ira Archives - Quest Trust Company

Retiring on a Self-Directed IRA

Posted on February 12, 2018April 13, 2021 by Juan Deshon

Estimated reading time: 3 minutes

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.

Five People You Can List as Beneficiaries on Your IRA

Posted on April 2, 2017August 13, 2019 by Juan Deshon

Estimated reading time: 4 minutes

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.

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.

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.
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.
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.
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.

Mobile Applications to Help You Build Your Investment Portfolio

Posted on March 20, 2014 by questadmin

Estimated reading time: 3 minutes

The idea of managing your finances from a cell phone or mobile device isn’t as crazy as it might have seemed just a decade ago. For years now it’s been possible to log in to your bank or investment accounts, and even to conduct various types of basic financial transactions, all from a mobile device.

But now, with the near ubiquity of smartphones and the rise of mobile applications (“apps”), there are even more powerful options at your disposal. Here’s a sample of some of the mobile applications you can use, for example, to help you build your investment portfolio.

Monitoring Apps. The first type of mobile app to consider is one that lets you monitor your overall investment portfolio. You could simply log in to each of your various accounts in order to evaluate your investments, but that would take a lot of time, and you still wouldn’t have a single “snapshot” of your overall financial position. Consider an app such as Mint or SigFig to help you monitor your wealth across multiple accounts.

Research Apps. Investment opportunities come and go quickly, so you’ll likely want to be sure that you can research various investment ideas whenever they come to you. In this case you may wish to consider specialized apps such as the ChartIQ, CNBC or Bloomberg apps. You may also want to use whatever apps provide you with up to date information regarding the various industries you invest in.

Trading Apps. Of course, you’ll also want to be able to execute trades at just the right time, including whenever you’re away from your computer. But rather than try to navigate your broker’s website using a mobile device browser, download your broker’s proprietary app for best results. All the major brokers have apps available on all the various smartphone platforms.

Tax Apps. If you own your own business or bring in any consulting income, then chances are optimizing your tax situation often requires a fair amount of effort on your part. Even if when you use professional tax assistance you’re still responsible for keeping records and the like. A tax app such as those from H&R Block or Quicken can help ease your recordkeeping burden, and help you maximize the value of your investments.

Security Apps. Finally, it’s important to understand that a key element of keeping your finances safe is securing all of the various different ways to access your account. For any of the mobile applications described above, or any others you may choose to use, make sure to enable the highest level of security within the app. In addition, you’ll need to be confident that your telephone itself is as safe as possible. This means employing password protection to open the device, as well as installing antivirus and security apps such as Lookout Security & Antivirus and McAfee Mobile Security.

Of course, having the right apps on your smart phone or other mobile device is only half the battle. Be sure to learn how to use them optimally, and always keep your investment goals in mind when you use them.

Top IRA Myths to Guard Against

Posted on February 4, 2014August 12, 2019 by questadmin

Estimated reading time: 2 minutes

Even with the large number of Individual Retirement Accounts that exist in the United States, there is still a surprising amount of misinformation that exists about them.

And this misinformation isn’t simply an academic matter with unimportant consequences; not having an accurate understanding of how IRAs work can end up costing you money that you’d otherwise have available for retirement. Here are some of the most common myths regarding IRAs that you need to be on the watch for.

Myth: Using an IRA to Buy Real Estate or Private Equity Raises Red Flags.

Unfortunately, this IRA myth never seems to go away. The IRS regulations on Individual Retirement Accounts permit a very wide range of investments, including real estate, private equity, private debt, certain types of precious metals, and more. Unfortunately, many IRA custodians are more restrictive than the IRA regulations actually require, so investors assume that the less common investments are simply not permitted. Using a custodian such as Quest Trust Company for a “self-directed IRA” can open up a wider range of investments.

Myth: It’s Always Best to Start Contributing to a 401(k) Before Opening an IRA.

Retirement savers have a number of savings and account options available to them; the most basic of which is whether to open a 401(k) plan through their employer (if one is offered) or an Individual Retirement Account. Of course, if you can afford to make maximum contributions to both, then that’s likely to be the ideal solution.

If you’re only able to afford contributions to a single account, you’re likely to find that contributing to an IRA is a better choice than your 401(k) because of greater investment options and unique tax advantages in the case of a Roth IRA.

Myth: Converting to a Roth IRA is Too Expensive.

