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Category: Retirement

Compound Interest: How It Works In Building Wealth

Posted on by Sarah Shellam
Estimated reading time: 5 minutes

Compound interest is a fundamental concept in personal finance that can be utilized to generate long-term wealth through the ability to let your money work for you. Compound interest allows for exponential growth of investments, hence the phrase “the power of compound interest.” The more frequently the interest is compounded, the faster the investment will grow. This is because with more frequent compounding, there will be more added interest to the principal amount, which leads to more interest being earned on that interest. As a result, the investment grows faster over time helping you reach your financial goals.

Understanding How Compound Interest Works

It is important to first understand the difference between simple and compound interest. Simple interest is calculated only on the principal amount, whereas compound interest is calculated on both the principal and the interest earned. One of the key differences between compound interest and simple interest is the time period. Simple interest is usually calculated based on a fixed period, regardless of the amount of time the money has been invested. In contrast, compound interest is based on the amount of time the money is invested. The longer the investment period, the higher the returns from compound interest.

Compound interest is an essential concept for investors to grasp as it allows for exponential growth of investments over time. Understanding how compound interest works can help in making informed investment choices. To start becoming familiar with how compound interest works, one must first understand the variables in the compound interest formula. This formula involves four main variables: the starting principal amount, the interest rate, the frequency of compounding, and the duration of the investment. It’s important to understand how each of these variables affects the overall outcome of an investment. By doing so, they can gain the maximum advantage from compound interest and achieve their financial goals.

The principal amount refers to the initial sum of money invested. The interest rate is a percentage of the principal amount that is added to the investment each year. The frequency of compounding refers to how often the interest is added to the investment, which can be daily, monthly, quarterly, or annually. The more frequent the compounding, the faster the investment will grow resulting in higher returns. For instance, an investment with monthly compounding will yield faster growth than an investment with quarterly compounding.

Starting with a larger principal can have many benefits when it comes to building wealth with compound interest. A larger principal means that the potential earnings will be higher, resulting in greater wealth accumulation over time. For instance, if two individuals invest in the same investment vehicle, but one starts with a higher principal, they will earn more interest than the individual with a smaller starting principal. Additionally, a larger principal can help individuals reach their short-term financial goals faster, as they have more money available for investment.

Lastly, the duration refers to the time frame for which the investment will grow. Investments need time to compound in order for the returns to grow. For example, consider a self-directed IRA account with an investment that has an interest rate of 5%. If an individual opens the account with a $10,000 initial investment and leaves it untouched for 10 years, they will earn approximately $6,386 in compound interest on that investment. However, if they hold that investment in the account for 20 years, they will earn approximately $16,386 in compound interest. Add the fact that these investments are being conducting inside of a retirement account, those profits are also growing either tax-deferred or potentially tax-free. This illustrates how the duration of an investment can greatly impact the power of compound interest and help you achieve your long-term financial goals.

How It’s Calculated

The most important aspect of understanding compound interest is the compound interest formula. Each component of the formula plays an important role in calculating the future value of investments. To calculate how much compound interest you would receive over time, you can use this compound interest calculator from investor.gov. This is a great tool to help you with your financial planning.

Creating Generational Wealth with Compound Interest

While compound growth can benefit anyone who starts early and holds quality investments for a long period of time, it can also be used to create generational wealth that can benefit not just the current investor, but also their children and grandchildren. Using the concept of compound interest to create generational wealth is a smart strategy that can help individuals and families build long-term wealth that can benefit future generations by being passed down.

For example, if you start with $10,000 and add a $300 monthly deposit, you’ll have contributed $82,000 in 20 years, but with an estimated 5% interest rate compounded annually, your money will have grown to over $145,500. If you increase your contribution to $500 per month with the same interest rate and the same duration, your investment will now be worth $241,197! Small changes in contributions, interest rates and duration can make a huge impact on the long-term growth of your investments and the ability to reach your savings goals.

