Plan Types and Information

  • Start Your Holiday Tax Planning Today

    The end of the year is normally a very busy time for most individuals. We often face a crunch time at our jobs trying to get important projects completed before the close of the year, and there are all of the different family obligations we need to meet. Since our tax returns aren’t due until April of 2014, it might be tempting to not spend any time in November or December thinking about tax planning. But this would be a mistake, since the coming end of the tax year means that you need to make certain decisions and take certain actions before December 31. Here’s why it’s important to start your holiday tax planning today. Contributions to Your Self-Directed IRA Fortunately, the deadline for making your annual contribution to your self-directed IRA isn’t until you file your tax return (i.e., as late as April 15, 2013). But while you don’t need to make the actual contribution in 2013, you will want to plan for that contribution now. If you spend too much money on gifts and travel during the holiday season, you may have a hard time coming up with the maximum allowable contribution ($5,500 for individuals under age 50, or $6,500 for ...

  • Do You Have an IRA Exit Strategy?

    You may be familiar with the term “exit strategy,” but perhaps only with respect to the investment world. In fact, it’s also important that you have an exit strategy when it comes to your IRAs. So what exactly does “exit strategy” mean in the context of your IRA? Traditional IRAs require that once you reach age 70, you must begin taking distributions from your account each year. The minimum withdrawal amount is calculated each year based on your account balance and your age. (These are known as the “Required Minimum Distribution” or “RMD” rules.) The penalties for not following the RMD rules can be severe, and can effectively undo much of the tax advantage you may have gained by setting up the IRA in the first place. But remember that for traditional IRAs, withdrawals will add to your taxable income. And if you’re subject to the Required Minimum Distribution rules, you’ll be forced to take those withdrawals (and pay the taxes that are due), regardless of whether or not you actually need that money to fund your retirement expenses. On common technique for avoiding the RMD rules is to convert a Traditional IRA to a Roth account. Roth IRAs are not subject to ...

  • Three Common IRA Myths to Guard Against

    There is a lot of good information out there about individual retirement accounts. Quest Trust Company, for example, has published a great deal of valuable information and guidance about the pros and cons of the various account types, including the self-directed IRA, how to get started, and pitfalls to avoid. But there’s also no shortage of misunderstandings that people have, as well some common IRA myths have been around for decades, it seems. The biggest problem with this misinformation is that it can lead people to make sub-optimal decisions regarding their accounts, or perhaps even to not open an account in the first place. Here are three of the most common myths that you need to guard against. It’s Not Worth Making Non-Deductible Contributions to an IRA. Many retirement savers are initially drawn to IRAs because their contributions may be tax-deductible in the year they are made. This can be an extremely strong incentive to contribute, as it effectively gives the account holder and immediate “rebate” or return on their investment equal to the amount of their deduction. The downside of this valuable benefit is that it can sometimes lead people to focus too much on the possibility of a deduction and not enough on ...

  • How To Save On Investment And Management Expenses Next Year With Your Self-Directed IRA

    There’s no such thing as a free lunch, or so goes the saying. Even in the context of saving money for retirement, you’re going to have to pay for the various services provided by your account custodian. Even if you have a “free” account at a discount brokerage, you’ll still pay transaction based fees for buying and selling investments. All other things being equal, the more you spend on fees, the smaller your retirement nest egg will be. With that in mind, here are some suggestions for saving on investment and management expenses next year in your self-directed IRA. Understand Your Baseline. The first step to reducing the fees you pay is to understand what you are paying now. Take a look at your prior account statements and identify all the fees and expenses you paid. It may be helpful to separate them out by investment type, so that you can compare appropriate categories going forward. It’s important to acknowledge and understand that when it comes to fees and expenses, you’ll need to pay more in order to get a higher level of involvement and service. The fees and commissions applicable to buying a few hundred shares of a publicly traded stock are ...