You might hear claims that because you’ll face a large current year tax bill when you convert an IRA from a traditional account to a Roth structure, it’s rarely worth doing. In truth, converting to a Roth IRA can be a great long term decision for many account holders. In addition, in some situations you can “undo” a conversion if your account drops significantly in value.

Myth: You Must Pay Cash to Buy Real Estate With a Self-Directed IRA.

One of the great strengths of a self-directed IRA is the ability to hold a wide variety of asset classes, including real estate. Unfortunately, there is misinformation out there surrounding how exactly the purchase of real estate must happen within a self-directed IRA. You are permitted to use outside financing to purchase real estate with your self-directed IRA, provided that only the IRA account (and not the account holder personally) is liable for repayment.

By separating fact from fiction you’ll be sure to get the greatest long-term value out of your IRA.

Coming up With a Savings Plan to Fully Fund Your IRA Each and Every Year

Posted on January 17, 2014 by questadmin

Estimated reading time: 3 minutes

Given how valuable IRAs can be to your retirement – largely because of the tax-deferred (and in the case of Roth IRAs tax-free) investment growth that can occur for many decades – it’s absolutely essential that every taxpayer trying to fully fund their IRA each and every year.

But even as many of us understand the concept that saving for retirement is important, we don’t always do a good idea of maxing out our annual contributions. Other things always seem to find a way of competing for our financial resources. Simply put, the best way to guarantee our ability to contribute is to plan for it. Here are some tips for coming up with just such a savings plan.

Make an Honest Financial Self-Assessment. You can’t build a savings plan unless you know exactly what financial resources you have to work with. The most direct and easily understandable way to do this is to conduct a personal cash flow analysis. Over a period of several months, make a record of everything you spend your money on, what categories of expenses may be increasing, and what categories of expense you may be able to reduce. Make every attempt to record every dollar that comes in or goes out, as the “little things” can really add up.

Consider a Zero Sum Budget. One technique for preparing a personal budget is to make a “zero sum” budget. Inspired by corporate accounting rules, this technique requires you to balance out all of your income with all of your expenditures (including savings), so that every dollar is accounted for somewhere on the budget. This forces an individual to identify exactly how much they’re going to save each month, which in turn makes it easier to follow the plan that they make.

Understand that Your Situation is Unique. There’s no shortage of advice on how to come up with a budget or a savings plan. While it might be tempting (and certainly easy) to just “cut and paste” a particular plan or savings formula and use it as your own, there can be some serious shortfalls in this approach. Consider not only your own financial obligations, but also your personal preferences on what types of spending are most important to you.

Be Open to Change. The importance of making the maximum contributions to your IRA each and every year cannot be overstated. Each year provides a “use it or lose it” opportunity to accumulate more for your retirement. If you fail to make a contribution in a given tax year, you’ll never have the opportunity to go back and make up for that shortfall. Coming up with a savings plan to make those maximum contributions may require you to change your lifestyle, or at least to cut back on certain spending habits you may be accustomed to. Be open to these changes for the sake of your financial future.

Is Your IRA a Truly “Self-Directed IRA”?

Posted on November 12, 2013November 29, 2018 by questadmin

Estimated reading time: < 1 minute

Owning a self-directed IRA may be the key to your comfortable retirement. A self-directed IRA is an individual retirement account where the owner directs all investments. There is no legal distinction between a self-directed IRA and any other IRA, except that with a truly self-directed IRA, the account agreement allows the broadest possible spectrum of investments. There are several types of accounts that can be self-directed, such as Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, 401K, Coverdell Education Savings Account and the Health Savings Account.

You can use your self-directed IRA to purchase almost anything such as assets like real estate, promissory notes, non-publicly traded company stock, limited partnerships, tax liens, LLCs and much more. Self-directed IRAs allow you to invest in what you know best!

Quest Trust Company has been the leader in self-directed IRAs for over a decade. Open an account us and take control of your financial future.

Understanding How Short Sales Work

Posted on October 18, 2013August 12, 2019 by questadmin

Estimated reading time: 3 minutes

In order to get the most from your self-directed IRA, you’ll want to consider all the different types of investments that are permitted within your account. In fact, the opportunities that come with a self-directed IRA at a custodian such as Quest Trust Company is likely to be what got you interested in this type of retirement account in the first place.

Being able to invest your retirement nest egg in things such as real estate, private equity and precious metals remove the self-imposed limitations of traditional IRA custodians. Within some of the broad investment classes there may be some particular investment types that remain a bit of a mystery. For example, many individuals have gone through the process of buying a home, so they’re likely to feel at least somewhat comfortable with the idea of buying residential real estate for investment purposes with their self-directed IRA. But the process of buying so-called “short sale” properties might be wholly unfamiliar to them.