One way to take advantage of compound growth is through tax-advantaged retirement accounts, such as self-directed IRAs, Health Savings Accounts (HSA), Coverdell Education Savings Accounts (ESA) and 401(k)s. These accounts allow investors to contribute pre-tax dollars, which can reduce their taxable income and potentially save them thousands of dollars in taxes over the course of their career. In addition, gains in these accounts are tax-deferred until they are withdrawn, which can further boost investment returns. Some accounts, like the Roth IRA, even grow profits tax-free!

To maximize investment returns and create generational wealth, investors should diversify their investments across a range of asset classes, private and public, and custodians like Quest offer alternative investment solutions. By starting early, investing in quality companies, taking advantage of tax-advantaged retirement accounts and employer-provided plans, diversifying investments, and utilizing dollar-cost averaging, investors can maximize returns and create a legacy of wealth for their loved ones.

Understanding how compound interest works is extremely important when devising a financial plan to work toward financial freedom. Small differences in interest rates, compounding frequency, and investment duration can have a big impact on the final value of an investment. By understanding the compound interest formula and how it’s calculated, individuals can make informed decisions and maximize the power of compound interest. When investing, careful consideration should be taken, but if you ever have questions about self-directed IRAs or setting up a retirement plan, reach out to an IRA Specialist and schedule a 1 on 1 consultation today.

 

Women in Business – How to Be Successful

Posted on by Quest Trust Company
Estimated reading time: 9 minutes

Have you ever wondered if your gender could affect how comfortable you are in retirement? This may not be a question on everyone’s mind, but it’s something women are facing every day. Recent studies have shown that the challenges women face during their working years can affect their lifetime earnings and retirement income. In order to feel comfortable and prepared for retirement, being able to overcome those obstacles is key. Today, I will interview Tracy Rewey, a successful note expert who will share her tips for creating success as a woman in the industry. 

Sarah: Thanks for joining me today, Tracy. This article is going to be about successful women in business. I’ve been doing a lot of research lately that shows women don’t feel like they’re prepared for retirement. They feel lost. I want to talk to you – a successful women – how you were able to build up your nest egg, and tips for how others can create success, whether it be now or for retirement. 

Tracy: I love it. I think that everybody struggles with it. This fits right in with what we do.

Sarah: Can you tell me a little bit about who you are and how you got started?

Tracy:  Absolutely. I was introduced to the world of seller financing in the 80s and worked with real estate attorneys, title companies, and servicers in a very small town. There was quite a bit of seller financing there, so I learned about seller financing, notes, and people investing in notes. Then, I went to work for a company where that was all they did. I worked there for 10 years, then I started my own company called Diversified Investment Services with my husband. We founded noteinvestor.com and now I get to work for myself. You have so much more freedom of time and location, and you get to reap the rewards of all your efforts. That’s how I got introduced to the whole business.

Sarah: That’s cool. When you find something you’re passionate about, you stick with it. In the midst of all of this, where did you learn about self-directed IRAs?

Tracy: While I was working for the investment company, we had a lot of people that would refer us deals. Some of them would also buy the notes, keeping some of it in the backend in their retirement account. That was my first exposure. Seeing other people do it and going to conventions showed me, but I didn’t get to do my first deal until I left and converted my 401k to a self-directed IRA. 


Sarah: When you were first getting started, did you have any business partners besides your husband or outside help besides learning from the company that you had been with?

Tracy: I was very fortunate when I worked for 10 years there. I learned from some of the best. Marcus was their main guy in charge, and he was always like a mentor to me. He said, “Look, I have two daughters. They are in the business finance world. I want to teach you and to treat you the way I would want somebody to treat my two daughters.” I think that was unusual back then.

Sarah: Wow. What a kind role model. It’s good that you had someone in your life that to help with those stepping stones. What challenges have you experienced throughout your time in this industry as a woman in business?

