a lot of moving parts and a lot of steps there. It’s definitely important to have somebody who knows what they’re doing.

Emily:

Sometimes it’s not even because you have a complicated estate. It just depends on how long it is. And there are always things that can get jammed up.

Sarah: 

Speaking of those jams and things that could get complicated. How does the probate process differ from state to state? Can this hold things up? How do different laws in each state factor into this?

Emily:

They do differ and every state will have different requirements. It could also require ancillary probate. When I say ancillary probate, it means you’re going to have to do something in that other state to get that asset turned over. It’s the process of transferring property that is located in a state.  That’s why a lot of people who are residents will put their non-Texas assets in a trust. 

Sarah: 

Because you mentioned an executor, let’s touch on that. Who should I appoint as my executor?

Emily:

I would say first and foremost, it should be someone that is trustworthy, somewhat business savvy, resourceful, diligent, and dedicated, because it’s a job. It’s a job, no matter how simple it is. For example, everyone’s going to die with some bills. You’re going to have a Verizon account or a Comcast account, and you’ve got to shut all that down! It may be just trying to get it transferred over to your name, but you know what it’s like to even get on the phone with someone if you have an issue. It may take two hours. And that’s just the preliminary phone call! First, you’re going to call to find out what they need, then there’s a follow-up where you have to send them a death certificate or whatever. Then you maybe pay the final bill, and finally, actually follow up to make sure they did it. You can see, every little thing is going to take time, and it’s a lot of work. So, you could appoint your spouse or child, just as long as they have those attributes.  At the very minimum, your executor needs to have the ability to understand that this is going to be a process and that they could hire a good attorney to guide them through it. 

Sarah: 

What would happen if your loved one died without a will? What happens then?

Emily:

This is called dying intestate. If there is no will, someone needs to step forward to choose a process of getting the loved one’s assets out of their name and into the name(s) of the heir(s). The method of doing this will depend on the assets your loved one leaves behind. The loved one’s heirs are defined under the laws of descent and distribution.

Sarah: 

What actually constitutes a valid will?

Emily:

With this, it’s such a specific question, and you can’t generalize. It’s the law. It’s as follows:

  • Testator was at least 18 years old (or has been married or a member of the armed forces) at the time of execution
  • In writing
  • Signed by the testator or another person on the testator’s behalf in the testator’s presence and at the testator’s direction
  • Attested by 2 or more credible witnesses who are at least 14 years old and who subscribe their names to the will in their own handwriting in the testator’s presence
  • Credible cannot be a beneficiary
  • For holographic will: wholly in the testator’s handwriting

Sarah:

And does that have to be official? Typed up or notarized?

Emily:

No! It could be on a napkin. As long as it’s all in your handwriting. Just have something that works in a pinch. It could be better than having nothing at all.

Sarah:

Thank you for clarifying! One of my last questions relates to potential complications with large families. If somebody is in a mixed family, how can somebody protect themselves in those types of situations, i.e. stepchildren, new spouses, etc?

Emily:

First, make sure you know what you have by writing it down and when you acquired it (before or after marriage). Familiarize yourself with the laws of intestacy and where real property vs. separate property goes if you die without a will. Once you do that, picture how you would want your estate to pass once you die. Make sure you have a will. A lot of times people choose to utilize trusts to take care of a surviving spouse while they are alive, but leave the trust assets to their children once their spouse dies. There can be unintended consequences of not doing anything. 

Sarah:

I think there’s a lot about the trusts that people just like. Plus, it’s a good shelter for things. 

Emily:

I think so, too. 

Sarah:

Well, Emily, I really appreciate you taking the time to dive deep and answer all these questions for me! Before we wrap up, what’s one piece of advice that you would give somebody who is planning and preparing for the future?

Emily:

I definitely think they need to write lists for what they have. That is a preliminary for figuring it out on your own. If you’re going to go see an attorney, a lot of times they’ll send out a preliminary questionnaire and that’s exactly what the goal of that questionnaire is – to see what you have. Also know, you are never responsible for a deceased person’s debts. Never. If you’re going to pay any expenses of administration or debts of a loved one, just make sure you keep all the receipts and then you can get reimbursed. 

Sarah:

That’s really helpful to know! I’m glad you threw that in! I think I’ve asked all of my questions, and I’ve loved getting to hear your answers and learn a bit more about the probate process. Thank you, again. I’ll include your contact information at the bottom for those that would like to learn more!

When preparing for the future, being proactive ahead of time is the best thing you can do. By following these practices, you can do everything you need in order to set yourself up later in life. To learn more about the probate process in Texas, you can contact Emily Bohls at emily@bohlslaw.com.

If you have questions regarding your benefices or any other Self-Directed account need, we would love to help. You can speak to an IRA Specialist by scheduling a free consultation HERE.

Sarah Bio

How To Maximize Your Investments Funds With Partnering

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

It’s no secret that people choose self-directed IRAs because of the many benefits they offer, like reducing taxes and providing options for alternative investments. They are also very powerful accounts for real estate investors, as they allow the possibility for utilizing creative investment strategies. 

