Retiring on a Self-Directed IRA

Saving for retirement is one of the most important actions one can take to secure their future. Sadly, many Americans haven’t saved a single dollar, or are grossly behind in their yearly savings goals. If this describes you, don’t worry. There are ways to jumpstart your retirement savings and catch up to where you need to be to live comfortably in retirement. One way to do this is with a self-directed IRA.

What is a Self-Directed IRA?

These types of accounts are just like traditional retirement savings accounts but include many more options for the investment savvy. Usually, Traditional and Roth IRAs, as well as 401ks, offer a few investment options to choose from—mostly stocks, mutual funds, and bonds. These accounts rarely allow investors to invest outside of what the various plans offer. Self-directed IRAs allow open investing in real estate, gold, private placements, trust deeds, and single-member LLCs. This gives savers more flexibility with their investments, which can help increase their funds more rapidly depending on the type of investment.

Benefits of a Self-Directed IRA

Besides offering more investments for savers to choose from, self-directed IRAs are also great vehicles for people to invest in what they know. If a saver has experience in the tech field or knows real estate trends, they can invest in these niches rather than whatever their traditional plan offers. Experts in their field, or even hobbyists, can take a more calculated risk with a self-directed IRA, and be rewarded handsomely when their investments grow. Some types of self-directed investments are inherently riskier, and therefore should only counted on for retirement by a saver who knows the market well. After all, self-directed IRAs are the responsibility of the plan owner and the plan owner alone, and a risky investment can have a major impact on future funds, whether positive or negative.

Retirement Saving Tips

Whether you choose the self-directed route or stick with traditional investment options, there are a few guidelines to follow for ensuring you will have enough saved at retirement for your needs.

  • Save early, save often. The best way to save for retirement is to start saving as early as possible and to be consistent with it. If you didn’t start saving until later in life, you can contribute extra to your retirement accounts at age 50 with catch-up contributions. The easiest way to save is to use direct deposits from your paycheck, that way there is no temptation to use the money for other expenses while it’s sitting in your account.
  • Take earlier risks, play safe later. Younger savers can invest in riskier options that have a larger growth potential because they have more time to benefit from the growth and ride out the lows should the market take a dip. Savers closer to retirement should play it safe and focus on keeping the money they’ve already earned through their accounts. Typically, the closer to retirement you get, the more you will want to transfer your stock investments to mutual funds and bonds. You still want to see growth at this stage, but it may be slower than the riskier investments.  
  • Make short-term and long-term goals. What is it you plan on doing with your retirement and saving money? Are you saving for a vacation, a new car, or college? Can any of your accounts help you with these goals? When you have a future goal to work toward, it becomes much easier to save the $50 or $100 extra a month in the present.
  • Record expenses and make a budget. If you’re nearing retirement, you will need to know exactly how much you will need per month and year to keep your standard of living the same. Record every expense, down to the last cup of coffee, to determine just how much you will need in retirement. Multiply the yearly number by how long you plan on living after retiring, and factor in extra medical expenses. You should reach this minimum savings goal before even thinking about turning in your two weeks’ notice at your place of employment.

Qualifying for an IRA: Three Things You Need to Know

Whether you have just entered the work force or have been earning income for years, saving for retirement should be one of the top priorities in your monthly budget. Even teens can start a retirement account with the money from their first job. In fact, it is highly encouraged since they will simultaneously have fewer expenses, making it easier than it ever will be to contribute. While it’s never too early to start saving, there is such a thing as too late and missing the opportunity to grow your assets for retirement. Listed below are a few restrictions for IRA accounts to help you determine if you qualify to start one now.

  1. To open an IRA, you do have to earn taxable income. The contribution limits for both traditional IRAs and Roth IRAs are $5,500 per year (or $6,500 if you are older than 50). However, if you earn less than the maximum contribution limit, you can only contribute up to your full income amount. Since Roth IRAs grow tax free, there are income limitations for contribution qualification related to these accounts. The amount you are able to contribute will start to decrease, or phase out, if you earn more than $118,000 as a single person or $186,000 as a couple filing jointly. If you earn more than $133,000 as a single person or $196,000 as a couple filing jointly, you are no longer eligible to contribute to a Roth IRA, but still have the option to contribute to a traditional IRA given that you don’t also have a workplace retirement plan (401K).
  2. As long as you’re earning income, your age won’t disqualify you from contributing to a traditional IRA until you’ve reached 70 ½. You may start taking distributions at age 59 ½ without an early withdrawal penalty, and minimum required distributions (RMDs) are required by age 70 ½. RMDs are calculated based on the amount of funds in your account and your life expectancy. Roth IRAs are not subject to RMDs, account holders are allowed to contribute up to any age, and distributions may be taken at any time without penalty as long as the account has been open for at least five years or the account holder has turned 59 ½, whichever comes first.
  3. Marital Status. As soon as you say, “I do,” you’re entitled to a whole host of benefits—one being spousal IRAs. If you don’t personally earn income, but your spouse does, you can still open an IRA in your own name using your spouse’s income for contributions. In this way, you as a couple can effectively double the maximum contribution limit by contributing $5,500 to each of your accounts every year, given that your spouse earns at least $11,000 per year. This advantage can help your assets grow tremendously for retirement.