Tracy: I think there are benefits and I think there are challenges. Some of the challenges for me is not sounding assertive enough. I don’t have that deep voice to sound more assertive. I’ve found that saying less when I’m in certain situations usually helps instead of saying too much. I tend to be a talker. I also think being underestimated can be a challenge, but that can also work to your benefit.

Sarah: And what have some of those benefits been?

Tracy: I struggle with saying it’s a male or female trait, maybe it’s a personality trait, but I do believe that women tend to be natural listeners, natural fixers, and natural empathizers. In the business I’m in, people are often selling their notes, because they’re trying to solve a problem and they need the funds for something else. Maybe they had a health concern, the note’s not paying, they have to send their kid to college, or they’ve lost a job. It’s important to be a good listener and a good empathizer. I don’t use that as a strategy. It’s just something I do naturally, and I think that has been a benefit. I am also an analyzer and I’m very detail oriented. Sometimes women make up for not being sure by trying to be over sure, but in our business, that is also a benefit. I don’t mind going through the documents, taking the time, and making sure that I don’t take everything at face value. 

Sarah: I love that take on it. You don’t often hear those points you made. Has being a female ever stopped you from a successful investment? Have you ever experienced discrimination?

Tracy: Honestly, if it has, it might only be because I was still learning to trust myself. That’s one of the things I always say: wealth doesn’t know you’re a woman, right? This financial calculator doesn’t know I’m a woman, right? The title policy doesn’t know that when I look at a payment history. It doesn’t know the interest rates. I think it’s a good industry on the finance side. Now, I definitely experienced things that were expected, like really proving yourself before someone would move you up. I always joked that I had to do twice the work and make half the mistakes, but I eventually became a vice president at that company. Another female and I were the first vice presidents the company had. 

Sarah: Oh wow! What a big accomplishment!

Tracy: Thank you! I think you have to grow thick skin. I don’t mean that to discount what anybody has gone through, because I know there are people who’ve had serious discrimination and it’s been very wrong, but I’ve been fortunate. 

Sarah:  Well, that’s good! That’s good that you haven’t! That’s what we like to hear. I’m sure that there were probably some tough times that you had to go through still. How did you persevere through those?

Tracy: When I started out, my first job besides babysitting was in high school, I worked for an attorney’s office. I used to do all the routes, picking up and dropping off papers. There was this one real estate office with this one gentleman and I was young. I’d go to pick up papers and he actually swatted me on the backside as I was walking out the door one time. I was in tears. There was a lady who I worked with, the mother hen of the office, and she was not having any of that. Shortly after, that route was no longer on my route, and they had to bring their own documents to our office. I felt validated, which was nice. 

Sarah:  Wow. I’m glad that they took you off that route. That’s good.

Tracy: I know. I commend them. They didn’t pretend it didn’t happen. I’ve been surrounded by good people in my life that were supportive. I had a very strong mother too, so she learned to make me stand up for myself.

Sarah: Always so much to learn from our mothers! Now, you are quite successful. You have your own business, you’re hosting expos, and you’ve got a solid track record behind you. What would you say is your secret to success?

Tracy: I would say perseverance, being a good listener, being a good problem solver, and not trying to squeeze every last dollar. I know it’s cliche, but I really believe that there are ways to make everybody come out of a situation feeling good about it. I think being able to collaborate with other people is key. I’m so very fortunate I’m at a place in my life where I can support and help other people that are learning the business. I get a lot of enjoyment out of that.

Sarah: That’s great! So, what about self-directed IRA investing? Have you used your expertise to invest with a self-directed IRA? 

Tracy: I’ve done some partials in my IRA. Those have turned out well. I try not to mix income. If I’m putting a deal in my IRA, I keep those separate. If I buy all of it in the IRA, I sell all of it through the IRA and hold it for a certain amount of time.

Sarah: That’s smart to keep those two buckets separate.

Tracy: I’m probably more careful than most. I never want to co-mingle funds in any way.

Sarah: Very smart. It sounds like you’ve been able to balance that quite well. How do you handle your work/life balance? 