What is Partnering? 

One of the great features of self-directed IRAs is that they don’t have to be used only on their own. Self-directed IRAs can work together by using a beneficial strategy called “partnering”. This term is used when one entity (or more) and an IRA come together to put up the funds for an investment. 

In this strategy, all parties have a vested percentage of ownership in the deal. When doing this, the percentage of ownership is decided at the beginning of the investment and must remain the same throughout the life of the investment. This means that any profit the investment receives is returned based on this percentage of ownership. Additionally, the IRA would be responsible for its percentage of any expense associated with the investment, too. 

Who does Partnering work for?

Partnering is a great strategy for a variety of people. For investors who are just getting started, partnering allows the chance to participate. Even having only a small percentage of a total investment allows a small dollar IRA to gradually grow. Oftentimes, Coverdell Education Savings Accounts (ESAs) and other small dollar accounts will partner together to purchase an investment. 

There are also many occasions when a good deal is available, but an investor doesn’t have enough money in their IRA to make up the total cost of the purchase. Being able to partner with another IRA account they may have or another money partner provides the ability to purchase the investment after all. 

It is also beneficial for account holders that have multiple IRAs. For those who want to utilize all of their accounts at once, this is a great way to have all accounts involved in one deal. Over all, partnering provides more possibilities for accounts to be involved in deals when they may not have been able to before.  

Who can your IRA Partner with?

Not only can one or multiple accounts be partnered together on investments, self-directed IRAs can also partner with personal funds. When partnering with personal funds, your IRA has a percentage of ownership and you do, too. This is not to be confused with doing a transaction with yourself. Keep in mind that when partnering with a disqualified person, the percentage of ownership is decided at the time of purchase and must remain the same throughout the life of the investment.

Knowing what you can do is great, but it’s even more important to know what you and your IRA can and cannot do. If you haven’t heard about disqualified people and prohibited transactions, it’s important to know these terms to better understand how partnering is different. Disqualified people are certain people or entities that your IRA is not allowed to transact business with, and it’s important to understand who they are before entering into any deals to avoid doing a prohibited transaction. 

Being able to combine funds with other investors and IRAs opens a door to a whole new world of possibilities, and understanding how to partner accounts will allow more investors to grow their accounts faster. For more information on partnering or how to maximize all of your self-directed IRAs, give an IRA Specialist a call at 855-FUN-IRAs (855.386.4727). To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

The Ultimate Guide for Finding the Right Self Directed IRA Custodian

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

If you’ve ever wanted to start a retirement account that gives you flexibility and greater oversight, a self-directed individual retirement account (IRA) is the way to go. 

A self-directed IRA not only allows you to choose your investments, but it gives you the ability to invest in a wider range of assets, such as real estate. 

However, to do this, you’ll need to find a self-directed IRA custodian. And not just any IRA custodian – ideally, you’ll be choosing someone who you can trust to make sure your money is safe.

This article will provide you with a detailed guide on how to find the most suitable IRA custodian.

What is a Self-Directed IRA Custodian?

Self-directed IRA custodians are banks, financial institutions, or trust companies who will maintain your account on your behalf. With self-directed IRAs, most of the responsibilities involved with investing goes to the investor, so this is where you’ll have more flexibility. At the same time, since the custodians will not be evaluating your investment choices, there is a greater risk of choosing fraudulent investment options.

Choosing A Custodian

The fact that self-directed IRAs can be risky is why choosing the right custodian becomes important. There are a handful of companies and institutions that offer this service, but if they’re not as aware of your investment wishes, they may not be the best fit for you. 

Here are the factors to consider when choosing the ideal self-directed IRA custodian.

1. Make Sure They’re Approved

The IRS has a list of approved nonbank trustees and custodians that they regularly update. Choosing an approved custodian can give you peace of mind because you’ll know that they’re following government regulations when holding on to your account. 

2. Are They Experienced in Your Area?

While some custodians are more general in providing their services, others specialize according to the area of investment. For example, if you are investing in real estate, having a real estate custodian to assist you in understanding your accounts and assets will be beneficial.

You will rely on the expertise of your custodian if you are new to investing or if your investment area is highly niche. They will be the ones to ensure that your documents and investments are IRS-approved. 

3. How Are They Charging You?

Before you choose a custodian, find out the fee structure that they’ll be using. Different custodians bill differently, with some charging based on services and others based on flat fees. 

Make sure you know the sort of payment they’ll expect, and how much it will cost you every year. If you need to, ask a lot of questions to clarify this and ensure that you’re not paying more than you should. 

Self-Directed IRA Carries Risks

Holding a self-directed IRA does involve more awareness on your part because it is riskier. This is why you’ll have to be the one doing the leg work and conducting the due diligence on investment options. It’s also why choosing a trustworthy self-directed IRA custodian can give you one less thing to worry about.