  • Three Key Investments You Can Make in Your Self-Directed IRA, But Not in Your 401(k)

    Despite the larger annual contribution limits that are available to participants of a 401(k) plan, there’s one essential aspect in which 401(k) plans fail to measure up to self-directed IRAs, and that’s in the area of investment options. Even if you consider participating in your employer’s plan in order to receive matching contributions from them, you’re likely to find yourself faced with a handful of investment options, likely in the form of mutual funds that come with above-market fees. But even if you have the best 401(k) plan on the market, and have a wide range of options to choose from, you still aren’t likely to be able to invest in publicly traded stocks. Furthermore, there are going to be three key investment classes that certainly won’t be available in your employer’s plan. Real Estate. Real estate investments are one of the most popular types of investments for self-directed IRAs. These types of assets allow investors to purchase virtually any type of investment property, including single family homes, condominiums, multi-family units, commercial properties, farm land, industrial property, and even undeveloped properties. With a self-directed IRA you have freedom in your investment goals and approach with real estate as well. You can rent the property ...

  • 2021 Contribution Limits: IRAs and Beyond

    Self-Directed IRAs (SDIRAs) are some of the best vehicles when it comes to receiving tax benefits when we use them to invest. Common ways to fund an IRA are by using methods such as rollovers from previous employers or transfers from other IRA accounts, but personal contributions may also be another way to help these accounts grow.  Although it would be nice to contribute as much as we wanted, every year specific limitations are set by the IRS on how much money individuals can contribute to their IRAs and other tax advantaged retirement accounts. Now that the 2021 contribution limits have been announced, we’ve listed those limits here for you.   Personal Plans Traditional and Roth IRAs are both considered personal plans, and often follow similar guidelines on their limits. For 2021, the contribution limits for Traditional and Roth IRAs remained the same as 2020, but some other accounts did see an increase.  The 2021 contribution limit for Traditional and Roth IRAs is $6,000, with a catch –up contribution of $1,000 ($7,000 total) if you’re age 50 or older. In order to make a contribution to these two accounts, one must have “earned income”. Earned income includes money such as wages, salaries, bonuses, commissions and ...

  • The Pros and Cons of Opening Multiple IRAs

    IRAs incentivize retirement preparations with tax advantages for investors. Most people are at least passingly familiar with some of the major IRA options, like Roth and Traditional IRAs or Individual 401ks, and each type offers different flexibilities and advantages. And while the average portfolio may only be stocked with an IRA provided by an employer, many smart investors have more than one IRA.  The usual sweet spot is one IRA from an employer, and one additional Roth or Traditional IRA. But is this the right choice for everyone? Let’s explore some of the advantages and disadvantages of opening multiple IRAs.  PROS  Tax Diversification  Different types of IRAs are taxed differently. By diversifying your portfolio with different types of IRAs, you can strategically increase your control over your finances.  For example, Traditional IRAs can provide immediate tax deductions.  This immediate deduction is often a great incentive for increased contribution to your IRA, which in turn can increase your earnings.  Traditional IRAs also taxes investors on income used to fund the IRA only when they start withdrawing in retirement; this means that overall Traditional IRAs delay taxation on the investor.  In contrast, Roth IRAs do not provide immediate tax deductions on income funding the IRA, but investors pay no taxes ...

  • How Much in Taxes Can a Roth IRA Save You Over a Traditional IRA?

    IRAs have become the foundation for most U.S. taxpayers to build up their retirement nest eggs. In part this is because the Individual Retirement Account generally provides a great deal more investment options than the typical employer-sponsored 401(k) plan. This is even more the case when it comes to self-directed IRAs. But the most attractive features of an IRA for most retirement savers are the ways that they can save on taxes. And in many regards the tax advantages of a Roth IRA, while not as immediate as those that are available for a traditional IRA, are even greater. Let’s examine some of the scenarios relating to these types of IRAs. Tax Savings for Deductible Contributions. First let’s first review the primary tax advantage of a traditional IRA. At the top U.S. marginal tax rate for 2013 (39.6%), a taxpayer under the age of 50 who makes the maximum allowable IRA contribution of $5,500 can potentially take a tax deduction of nearly $2,200 during the tax year of that contribution. A taxpayer over 50 (whose maximum contribution is $6,500) can potentially take a tax deduction of almost $2,600 during the year of contribution. Roth IRAs Provide for Tax Free Withdrawals. In contrast to ...