Tracy: The real answer is that I still struggle with that. I wish I had words of wisdom. I think we tend to put ourselves last, and then we think we’re doing it because we love and support all the people around us. Really, what happens is that we end up not being the best form of ourselves when we run ourselves thin. Then, nobody really benefits. I have learned over the years that you have to take time for yourself. You have to have balance and understand that everything will not always get done. We have to make time for ourselves and to nurture ourselves, but sometimes we forget to do that. It’s good when you have somebody around you that you can trust. But I’m still working on that. 

Sarah: I think that’s true. I think a lot of people are continuously working towards finding the right balance. To round it here with some of my final questions, what would you like to achieve next? What are your goals? What’s on the horizon for you?

Tracy: I have a goal to help women become more comfortable and secure in investing, and I think there’s some beautiful trends happening where I’m seeing more of that. I’ve been trying to be part of that movement. Last year, we started the Wise Women Investors Group and the Wise Women Expo. It’s about building that community and supporting women to be confident, to invest with confidence, and to gain freedom so they can live more balanced and free lives. 

Sarah: That really is amazing! And I know there are other educational resources you’ve done. Care to mention that?

Tracy: I’ve written a 400-page manual, but it’s not a digestible book. It’s more of a “how-to”, so that’s on my horizon as well.

Sarah: That’s exciting. You’ve definitely done a lot in your career. My last question for you is this: for the women looking to get more involved and grow their retirement accounts, what are your tips for growing a self-directed IRA?

Tracy: We actually did a wonderful webinar with Quest on that. It was about my top 10 tips for buy notes in an IRA. I would definitely refer people to that class. If I had to boil it down to a couple of things, I first would say to just do something and to start wherever you are. We are constantly underestimating ourselves or being frustrated by something we didn’t do. I encourage everyone, no matter where you are at in your time, to let that go and to start. If you don’t have an IRA account, then open one. If you have one and you haven’t fully contributed to it, then figure out how to do that. If you’ve done that and you still haven’t fully invested your money and it’s sitting there uninvested on the sidelines, then do something about that. I’ve certainly been guilty of all those things along the way, so I’m not preaching or judging. I’m just saying, take some action. Learn, invest, and make some mistakes because you learn from those. I have. Lastly, solving problems. They don’t go away by ignoring them.

Sarah: That’s great advice. Everything you mentioned is so true. Tracy, thank you again. I really appreciate the time you’ve set aside to participate in this article. Hearing you share how you’ve been successful as a woman in the industry was really inspiring. You’re a wealth of knowledge and have shared some great advice. 

If you would like more information about the Top 10 Tips for Buy Notes in an IRA, you can rewatch the class on our Youtube page! 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.

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 the CARES Act Relates to Retirement Accounts

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

The COVID-19 crisis fundamentally changed society in many ways and spread through the world like a wildfire. While much of the United States stayed home in isolation, the federal government passed the Coronavirus Aid, Relief and Economic Security Act to help relieve the burden on families, businesses, and local governments.

The CARES Act is expansive and contains many provisions, but what does that mean for the financial wellbeing of your family? We’ll examine some aspects of the Act that impact your family finances and the pros and cons of taking advantage of these temporary measures.

You’ll be able to make educated decisions and determine which are best for you.

CARES Act and Individual Retirement Accounts

With the country in isolation, many people were left with jobs temporarily suspended or laid off from work. The CARES Act allows people having a hardship to remove up to $100,000 from their IRA without the usual 10 percent penalty.

The money is considered taxable for that year. You can pay the amount back into the account over the next three years. If you have a 401(k), then you can take an increased loan amount of $100,000 or all your 401(k) if the amount is less than that. Before the legislation, the maximum loan amount was $50,000.

Federal Tax Deadline Extended

Coronavirus hit the country in the prime of tax season, leaving many people either unable to have their taxes done or without the income to pay off their tax debts. Many of the accountants and tax preparation companies shut down because of the coronavirus.

