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Searching for a New Self-Directed IRA Custodian? Consider the Following Factors

Posted on September 24, 2015December 6, 2018 by Ingrid Chavez

Estimated reading time: 3 minutes

As individuals search for new ways to get the most out of their retirement savings, financial services providers are engaging in increasingly competitive practices in order to bring in new business. In fact, you may notice that every year, particularly around tax time, you’re bombarded with promotions from traditional IRA custodians (such as banks and discount brokers) looking to offer financial incentives to entice you to open new accounts with them. Even in the self-directed IRA marketplace, you may find that you have multiple options for custodial services.

In addition, if you already have a self-directed IRA you still may find yourself in the market for a new custodian — perhaps your account has grown to a level where you want a higher level of service, or you’re simply looking for something new. Here are some factors to consider when you find yourself searching for a new self-directed IRA custodian.

Experience. As self-directed IRAs become more prevalent and better understood by retirement savers, a number of financial institutions have entered the fray to offer custodial services. Not all of these companies have the same degree of expertise, however. As you search for a new custodian for your self-directed IRA, look to those that can point to a proven track record of providing custodial services.

Self-Directed IRA Specialization. In fact, you may wish to limit your search to companies that specialize in self-directed IRA custodial services. If a custodian is not distracted (and isn’t tempted to try to upsell you) with an overly-broad range of financial services, you can be more confident that you are receiving the best degree of service. In addition, verify that any custodian you are considering offers a full range of self-directed IRA services, including the opportunity to provide precious metals safekeeping and real estate related transactional services.

Pricing. Of course, with specialization and expertise comes cost. Don’t be tempted to compare the prices of different custodians without being sure that you’re comparing similar levels of service. After all, the idea that “you get what you pay for” often holds true with respect the self-directed IRA custodial services.

Opportunity to Learn. It’s important to understand exactly what types of services you can expect from a self-directed IRA custodian. For example, as part of their custodial services, no self-directed IRA custodian should be providing you with specific investment advice with regards to your individual account. Still, there are other ways that you can get assistance with your account. Look for a custodian that provides learning resources and other materials, perhaps something akin to a knowledge base.

Chances are you’ve developed some skills as a consumer, and know how to comparison shop. Rather than buy the first product you see, you take the time to compare the various pluses and minuses of the various options you have, before choosing the product that provides you the overall best deal. You can apply these skills with great effect the next time you’re looking for a new self-directed IRA custodian.

Is Now a Good Time to Invest in Real Estate With Your Self-Directed IRA?

Posted on September 17, 2015October 31, 2018 by Ingrid Chavez

Estimated reading time: 3 minutes

In most parts of the United States, the real estate market has recovered from its down period in 2007-2008. And in many cases, the growth has resumed at an impressive pace. This leads many retirement savers to ask themselves whether now is a good time to invest in real estate with their self-directed IRAs.

The short answer is that it’s almost always a good time to invest in real estate, or any other asset for that matter, depending on how and where you invest.

For example, if you look to invest in a part of the nation that might not be close to you, or even to invest abroad, or perhaps even to invest in a type of property that you hadn’t previously considered, then you’re likely to find a number of opportunities.

But the more important set of questions you need to ask yourself prior to making any real estate investment related more to your investment outlook, tolerance for risk, and other issues.

How Will You Manage the Property? One important factor in your investment decision-making process should be how you plan to manage any properties you purchase. For example, do you intend to manage them yourself, or will you hire a professional property manager?

Keep in mind that if you manage the property yourself, you won’t be able to receive any compensation or other value for your time (such compensation would be considered prohibited “self-dealing”). If you hire an outside property manager, you are permitted to pay that individual or company with funds from your self-directed IRA.

What’s Your Budget? While it’s possible to make real estate related investments in virtually any amount, you’ll find that you have many more options if you have a larger balance in your self-directed IRA. The costs and fees associated with real estate investments include not only the price of the property itself, but also any closing costs or fees associated with the purchase transaction. At a bare minimum, you’ll likely have to pay annual property taxes on the investment, as well as some degree of maintenance or upkeep expense. These funds must come from within your self-directed IRA, because paying with outside money can subject you to IRS penalties.