  • Consider These Top Income Streams For Your Self-Directed IRA

    It’s certainly natural to think of investing your self-directed IRA in long-term growth investments. After all, most retirement savers have medium to long term investment horizons, and knowing that these investments have decades to grow certainly makes that type of focus very attractive. But income generating investments also have a place in your self-directed IRA. For example, when you move from the workplace to retirement, you may need to be able to live off the income that’s generated by your self-directed IRA. You may also want to include income generating investments in your self-directed IRA simply as a matter of diversification. And remember that income or dividends that are generated inside the account don’t incur any tax liability when they hit your account. Here are some of the top income streams for you to consider within your self-directed IRA. Real Estate. This is the classic income generating investment, and the ways to invest are varied. You can purchase real estate directly with your self-directed IRA, and this is one of the big advantages of a self-directed IRA over a retirement account with a traditional custodian. Your investment can be in a single family unit, a multi-family dwelling, commercial real estate, farmland, as all ...

  • How to Value Illiquid Investments Within Your Self-Directed IRA

    Because self-directed IRAs allow you to invest in a broad variety of asset classes – including many asset types that traditional IRA custodians choose not to permit – you may elect to use some of the funds in your account to buy assets that are relatively illiquid. These might include real estate, private equity investments, as well private mortgages and other types of debt. Even for good investments, a lack of liquidity provides some challenges; not the least of which is knowing the current value of those investments in your account. Here are some tips for valuing illiquid investments within your self-directed IRA. Understand the Reasons for Your Valuation The methods you use for valuing any illiquid investments you hold within your self-directed IRA depend in large part on why you’re doing the valuation. Are you getting ready to reduce or sell your investment holding? If so, then having an accurate measure of value will be extremely important. After all, you don’t want to leave some of your investment gains on the table by accepting a price that’s too low. On the other hand, if you’re simply looking to come up with an estimated value for your overall portfolio, then getting a precise valuation ...

  • 8 Important Questions to Ask Yourself Before Choosing Your Next IRA Investment

    How many times have you heard the horror stories of someone jumping into something before doing the proper research or planning? Way too often this happens in the world of investing. The stock market will have a winning day, social media will buzz, and the next thing you know everyone wants to start investing with their IRA. So how do you know which investment is right for you?  There are thousands of investment possibilities out there and each one has its own benefits to offer, but sometimes narrowing down which one is best for you can be confusing and overwhelming. Whether you’re just getting started or you’re a seasoned investor, the following remains true: no one wants to lose money because they jumped into a bad investment too quickly. Take the time to ask yourself this set of question to ensure you’re investing in the best possible assets for your goals. How much are you looking to diversify? First and foremost, decide how much you’re looking to diversify your portfolio. Most people think that diversification simply means spreading your funds across multiple different stocks, but it actually goes much further. There are certain investments that are public, meaning these are openly traded ...

  • Creating an Automatic Savings Plan With Your Self-Directed IRA

    Most individuals understand that it can sometimes be challenging to come up with money each year to contribute to their retirement accounts. Even those who’ve already set up their own IRAs, and who understand the value of saving over time, may still find it difficult to make the maximum contributions to their accounts each year. One of the reasons this is problematic is that too many individuals consider their retirement contribution something that they pay attention to once a year, most likely at the end of the calendar year (when they’re certain to be facing other demands on their personal finances). Putting an automatic savings plan in place can be a particularly effective way of making the maximum contributions to your self-directed IRA each year. What is an Automatic Savings Plan? An automatic savings plan is simply a process by which you automate the act of saving. It is generally accomplished through the use of automatic debits and payments for one account or another. For example, you might set up a monthly automatic transfer to be made from your primary checking account each month, and the funds contributed to your self-directed IRAs. This can be done for any financial purpose or to ...