The government understood that this would be a problem and extended the tax filing deadline from April 15 to July 15, 2020. It allows an extension of an IRA holder to contribute for the 2019 tax year.

Take Advantage if You Can

If your family is financially disrupted because of the COVID-19 epidemic, then take advantage of the CARES Act stipulations. You don’t need to take the full amount from your 401(k) or IRA unless it is needed.

These are still designed for your retirement, so if you do take money out try to have it repaid so it doesn’t negatively impact your portfolio or your retirement plans. You’ve spent years building it up, so keep your future safe.If you want more information on the CARES Act or IRAs, then contact a Quest IRA specialist.

3 tips for reducing taxes on your retirement income

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

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

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

1. Learn about income tax advantages

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

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

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

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

2. Create a budget to keep your expenses low

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

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

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

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

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

Questions you should ask before opening multiple IRA accounts

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

Image Credit: 401kcalculator.org

Many people wonder if you can open multiple IRA accounts, and the short answer is yes, it is something that is legally allowed. However, just because it is legal doesn’t necessarily mean that it’s something you should do.

There are many important things to take into consideration when opening multiple IRA accounts. Here are the key questions you should ask yourself before setting up multiple IRAs.

Do you need the tax benefits of both a traditional and Roth IRA account?

  • This is the main reason why people opt to open multiple IRA accounts. Traditional IRA accounts give you tax breaks for deposits during the year, but Roth IRAs give you tax breaks in the year that you withdraw them. 
  • There are advantages and disadvantages to using both types of IRAs. You might opt to use a traditional IRA for a personal benefit today (such as a tax deduction). 
  • On the other hand, use a Roth IRA for a long-term investments to capture the benefit when you truly retire and withdraw tax free money. 

Are you willing to manage the paperwork for two IRAs?

  • While multiple IRAs can come with tax benefits, they can also come with a lot of extra paperwork. 
  • This means higher chances of making mistakes with your paperwork or taxes, or missing important deadlines that could negatively affect your account’s growth. 
  • Before you get set up with multiple IRAs, be realistic with yourself and decide if you are willing to spend the extra time and energy to manage two accounts.

Do you have a good financial institution on your side?

When opening any financial account, it’s important to work with providers who are going to meet your needs.

Is their staff friendly, knowledgeable, and available to help when you have problems? Do they offer the investment options that you need? Doing your research before choosing an account provider is crucial.

After pondering all the pros and cons of opening multiple IRA accounts vs. one IRA account, you will be ready to make the best choice for you and your financial future. 

If you are interested in opening an IRA account, contact Quest Trust Company today! QTC offers completely self-directed IRAs with flexible investment options and fast processing times. This gives you more control over the way you manage your money and plan for the future.

Self Employed Retirement Plans

Posted on by Juan Deshon

Estimated reading time: 3 minutesWhile owning your own business has many benefits, it isn’t always easy. There are many things to consider when you open a business, and one of the most important factors to think about is your long-term plan. Because you are working for yourself, many of the retirement plans that are normally available to those working for a company are not available to you. This can often times make saving up for retirement a little more difficult because you don’t have an employer making contributions to your account on your behalf. Any money contributed is out of your own pocket. There are many other options available for the self-employed. Below are some of the most common retirement plans for those who are self-employed.

Individual Retirement Accounts

 

The most common way to save for retirement when you are self-employed is to open an individual retirement account (IRA). IRAs offer certain tax benefits that are comparable to the benefits you would receive in a traditional 401(k) you would get through an employer. In a traditional IRA, the contributions that you make towards your account are tax deductible, but in a Roth IRA the earnings and withdrawals are tax-free because you pay tax on the contributions. With both of these accounts there are certain contribution caveats and income limits that you should be aware of if this is the route you decide to take. The IRAs do have penalties for early withdraws as a way to keep your retirement funds in tact until they are needed.