Local Rental Market Considerations? When doing an analysis on a particular real estate market, be sure to not only consider the asking prices of houses on the market, and comparable recent sales, but also the local rental market conditions. Perhaps the price for home sales has gone up a lot recently, but if the prevailing rents for those properties has increased even more, then you may have a favorable set of investment conditions (assuming that you plan to rent the property you purchase).

Finally, regardless of the type of real estate investment you make, be sure to have a plan for when and under what conditions you’ll sell the property. You don’t want to become emotionally attached to an investment, and you should always be willing to move on to a better investment opportunity when circumstances dictate.

How Much Retirement Income Can You Generate With Real Estate Investments?

Posted on September 15, 2015October 31, 2018 by Ingrid Chavez

Estimated reading time: 3 minutes

Why do you save for retirement? At the most basic level, you probably save so that you’ll be able to pay for your living expenses once you reach your desired retirement age (whatever that age may be). One of the best ways to plan for your retirement finances is to have the goal of putting together a nest egg that generates enough income every year to cover some or all of those living expenses. This will often be preferable to having to liquidate your investments in order to pay your living expenses, and be at risk of depleting your account too quickly, and effectively outliving the usefulness and value of your retirement savings.

Unfortunately, individuals who aren’t familiar with self-directed IRAs, and the additional investment opportunities that those accounts can provide as compared to IRAs with traditional custodians, might take an overly narrow view of the types of investments that can generate meaningful income.

More specifically, many would consider an “income investment” to be something like a municipal bond or U.S. government bond, or a corporate debenture, or perhaps even publicly traded stocks that pay quarterly dividends. While these are certainly income generating investments, they only scratch the surface of what’s available to a retirement saver who has a self-directed IRA.

Private Debt Investments. Self-directed IRAs are authorized to invest in private debt instruments. This can include not only personally guaranteed notes (lending money directly to an individual), but also borrowings from businesses, and even private mortgages. That’s right, with a self-directed IRA you can make loans to people who are looking to buy a home, and use the home as your security for repayment — just like a traditional mortgage lender would do.

These types of investments have the potential to generate a significant income stream, and the more risk you’re willing to take with respect to repayment, the greater that income can be.

Real Estate. Speaking of home buyers, you can use a self-directed IRA to invest in real estate directly, and generate income from renting the properties you buy. In the residential marketplace, stagnant incomes have combined with increasing real estate prices and tighter lending standards to create a huge demand for rentals. In some areas the growth in prevailing rents has actually exceeded the rate of growth for home prices.

And you’re not limited to residential properties when you invest with a self-directed IRA. You can use your account to purchase commercial properties, including office, retail, and industrial properties. These types of investments can provide exposure to a different type of risk if you’re looking to diversify your retirement investment portfolio, but they can still generate a healthy level of periodic income.

Obviously, making these types of investments is a significantly more complicated process than simply buying a corporate bond. When considering these types of investments with your self-directed IRA, be sure to seek out qualified professional assistance to help you as necessary.

Are You Diversifying Your Retirement Investments Across Your Various Accounts?

Posted on September 4, 2015December 6, 2018 by Ingrid Chavez

Estimated reading time: 3 minutes

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 stocks, 25% real estate investments, 25% debt instruments, and 10% cash. Your goal should not be to achieve that mix of investments within each IRA or other retirement account you have, but that you achieve it across the aggregate of your savings.

Let’s further assume that your primary retirement savings account is a self-directed IRA with a custodian such as Quest Trust Company, and that you also have a small 401(k) account at work, and a taxable investment account that’ve decided to use to help fund your retirement. Because you can’t use those smaller accounts to invest directly in real estate, and your options for choosing debt investments may be limited to publicly traded corporate and government bonds, the real estate and debt investments will likely be the primary focus of your self-directed IRA.