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

    Whether you’re a first time home buyer, an experienced fix and flipper, or an expert in rentals, one aspect will be present for almost everyone: funding. Investors will always need money for deals and sometimes the traditional bank loans aren’t possible for everyone. Others just prefer the flexibility of being able to work out a deal on their own terms.  There’s plenty of options available, but private lending by using self-directed IRAs has proven time and time again to be an option many investors seek out when it comes to their real estate or other alternative investments.  According to a recent study from the Investment Company Institute, $28 trillion dollars were in retirement assets, and of that, $9.2 trillion dollars was reported to be in IRAs alone. With that much money available for use in IRAs, it’s nearly impossible not to be curious about how to use those funds for private funding.  For lenders and borrowers alike, private loans with self-directed IRAs have provided opportunities for successful deals and have given investors the ability to have options. Whether you’re looking to borrow private funding or loan out your own, here is everything you need to consider when getting involved in a private loan! Why ...

  • A Simple Guide on Investment Due Diligence

    When opening an investment account, it is important to do your due diligence. Investment due diligence will help you make the right investment choice for you.  Don’t be a victim of investment fraud. Read this simple guide on investment due diligence and protect yourself and your investments today.  What Is Investment Due Diligence?  Due diligence is basically doing your homework before you make an investment to make sure you are protected against fraud or risky investments. So, how do you perform due diligence? Keep reading this due diligence guide to learn more. Start With General Questions First, start off with some broad general questions and narrow them down to specific questions about your investments. If these questions lead you to find that the investment risk is too high or has a poor return perhaps you should think twice about investing.  If the investment appears too good to be true it usually is. If an investment boasts above-average returns check and see if a competitive advantage exists. If not it could be a sign.  Understand the Company’s Business Take a look at the information given about the investment. Is it complete? Is it understandable? Try explaining the company’s business model to a friend and talk through exactly how the ...

  • Flip Houses With Your Self-Directed IRA

    One of the most powerful aspects of an IRA is that its structure permits you to grow your investments on a tax-deferred (in the case of traditional IRA) or tax-free (in the case of a Roth IRA) basis. With a long-term investment focus, you have the potential to grow your account balance for decades. But even if the scope of your account is long-term, that doesn’t mean that the time frame for the individual investments within your self-directed IRA necessarily have to be long term. One potentially lucrative investment type with a relatively short-term outlook is flipping houses. And yes, you can make these types of investments with a self-directed IRA. What is a Real Estate “Flip?” Some investors may not be familiar with the concept of flipping, so let’s first talk a briefly about what exactly that is. Flipping a piece of real estate refers to the process of buying a home and then quickly putting that property back on the market for sale. Between purchase and sale the investor (the “flipper”) may or may not do renovations or other improvements to boost the resale value. But in many cases the opportunity arises simply because the investor believes the property is ...

  • Three Early Withdrawal Penalty Traps to Avoid With Your Self-Directed IRA

    Used properly, the self-directed IRA is one of the most powerful tools you have to build a strong financial position for your retirement. But there are also ways that you can tap into those funds prior to retirement without having to pay an early withdrawal penalty. Recall that the general rule for all IRAs is that any withdrawals you take before age 59½ will be subject to a 10% penalty (plus any taxes that may be due, depending on whether your IRA is a traditional or Roth account), unless your withdrawal meets one of several different exceptions. These exceptions include withdrawing funds to buy your first home, to pay certain medical expenses or educational expenses, as well as a few others. As you might expect, each of these exceptions to the early withdrawal penalty come with a number of important requirements. If you’re considering making an early withdrawal pursuant to the terms of one of these exceptions, beware of the following traps. Qualified Medical Expenses and Insurance. The early withdrawal penalty exception for medical expenses requires that your expenses (including medical expenses for someone in your immediate family) exceed 10% of your adjusted gross income for that year (or 7.5% if you or ...