Given the importance of saving for retirement and the incredible resource IRAs are for growing your assets, it’s a puzzle as to why there aren’t more restrictions placed on these types of accounts. If you meet the requirements for either a traditional or Roth IRA, talk to your financial advisor today about setting up an account. Your future self thanks you.

Five People You Can List as Beneficiaries on Your IRA

One of the first and most important pieces of information you will fill out on your IRA paperwork is naming a beneficiary in the event you pass away before the funds have been completely distributed. Since your IRA is not directly linked to your Will, your inheritors need to be clearly defined in both documents, even if you plan on using the same divisional scheme. Not naming a beneficiary for your IRA can lead to disastrous consequences. So, who can you name as a beneficiary? Everyone has different family bonds or none at all, so it’s important to choose an inheritor or inheritors that best fit your needs and wishes. Below are the five types of beneficiaries you can name on your IRA.

  1. If you are married you will probably want to list your spouse as your primary beneficiary, as they can roll the funds into their own IRA account, use the funds to cover funeral costs and debts or use the funds to cover the cost of living without your income. If they roll the funds over into their own IRA, the distributions will be based on their own life expectancy, not yours. They can also name their own beneficiaries at this point for when the time comes to transfer the funds down the line.

If your family is blended and you don’t completely trust that your spouse will exert fairness to your children with the funds after you pass, you can divide your account however you wish between however many parties you wish to ensure everyone receives their fair allotment. If you were ever divorced and don’t want your ex to benefit from your account after your passing, be sure to update your forms to your current spouse, children, or somebody else. After you die, the forms can’t be changed and your ex will legally be entitled to the money.

  1. Children, grandchildren, other. If your spouse passed before you, or you’re currently unmarried, the most popular second option is to pass the funds to children, grandchildren, or another family member or friend. Keep in mind, the inheritor can choose what they will do with the money once it’s in their name. They can open their own inherited IRA to grow the funds tax-deferred until they reach retirement age, or they can just cash out immediately and not take complete advantage of the fund growth.
  2. If you don’t trust an inheritor to make wise decisions with their inheritance, either because of age or personality, you can name a trust as a beneficiary to maintain a bit more control over the funds after you pass. The distributions from your IRA go directly into the trust, and the inheritors you have listed in the trust will only gain access to the money when you want them to. Your written instructions will dictate who gets money, how much they get, and when they get it. Distributions from your IRA will then be calculated by the life expectancy of the oldest person listed in the trust. While this option provides the most amount of control, it also gives less growth potential and may cost more in taxes and fees than an inherited IRA.
  3. If you don’t name a beneficiary, or don’t have any living relatives to name, the money in the account will default to your estate, which may be used to pay off debts first before distributing the leftover money to heirs. Since the funds would be distributed immediately to the estate, the total will be subject to income tax and possibly estate tax as well if your assets are worth more than $5,490,000 (2017). This option also disallows for maximum growth potential, so it can be the least advantageous choice unless the account holder has no other options.
  4. If you have a traditional IRA with tax deferred funds, you may consider giving all or part of your account to a charity. Charities can accept funds without paying income tax, and your family may deduct the donation from your total estate to avoid paying estate tax. If you have a large estate and several accounts to divide between family members, you may consider the counsel of a specialized attorney to ensure you’ve covered all your bases.

Before you choose your beneficiaries, be sure to talk to your financial advisor about the best possible options for you. They will also help you set up contingency plans in case situations change. When it comes to leaving money to your relatives, you can never be too careful.

Last Day to Convert Your Traditionl IRA to a Roth IRA! Today, December 31st, 2013

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For many investors, converting a traditional IRA to a Roth IRA makes a lot of sense. You pay taxes right away on the pre-tax contribuions that are in your traditional IRA, but if you follow the right rules, you won’t pay any taxes when you withdrawal the money. The deadline for converting your traditional IRA to a roth IRA is today,December 31st, 2013.

Converting means paying taxes now rather than later. Deciding whether this is the right investment strategy for you depends on me important factor that you shoud consider. To discuss how to convert your traditional IRA to a roth IRA or to learn more, call Quest Trust Company at 800-320-5950 today to have a consultation with one of our IRA Specialists!