In fact, when you look at each of your accounts, they may appear to be woefully imbalanced and overly focused in a particular asset type. But taken as a whole, you can be confident that you’re on the right track in meeting your diversification goals.

Given the limitations of traditional IRAs and 401(k)s, it might be prudent to use those accounts primarily for the “plain vanilla” investments such as large cap publicly traded stocks, government bonds and the like. If you only have a self-directed IRA you can certainly use it to make such investments, but as your nest egg grows and you direct more retirement savings to different accounts, you can use this diversification technique to meet your targets.

As you save, be sure to to prioritize your contributions to those accounts for which you’ll receive the greatest benefit. Many investors choose to maintain both a traditional self-directed IRA as well as a Roth self-directed IRA in order to ensure they can make the best choice for their contributions each year.

Why the Type of Self-Directed IRA You Have Can Impact Your Retirement Timeframe

Posted on September 2, 2015December 6, 2018 by Ingrid Chavez

Estimated reading time: 3 minutes

The type or types of retirement accounts you use can impact many different aspects of your overall retirement planning. Different accounts have different contributions, different features, different limitations, and different types of tax advantages. In fact, the type of self-directed IRA you choose can even impact your timeframe for retirement.

The two types of self-directed IRAs are traditional accounts and Roth accounts, and they differ in a few key respects. First, a traditional self-directed IRA is subject to the IRS rules on required minimum distributions. This means that once you reach age 70½, you’ll need to begin making withdrawals from your account.

The amount of the required minimum withdrawal each year is calculated based on the balance in your account and your age. The annual minimum withdrawal amount can change significantly from year to year, for example, if your account experiences particularly large investment gains or losses. Roth IRAs, on the other hand, are not subject to this set of rules.

Having to follow the rules on required minimum distributions could impact a person’s investment timeframe in that it forces a person to take taxable withdrawals from their traditional self-directed IRA regardless of their actual income needs, regardless of whether they desire to continue working, and irrespective of their other retirement assets.

The type of self-directed IRA you choose can also impact the income you’re able to draw from your account each year.

With a traditional self-directed IRA, you’ll be subject to income tax on the distributions you take from your account. This means that when you’re planning your strategy for when and how much you’ll withdraw from your account in order to fund your living expenses during retirement, you’ll need to do some additional calculations to account for your tax liability.

For example, let’s say your annual budget for all your expenses is $50,000 per year. If your self-directed IRA is set up as a traditional account, then taking a $50,000 distribution is likely to yield perhaps only $40,000 or less. So in order to wind up with $50,000 you might need to take a distribution of perhaps $60,000 or $65,000 or more, depending on your individual tax situation. Once you take these factors into account, you may determine that your traditional self-directed IRA won’t last you as long as you assumed it would just by looking at your account balance, particularly when your tax situation can change from year to year.

Distributions from a Roth self-directed IRA during retirement are not subject to income tax, so the amount you have in your account is the amount you can use for planning your distributions in whatever way you see fit.

It’s true that when you make contributions to a Roth self-directed IRA you can’t deduct those contributions for your income tax return. But choosing a Roth account over a traditional account can give you greater retirement planning flexibility going forward.

Three Key Ways Marriage Can Impact Your Retirement Planning

Posted on August 28, 2015August 14, 2019 by Ingrid Chavez

Estimated reading time: 3 minutes

Getting married is one of the biggest steps two people can take in their lives. There are a number of major changes that both people will need to address — both personally as well as financially — as a result of getting married. For example, the new couple will need to decide whether and to what extent to intermingle their finances going forward, and how to deal with assets that each individual may bring into the marriage (such as real estate and investments).

Retirement planning can also be significantly impacted by marriage. The process of planning for your own retirement when you are single is vastly different than having to plan for two. Let’s take a look at three key ways that marriage can impact retirement planning.

Maximizing Contributions.