There is sometimes a temptation to think of real estate foreclosures and short sales as being virtually the same thing. While it’s true that both involve the purchase of properties in which the prior owner was not able to fulfill their mortgage obligations, the processes are actually quite different. Foreclosure is a well-defined legal process that provides certain guaranteed rights to the property owner. On the other hand, you can think of a short sale process as a debt renegotiation.

In a short sale, the property owner (or his or her representative) negotiates with all mortgage lien holders to allow the property to be sold for an amount that is less than the aggregate outstanding loan balances. After a short sale the prior owner will sometimes (but not always) be relieved of any further financial ability.

It’s important to understand that for the creditors on a short sale property to agree to accept less than they are owed, they generally want to make sure the short sale process goes as smoothly and quickly as possible. This means that to maximize your chances of having your short sale offer except, you must present the most attractive offer to those creditors. This generally means that your transaction time frame is flexible – both in terms of being able wait for the creditors to evaluate your offer, and to be able to close on the transaction quickly once it is accepted – as well as being able to pay cash or have no financial contingencies that could prevent you from closing the short sale.

As a result, the process for a distressed homeowner to apply for (and get a decision on) a short sales is generally shorter than for a foreclosure. Still, when you’re looking to invest funds from your self-directed IRA, you need to plan for a longer transaction time frame than if you bought a similar property on the open market.

A real estate agent who’s been through the process before it can provide invaluable assistance if you never purchased a short sale property before.

Things to Consider Before Investing Abroad

Posted on October 14, 2013June 7, 2019 by questadmin

Estimated reading time: 3 minutes

For those individuals who wish to expand the range of investment opportunities they have available, a common approach is to invest outside of the United States. While it’s possible to gain international exposure through domestic markets (such as by buying stock in U.S. companies that have a large multinational presence, or buying shares of foreign companies that are traded on U.S. stock exchanges), some investors are looking to commit more directly to investment opportunities outside the United States.

Before you devote a portion of your investment portfolio or self-directed IRA to investments abroad, here are some things to consider.

Publicly Available Information. Many of the regulations that govern the U.S. stock market have one thing as their goal – the protection of investors by making sure they have as much information as possible about potential investments. These public company disclosures are a necessary part of being able to offer securities on U.S.-based exchanges.

In large part, these types of investor protections don’t exist in most other countries around the globe. So before making any investments abroad, be sure you have all the information you need to make an intelligent and well-informed decision.

Taxes. Making investments outside of the United States can trigger tax liabilities in those countries. While tax treaties between the U.S. and certain other countries can reduce that liability, that’s not always the case. It’s therefore essential to consult a tax expert so that you know exactly what to expect in tax liabilities. It’s also important to note that the tax landscape abroad can change over time, potentially to the detriment of your investments.

Currency Exchange Risk. Similarly, currency exchange rates fluctuate over time, and sometimes these fluctuations can be significant. And even if you have any long-term horizon for your foreign investment, at some point you’re going to need to bring the money back into the United States. If the dollar has strengthened in relation to the currency of the country you are investing in, then you’ll be losing a portion of your investment gains simply because of the currency exchange. There are ways to hedge against this risk, but doing so can greatly increase the complexity and costs of investing abroad.

Ownership and Currency Transfer Restrictions. Some countries have laws that restrict the types and amounts of assets that non-citizens can own. For example, numerous areas throughout Europe and Central America restricting the ability of foreigners to own real estate outright. or to own more than a minority interest in certain local industries. Some countries also limit how much money can be transferred outside of their borders, although this type of restriction is less common than the real estate ownership limitations. Before you go too far in planning an investment in a particular foreign country, be sure there are no legal limitations to you reaching your goals.

Investing abroad can be highly rewarding, but only if you understand all of the potential obstacles and challenges you may face.

Things to Avoid when Considering Real Estate Investments for Your Self-Directed IRA

Posted on October 10, 2013June 7, 2019 by questadmin

Estimated reading time: 3 minutes

Most individuals generally approach potential investments by looking for those that meet certain financial or business criteria. It’s often useful to approach investment decisions by identifying what characteristics you’re looking for.then analyzing the various possibilities you have available to find those that meet your criteria.

But it’s also important to be aware of certain types of investments that you’ll want to actively avoid. In the context of real estate investing. here are some factors to consider.