To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Making Money Moves: Understanding IRA Transfers and Rollovers

Posted on by Quest Trust Company
Estimated reading time: 6 minutes

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.

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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. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

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!

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3 Ways to Fund Your Self-Directed IRA
Check out this video on how to fund your Quest account today!

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

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

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. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

A Wise Investment: Your Guide to Investing in IRS Tax Liens

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

In an age where interest rates are at rock-bottom, and the US property market no longer promises strong returns, alternative forms of investment are on the rise.

One of these is tax liens, which have attracted billions of dollars of investment in recent years. Put simply; an IRS tax lien is when the government places a ‘lien’ on a property where the owner has not paid their taxes.

The government can then sell that lien to an investor as a means of recouping delinquent taxes.

If you have the know-how, determination, and skill to make a success of it, then investing in federal tax liens can be a significant boon to your portfolio. Read on to find out everything you need to know. 

1. How Do I Invest in an IRS Tax Lien?

If you want to invest in an IRS lien on property, then you will need to bid for a lien at auction.

The IRS and local governments routinely organize lien auctions, both online and at auction houses. You can conduct an IRS tax lien search online to find out where and when your nearest auction is taking place. 

Here, you can bid against other investors to obtain the rights to a delinquent taxpayer’s lien.

Typically, the winner is whoever is willing to pay the highest premium or accept the lowest rate of interest. If you bid successfully, the lien is yours. 

2. How Do I Make Money from a Tax Lien? 

A common misconception of a federal lien is that you can use it to gain control of a property and flip it. However, this almost never happens, and there are a ton of laws in place to prevent this from happening.

Instead, investors make money from the interest that the property owner must pay on the lien. Their overdue tax goes, naturally, to the IRS. Any interest due on that overdue tax goes directly to you – or in other cases, your Self-Directed IRA.

Most homeowners (about 98%) manage to redeem their property before the foreclosure process can begin. This means that you should not expect a bargain-basement home as a result of your investment. 

3. Do I Gain Ownership of the Property? 

As mentioned already, you will most likely not gain ownership of a property once you have invested in a federal tax lien.

If the homeowner does not manage to clear their debts, you do reserve the right to begin the foreclosure process.

If this is successful, then you will be able to take control of the property. However, this is a vanishingly rare occurrence, and you should not count on it when making your investment. 

4. What Are the Risks Involved? 

No investment is risk-free, and this is especially true of tax liens. If property owners refuse to pay their taxes or interest, then you won’t get a dime. Your only option after this is to begin foreclosure.

This will involve considerable expense on your part that might nullify the initial investment returns. You will have to hire security and clearance professionals to help you vacate the property.

After this, you will have to deal with the expense and effort of home maintenance in your attempt to sell. Also, even when bidding for a lien in the first place, you might find that interest rates are driven so low that it is barely worth it. 

Learn More 

Investing in an IRS tax lien can be challenging, but the returns can be substantial. In order to fully understand the ins-and-outs of tax investments, make sure to contact a Quest IRA specialist today for all of the expert advice to learn more about how these types of investments can be done in a Self-Directed IRA. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Know Your Value: A Guide to Fair Market Values

Posted on by Quest Trust Company
Estimated reading time: 2 minutes

You want to get the most out of your investment. After all, the point of any investment is to make money, so the last thing you want is to be getting less than you deserve.

The problem is that you don’t really know the fair market value. You don’t want anyone ripping you off after all of your hard work, so what do you do to make sure this never happens?

This article will show you exactly what you need to know about fair market values. Read on to find out more.

What Is Fair Market Value, Exactly?

The first thing you need to learn is what fair market value actually is. To put it simply, the fair market value is the price that an asset (such as your investment) would sell for on the open market. It’s the typical value under normal circumstances.

There’s a bit more to this, of course. For starters, it has to be a clean trade. Specifically, both the buyer and seller have to be reasonably knowledgeable about the asset, they have to be free of any pressure to trade, and they need enough time to complete the transaction.

Because of this, the fair market value should represent an accurate valuation of the product in question.

How to Calculate the Fair Market Value

Although there are nuances to calculating the value of your asset, for the most part, it’s actually pretty simple to add things up.

In the case of your investment, you’re going to take the price of your asset during the time of your original purchase and subtract values due to factors such as general wear and tear, depreciation, or any sudden damages that may have lowered the value.

In some lucky cases, you may be adding more to the original price. In that case, you would add any increase that accumulated to the price you originally paid for the asset, and get a new value for your investment.

This is an extremely simple way to calculate your investment’s value and get the most out of your product that you deserve.

The Company You Can Trust

Now you know about the fair market value and how it applies to your investment. However, the investment world can be a tricky one, and you’ll want all the help you can get to navigate it carefully and successfully. We’re the right team to have on your side.

At Quest Trust Company, we offer investment aid in fair market values, general investments, and even real estate. We also work with all types of IRAs, including traditional, Roth, SEP, and Simple IRA.

Ready to get started? So are we. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

We look forward to helping your investment reach its fullest potential!