Depending on your and your new spouse’s work status, being married can increase the maximum contributions you can collectively make to your self-directed IRAs. It works like this: normally an individual must have earned income at least as great as the contribution they want to make in any given tax year. But when a married couple files a joint tax return, then they effectively have access to each claim a portion of that joint income as a basis for making a contribution to an IRA. This is a great outcome if one spouse works, but the other doesn’t.

Estate Planning Considerations.

Retirement planning and estate planning are often treated as wholly separate considerations, but in most cases they probably shouldn’t be. Think of it this way, if you’ve done a reasonably good job in saving for retirement, then the most valuable asset you have when you reach age 65 or 70 (apart from your home, perhaps) is likely to be your retirement nest egg.

As a result, the choices you make with your retirement savings — not just the investments you make and the asset types you hold within your account, but also the type of account you use in the first place — can make it easier (or harder) for you to reach your estate planning goals.

For example, a Roth self-directed IRA has certain advantages over a traditional account when it comes to passing your account to your spouse in the event you predecease them. While it’s possible to convert a traditional self-directed IRA into a Roth account, doing so can trigger current year tax liabilities, so there may be advantages for many young couples to simply start out within the Roth structure.

Strategic Distributions.

Each new spouse will likely have their own Social Security benefits to manage when it comes time to retire. Even an individual who doesn’t earn enough income to receive benefits based on their own income can be eligible for a spousal benefit based on their spouse’s work record.

Since a person’s monthly Social Security benefit check can vary significantly, depending on whether they take benefits as early as possible (age 62), or delay taking their benefits until age 70. This leads to a number of different benefit maximization strategies, which will depend greatly on the couple’s particular situation and circumstances, in which one spouse begins taking social security, and the couple lives off that income (as well as income from one or both of their IRAs), while the other spouse delays taking Social Security in order to maximize their monthly benefit.

Why It’s Important To Coordinate Your Taxable Investments With Your Self-Directed IRA Investments

Posted on July 20, 2015December 6, 2018 by questadmin

Estimated reading time: 3 minutes

Your self-directed IRA can save you a lot of money in taxes, both in the short term as well as in the long run. If your IRA is set up as a traditional account, then (depending on certain aspects of your financial position) you may be able to take a tax deduction for those contributions. And contributions in traditional IRAs will grow on a tax-deferred basis, while the investment gains within a Roth IRA will never be subject to taxation. Many individuals are well-versed with the various tax implications on this level.

But there’s another perspective from which you may want to consider your self-directed IRA tax analysis, and this is the way that your taxable investment accounts, and investment decisions, can impact your self-directed IRA investments.

Let’s first examine just how valuable your self-directed IRA can be. Consider two hypothetical portfolios of $100,000, one a taxable account and the other a self-directed IRA. Let’s further assume that each portfolio is comprised of stock that pays dividends at a 3% rate annually (with those dividends being reinvested), and that the stock price appreciates 5% annually.

At the end of 25 years, the value of the taxable account would be approximately $525,000, while the self-directed IRA is worth over $630,000. This difference in value is attributable solely to the fact that the owner of the taxable account has to pay taxes on the dividends they receive, even if they choose to reinvest those dividends.

If the self-directed IRA is a traditional account, then you will have to pay taxes on those gains, but they’re likely to be at a lower tax rate (because you’re in retirement and perhaps no longer working full time), and they’ll only be taxed when you take the distribution. If your account is a Roth IRA, then you’ll realize the full value of the investment gains.

So one common tax optimization strategy is for an individual to place income-generating investments that would otherwise incur a tax liability into an IRA in order to avoid that liability.

On the other side of the equation, it’s important to note that there are certain tax advantages that are actually disallowed within an IRA. For example, investment interest (such as borrowing funds to purchase a stock investment, or taking out a mortgage to buy a piece of real estate) can be used to offset gains in a traditional account. But borrowing funds is considered to be outside the scope of permissible activities for self-directed IRAs, and the tax benefit of those expenses will be lost inside the retirement account.