Avoid Rushed Transactions. Successful real estate investing often depends on having as much information as possible about a property before acquiring it. In addition to market research, you’ll also want to conduct a thorough inspection of the property itself, Often times you’ll need to bring in outside experts to help with the inspection, and this takes time to schedule and complete. Avoid transactions where you find the seller trying to unduly rush the process – if you haven’t had the time to complete your due diligence on any property, don’t be afraid to walk away from the transaction.

Avoid Leverage. When you’re looking at potential real estate investments for your self-directed IRA, it’s generally a good idea to avoid borrowing money to acquire property. Not only will leverage create UBTI (unrelated business taxable income) issues, but borrowing money will also put your IRA on the hook for paying that money back. Remember that any borrowing done by your self-directed IRA must be repaid with funds in or generated by your account – using outside money to satisfy the obligations of your IRA will trigger additional tax penalties.

This isn’t to say it’s never appropriate to use leverage. In fact, when used strategically it can greatly boost your investment returns. But you may need to change your mindset from many first time real estate investors who’ve only had experience with real estate in the form of taking out a mortgage to buy their own homes, and think that that’s always the best way to move forward.

Avoid Becoming Emotionally Involved. Finally, you want to avoid any temptation to become emotionally connected with any real estate investments you make. It’s easier to become attached to a home or piece of property than it is to a stock investment (although some investors do form unreasonable attachments to certain stock investment), and fail to treat the property for what it is – an investment that you’re purchasing with your self-directed IRA in order to build your wealth for retirement,, By introducing an emotional element into your investment decisions, it becomes much harder to reach your goals.

Again, this is likely to stem from the fact that many individuals form emotional attachments to the real estate that they purchase to live in. Make sure to draw a distinction between your personal real estate holdings and those you hold for investment purposes within your self-directed IRA.

By avoiding potentially problematic real estate transactions while you’re keeping an eye out for the best ones. you’re sure to reach your long term financial goals.

Buying Investment Real Estate in a Different State

Posted on September 14, 2013June 7, 2019 by questadmin

Estimated reading time: 3 minutes

With a self-directed IRA from a custodian such as Quest Trust Company, you’ll have the freedom to invest in asset types that the bank and brokerage custodians choose not to permit. One of the most popular investment types for self-directed IRAs is real estate.

As your account balance grows, and your investing expertise grows along with it, you may become interested in investing in real estate that’s located in a different part of the country. Here are some tips to consider before you buy any investment real estate in a different state from where you live.

Do Your Homework on Market Conditions

Before making any real estate purchases, you’re likely going to want to research not just the selling prices of similar properties, but the local rental market conditions as well. After all, in most cases you’ll be purchasing residential (or commercial) real estate that you’ll need to rent out. Is demand for rental housing increasing or decreasing? Are local businesses expanding their operations? Is the average residential renter a single professional or a family, and would your potential real estate purchase serve that market?

Properly Evaluate the Property

Buying stocks and bonds for your self-directed IRA is a relatively straightforward process. You can research any potential investment through its SEC filings, as well as the analysis of professional market observers. For public companies, there’s generally no shortage of information available to help you make an investment decision

In contrast, the process of purchasing investment real estate generally requires you to become very familiar with the individual piece of property – and that almost always includes a physical inspection. If it isn’t feasible for you to travel to the property to inspect it yourself, be sure you have a highly trusted expert inspect the property on your behalf.

Plan for Property Management

As opposed to local real estate investments, which you could theoretically manage yourself, you’re probably going to need some level of professional assistance to manage any out-of-state real estate investments you make. This is particularly true for single-family homes, which won’t have an on-site superintendent (like a condominium building might) who can handle routine maintenance.

Don’t Automatically Chase the Lowest Prices

As with other types of investments, sometimes a very low price is a red flag that something’s wrong. Look not only at the purchase price of a particular property, but whether you’ll need to spend more to get that property into a rentable condition. You need to take the complete financial picture into account before you can determine whether a particular property is fairly priced or not.

Understand the Foreclosure Process (if Applicable)

If you’re looking to purchase foreclosed or distressed properties, make sure you fully understand the applicable legal process in the state where the property is located. The differences can sometimes be very different from state to state, so you want to make sure your investing plan fits that process accordingly.

Finally, as with any other real estate purchase, whether for personal or for investment reasons, don’t overextend yourself financially, and be confident that the property fits within your overall financial plan.

Click here to learn more about the Quest Trust Company investment plans.