Self-directed IRAs

While IRAs are a good option for more traditional retirement funding, self-directed IRAs are good if you want to use a wider variety of investment options. Some of these investments can include things like real estate and precious metals as well as the more traditional things like stocks and bonds. This method also allows you to invest in other small businesses although you cannot invest in your own business. The tax advantages of self-directed IRAs are fairly similar to those of the traditional IRAs otherwise. The IRS does have more restrictions on these accounts because of the wider array of possible investments.

Self-Employed 401(k)

 

Another option for people who are employed by themselves and have no additional employees is the self-employed 401(k). In this retirement account the paperwork is more straight forward and less expensive. In these accounts, because only you and a spouse can be working for yourselves, your contributions can be higher towards your account. If you have a broker that helps with your account, they can also invest in alternate assets for you to diversify your portfolio. This account is a good option until you decide you want to expand your business because you have to change accounts when expanding.

Although there are other investment options for self-employed people, these are some of the most common accounts that people choose to invest in for retirement. It is important to make well-informed decisions as this could determine the comfortability at which you live after retirement.

Retirement Plans for Teachers

Posted on by Juan Deshon

Estimated reading time: 2 minutesTypically, when thinking about retirement plans most people think of the 401(k) plan, and while this is one of the mostly widely used plans, some people do not have that as an available option. Teachers, for example, use a different plan called the 403(b). While these plans are fairly similar, there a few key differences that should be addressed as these differences may result in monetary losses. Below we will cover a variety of options that teachers have to explore in order to maximize their retirement funds.

One of the main differences between a 401(k) and 403(b) is the investment options that are available. When making investments within the 403(b) plan there is a limited number of mutual fund options available, most of the investment opportunities are annuities offered by insurance companies. While annuities may seem like a good investment, they may end up having fees that could end up costing you a lot of money so make sure to research before investing. Because teachers often don’t have the same investing options that others would normally get with a 401(k), it is important to understand how to invest your money in order to get the best amount from your retirement plan.

When talking about retirement, it is important to address the two different kinds of Independent Retirement Accounts (IRAs): Traditional IRAs and Roth IRAs. Both of these offer tax advantages for retirees depending on where they stand financially. For Traditional IRAs, you may be able to receive a tax deduction that is equal to your contribution with some possible limitations and the amount is taxed after withdrawal, whereas a Roth IRA is funded with contributions that are after-tax. However, with Roth IRAs your income must be under a certain amount in order to contribute. For teachers, it would most likely be more beneficial to invest in a Roth IRA in order to get the most from their investment.

Another option that teachers have is the ability to add to their maximum allowable contribution after a certain amount of time working. This works to the advantage of teachers because they are able to contribute more to the retirement plan in addition to catch-up provisions that are allowed. It is important to make sure that your employer included this in your retirement plan if that is an option that you want available. This generally will only apply after the employee has been working for 15 years with the same employer.

As a teacher, there are many options available in order to customize your retirement plan and make it the most beneficial to you. Because pensions for teachers are no longer a reliable source for retirement, being aware of all your options is imperative to maximizing your retirement fund, and knowing where and how to invest your money will make retiring an easy transition for when the time comes.

Types of Small Business Retirement Plans

Posted on by Juan Deshon

Estimated reading time: 3 minutesIt seems as though a new era is emerging; small businesses are growing more and more popular and soon they are going to be the staple of modern culture. As more and more people move away from large companies it becomes increasingly more important to educate yourself on the steps you should be taking in order to ensure a comfortable future for yourself and, if you’re a business owner, a comfortable future for your employees. Below are a few retirement options to compare that are best suited to small businesses.

One option for a small business, more specifically in-home businesses that consist solely of the owner and possibly a spouse, would be the Solo 401K Plan. Similar to other retirement plans both the employer and the employee contribute however, because you are self-employed you hold both titles. Salary deferrals up to a certain amount are available as well as up to 25% of compensation of the annual maximum.