It’s the same situation for investments that have tax advantages built in, such as municipal bonds. Because these investments would already be tax-advantaged outside of an IRA, there’s no reason (and it’s actually a missed financial opportunity) to keep these types of assets inside a retirement account.

Understanding the interplay between your taxable investment accounts and your self-directed IRA will put you in the best position to make the optimal investment decisions.

Now Is The Time To Investigate Oil And Gas Investments With Your Self-Directed IRA

Posted on April 1, 2015December 5, 2018 by questadmin

Estimated reading time: 2 minutes

From a consumer perspective, one of the biggest stories from the latter parts of 2014 and early parts of 2015 is the drop in gasoline prices. While this seems to suggest that making investments now in the oil or natural gas industries would be poorly timed, in fact the current state of the market might actually indicate that this is precisely the time to start investigating further.

Low Prices for Some Assets. The sharp decline in oil and gas prices has resulted in what may be a good buying opportunity for related investments. You may wish to consider not only stock in publicly traded oil and gas exploration companies, but also private investments as well.

Having a self-directed IRA with a company such as Quest Trust Company gives you the opportunity to use your retirement funds to make these types of investments. Because the laws relating to the exploration and development of natural resources are sometimes arcane and complicated, these investments can take many different forms – forms that may not be familiar to even relatively experienced investors.

Seek Professional Assistance. If you don’t have familiarity investing in oil and gas companies, particularly private investments, you may wish to seek professional assistance before committing any funds from your self-directed IRA. Certain types of investments in the industry may carry additional tax benefits – benefits that would be lost or redundant if done within a retirement account. You may wish to leave these investments to your taxable accounts, and use your self-directed IRA for those oil and gas investments that would otherwise generate a significant tax bill (and which you’d therefore avoid by having the investment in a tax-advantaged account).

Local Legislation and Politics. One way to come up with new investment opportunities in the oil and gas industry is to pay attention to your local legislative and political scene. Hydraulic fracturing (or “fracking”) has become a hot button issue in many jurisdictions, for example, so the direction that your city, county, or state takes with respect to allowing fracking – and under what circumstances or regulatory restrictions – could significantly change the investing landscape.

Volatile Markets Create Opportunities. The recent price volatility for oil and gasoline has demonstrated that even as consumer demand remains relatively steady, the underlying commodity markets themselves often move in unexpected and sometimes hard to explain ways. However, generally speaking, volatile markets create more investment opportunities. Remember that for practically every bullish investment opportunity there is someone on the other side of the coin willing to take a bearish position.

Your self-directed IRA can be a great opportunity for you to invest in assets and investment types that you’d never be able to make with your 401(k) at work or a traditional IRA. Now just might be a great time to take a closer look at oil and gas investments.

Deciding When It’s Time To Seek Outside Help With Your Self-Directed IRA

Posted on March 7, 2015October 31, 2018 by questadmin

Estimated reading time: 3 minutes

When considered broadly, perhaps the most powerful aspect of a self-directed IRA is that you have the greatest degree of control over your financial future. Unlike traditional employer pension plans (which give you no opportunity to invest wisely and maximize your retirement nest egg based on your individual choices) or 401(k)s (which generally limit your investment options to a very small number of choices), a self-directed IRA puts you in complete control.

But sometimes handling all this control can be a heavy burden. You may be comfortable using your self-directed IRA to invest in assets that you’ve had prior experience with, but what if you’re looking to invest in something new? That’s the time when you may have to decide to seek professional assistance with your self-directed IRA investments.

When You’re Spending Too Much Time on Your Portfolio. It’s obviously important to spend time doing the financial planning for retirement, including making investment choices, deciding on a withdrawal schedule, and even planning your annual contributions. But if you find yourself spending too much time administering your account, whether it’s because your account has grown too large or contains too many different assets, or because your portfolio includes assets with which you have little experience, then hiring an outside expert may be a good use of your funds.

When You Aren’t Confident in Your Investment Choices. If you find it difficult to commit to making particular investments with your account, or aren’t confident in the investments you’ve already made, then seeking outside help can help you get over the “analysis paralysis”.