  • Why You Should Start a Self-Directed IRA as Early as Possible in Your Life

    Many young adults tend to focus on the immediate year tax benefits of making contributions to an IRA. This is certainly one important factor in maximizing the potential of an individual retirement account, but it might not be the most valuable one. Perhaps the biggest benefit from having an IRA is that all investments income and gains that are kept inside the account (that is, not taken as a distribution by the account holder) occur on a tax-deferred or tax-free basis. The upshot of this tax-advantaged growth is that young adults should be working very hard to start a self-directed IRA as early as possible in order to maximize their benefit. Let’s take a closer look Consider two individuals, one of whom makes their first $5,000 contribution to a self-directed IRA at age 25. The other individual makes their first $5,000 contribution at age 35. By the time each of these individuals reaches age 55, the value of their investments will be very different. Assuming an 8% annual rate of return, the first individual’s contribution will be worth a little over $50,000. The second individual’s same $5,000 contribution, made a bit later in life, will be worth less than half that – just ...

  • Are You Diversifying Your Retirement Investments Across Your Various Accounts?

    When you hear the term “retirement account,” chances are you think primarily of IRAs and 401(k)s. And those two retirement savings and investment vehicles can and should certainly form the foundation of a solid retirement plan. Self-directed IRAs are a particularly powerful type of retirement savings account because you’re permitted to invest in the full range of legally permitted asset types, rather than being limited by traditional IRA custodians (such as banks and discount brokerages), or face the even more restricted with your investment choices in a 401(k). But in a very real sense, virtually any investment or savings account can serve as a retirement account. Because you’re limited in how much money you can contribute each year to the tax-advantaged retirement accounts we mentioned above, you’re going to need to use those other account types if you’re able to save more than those specified amounts. As you accumulate multiple accounts that you’re using to build a retirement nest egg, you’ll need to consider your investment diversification not on an account by account basis, but across all accounts considered together. For example, let’s say you’ve determined that at present your optimal investment mix is something along the lines of 40% U.S. large cap ...

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

    Self-employment can be a blessing and a curse! On one hand, you control your own hours and you can proudly say that you are your own boss, but the privilege of being in charge also comes with responsibilities and the important matters always fall on your shoulders. The good news is that being self-employed in the world of IRAs is great! As a small business owner, you have plenty of employer plan options! From the common plans like the SEP IRA and the Simple IRA to the powerful Solo 401(k), there are plenty of options to save for retirement that fit each accountholder’s needs. But how do you know which one is best for you? As you begin researching all the accounts and their difference and similarities, you’ll want to examine exactly where you stand and what you’re aiming to accomplish. Take a moment and ask yourself…”How many people do I employ?”, “How much am I looking to contribute?”, and “How much management am I willing to put in?” There are no wrong answers, but they are all important factors to take into consideration when reviewing your options. There are three main self-employed plans: The SEP IRA, the Simple IRA, and the Solo ...

  • Steps for setting up a self-directed IRA

    The Internal Revenue Service is restrictive on the type of assets that you can own through the IRA. For instance, it prohibits ownership of alcoholic beverages, some precious metals, jewelry, collectibles, and life insurance. It does, however, allow investment in private stocks held in corporations or limited liability companies. The steps for setting up a self-directed IRA are as outlined below: Identify a custodian It’s important that you identify a third party administrator or a trustee who is willing to hold your assets under your self-directed IRA. The trustee(s) must have the authorization from the IRS to act in this capacity. The trustee must also be specialized in financial planning and be experienced in handling the Retirement Investment Fund. Open an account with the trustee Open an account with the chosen custodian and fund it with up to $5,000. Alternatively, you can execute a trustee-to-trustee rollover transfer. It’s a directive to your old IRA to move your assets to the new IRA under the new trustee. Your new custodian will give you the forms required to finalize this paperwork. Identify the desired area of investment With an account ready, you can now choose the type of business that you want to venture in, locally or internationally. ...

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