Another good option for small business is the Simplified Employee Pension Plan (SEP). While SEP’s can be used by any businesses, it is recommended for small businesses. This plan is different than some of the other traditional ones in the fact that it is fully funded by the employer and they contribute up to 25% of an employee’s eligible compensation a year. Each eligible employee must have an individual SEP account and will receive the same percentage of compensation as all other eligible employees.

Many small business that have 100 employees or less will often have a Savings Incentive Match Plan for Employees (Simple IRA). In order to be eligible for this plan the employer must have earned at least $5000 in the previous year, and any employees must have earned at least $5000 from the employer for the two prior years and have an expected $5000 income in the upcoming year. This plan is funded by employer and employee. Employers have a mandatory matching contribution and employees can potentially have 100% compensation if the amount is less than the set total.

One of the most well-known retirement plans is the 401K Plan. This plan allows for the employee to make personal contributions up to a certain amount per year however, one of the main advantage of this plan is that there are many investment options open such as mutual funds. Employers are also required to make a certain percentage of matching contributions. This plan is more popular with some of the bigger companies and corporations.

If you are considering getting involved with a small business or opening up your own, it is important to stay informed and know all your options. These are some of the more established retirement plans in place currently, but if none of these seem like the right fit for you, don’t be discouraged, there are still other viable options. There may be some other slight variations of the plans covered above that are more catered towards what you want. Prepare for your future and decide what you’re looking for now so that when the time comes for you to retire, you’ll be able to transition with ease.

What Is a Self-Directed Retirement Plan?

Posted on by Juan Deshon

Estimated reading time: 3 minutesYou know that you should be saving money for the future. Part of that savings should be in the form of a retirement account that should be large enough to support you after you’re no longer able to work. However, with the number of retirement accounts that are available, it can be hard to figure out just what each type entails. Today, we’re going to evaluate what a self-directed retirement plan is and the benefits it offers to you. Let’s get started below.

What Is It? 

A self-directed retirement plan is a unique form of savings that allows the account owner the ability to direct their investments in many different areas that they prefer. With traditional forms of retirement accounts, the account owner doesn’t make the investing decisions. Rather, there is a custodian who invests the account owner’s savings. These are typically in stocks, bonds, CDs, and mutual funds.

What Are The Advantages? 

The first major advantage of the self-directed retirement plan is that the owner has full control over all the investments. There is no restriction on what type of investments are allowed. With self-directed IRA accounts, investments can be made in private businesses, gold, tax liens, real estate, and just about anything else you can think of. The traditional IRA accounts don’t allow for these various types of investments as they only offer Wall Street investments.

The second advantage is that you can use your own knowledge to invest in areas that you are comfortable with. With traditional retirement plans you are relying on another individual to manage your investment and many don’t have in-depth knowledge about the investments they’re using. This can be quite risky. When you’re in charge of your own investments, you can stick to investing in areas that you know very well so that you can make as many gains as possible.

The third benefit of self-directed retirement plans is that you can diversify your portfolio even more than with traditional plans. Market volatility and harsh inflation rates can put a damper on your investments. With traditional plans, the only diversification you get is with stocks, CDs, mutual funds, and bonds. With these options, you’re playing the Wall Street game. With a self-directed retirement account, you can invest in a wide variety of sectors, such as real estate, gold, and others. This wider availability of diversification can allow you to better cushion yourself from financial downturns in the future.

The fourth advantage is that you don’t have to pay brokerage fees. When you let your traditional retirement account up to the direction of a trustee, you have to pay them for managing the account. These are in the form of brokerage fees and they’re ongoing for as long as you have that trustee in charge of managing your account. When you opt for a self-directed retirement plan you don’t have to pay brokerage fees as you are the one managing your account.

Hopefully, at this point, you have a full understanding of what a self-directed retirement account is and the many benefits that it will provide for you. It’s important that you take the time to fully understand what these accounts entail. This will allow you to take a more hands-on approach to your future financial health.