When Your Investments Require Management Expertise. As you are likely already aware, different types of assets require different levels of involvement. Consider, for example, how much involvement and management you need to exert over investment in a stock market index fund as compared to a single-family home. If you don’t have the experience to confidently manage a particular asset in your account, get help.

When You’re Spending Too Much Money. Different asset classes may also require different levels of maintenance fees and expenses in order to maintain. Again, consider a piece of residential real estate versus a stock market index fund. You’ll spend nothing maintaining your index fund position (the management fees are automatically paid by the fund), while you’ll be responsible for upkeep of the real estate. If you’re doing this all yourself, you may not be able to accomplish it in the most cost-effective manner. If you find yourself spending too much money trying to accomplish these management tasks, then consider bringing in help. Believe it or not, sometimes bringing in outside expert assistance will end up saving you money, even though you’ll be paying additional fees for their assistance.

Because your goal with your self-directed IRA should be to maximize your account value, don’t let ego or pride get in the way of maximizing your nest egg. Sometimes bringing in outside help is the best way to meet your long-term retirement goals.

Considerations For Naming Beneficiaries Of Your Self-Directed IRA

Posted on March 3, 2015August 12, 2019 by questadmin

Estimated reading time: 3 minutes

From your savings and checking accounts to your 401(k) at work, to your taxable investment accounts, nearly every financial or savings vehicle you have is going to require you to name beneficiaries for the account. Here are some considerations for when you need to do so for your self-directed IRA.

Other Estate Planning Vehicles. The first thing to consider is what other estate planning techniques and accounts are you making use of. Consider not only things such as life insurance and trusts, but also beneficiary designations you may have on your investment accounts. If you own real estate, is it held individually, or as joint tenants with right of survivorship? Depending on your other financial assets, you may find that certain individuals or family members are adequately provided for, and that you can use your self-directed IRA beneficiary designations to benefit other individuals.

The Investments in Your IRA. Another consideration is the composition of investments in your self-directed IRA. For example, if your account includes a piece of real estate that you want to be passed to a particular individual, then you may need to set up a separate account for that asset. If your account contains no such assets, and you simply want your account to be divided by value to your beneficiaries, then a single account will suffice.

Spousal Heirs vs. Non-Spousal Heirs. In general, leaving a self-directed IRA to your spouse generally provides your spouse with much greater value than leaving the same account to a non-spousal heir. Spousal heirs can generally treat the self-directed IRA as their own, which allows them to continue the tax-advantaged status of the account. Non-spousal heirs must generally begin withdrawing from the account, and paying applicable taxes, within a relatively short time frame after your passing.

If you are earmarking accounts and investment assets to a range of heirs, consider designating all or a higher percentage of your self-directed IRA to your spouse, and using other estate planning tools for non-spousal heirs.

Don’t Forget Contingent Beneficiaries. While the issue of contingent beneficiaries is an issue for virtually all estate planning matters, it can be particularly important for self-directed IRAs. It’s important to review and update your beneficiary designations from time to time, and consider what you would want to happen if one of your named beneficiaries predeceases you.

In general, unless you need specific contingent beneficiaries, there are two ways in which your requests can be carried out in the event of an heir who predeceases you. A “per capita” designation means that the predeceased heir’s share is divided amongst the remaining heirs. For example, if you name three beneficiaries to equally share in your account, and one passes away before you, then the other two surviving heirs will share in the account unless you designate otherwise.

A “per stirpes” designation means that in the event of a beneficiary who predeceases you, that individual’s heirs will stand in their place and receive their bequest. This can sometimes be a better way to carry out your true estate planning intent. In the same example of three named beneficiaries, if one were to predecease you, then that individual’s heirs would receive their share instead of the two other beneficiaries you named.

In any case, the best way to avoid any uncertainty is to regularly review and update your account designations as appropriate.

Maximizing Contributions.

Estate Planning Considerations.

Strategic Distributions.