Ira Investments Archives - Quest Trust Company

Important factors to consider when selecting an IRA custodian

Posted on November 8, 2019December 23, 2020 by Quest Trust Company

Estimated reading time: 2 minutes

There are different types of IRA accounts, for instance, Traditional IRA, Roth IRA, and SEP IRA. However, all IRAs have something in common. According to the Internal Revenue Service, all must have a custodian.

Who is an IRA custodian?

An IRA custodian refers to a financial institution that is responsible for holding account investments. The custodian ensures investment accounts are safely handled, and both the government and IRS regulations are followed.

There are numerous custodians in the market. While they are not hard to find, how do you single out the best IRA custodian for you? Here are essential factors to consider:

Available investment options

Always choose a custodian with a wide range of investment options.
Sometimes your investment needs may go beyond those of an ordinary IRA account. Will your custodian be able to handle that?
Your custodian should be someone you are willing to trust with most, if not, all of your investments and financial services.

Charges

Fees come in different forms; they could be annual account maintenance charges or commissions on trades.
Different custodians charge different prices. Thus, the costs depend on your custodian and account size.
Maintenance fees always depend on the custodian. So make sure you ask a potential custodian how much they charge.
Some custodians may waive the annual fee for customers whose accounts exceed a specific amount. Or depending on how much you have invested with them.
Also consider transaction costs charged when trading stocks, closed-end funds, and ETFs. Some custodians offer lower commissions than others while some impose charges on transactions for mutual fund families. In other cases, your transactions will not include any fees.

Complex transactions

Make sure your custodian is well equipped to handle complex transactions.
While your account will start with straightforward investing like stock purchases, with time, your needs may grow and you might seek other investment opportunities.
Some investments have complex rules surrounding them. Choosing a custodian without the necessary skills to handle complex transactions may cost you a fortune in terms of penalties and taxes.

Consider the above factors in your search for the right custodian. Remember, your custodian will be in charge of your retirement savings and investments. Contact a Quest IRA Specialist for further guidance to ensure you make the right choice. At Quest Trust Company we help you take control of your retirement.

Calculating A Fair Market Value Of Your Illiquid Self-Directed IRA Investments – And Why It Matters

Posted on February 19, 2015April 13, 2021 by questadmin

Estimated reading time: 2 minutes

When you want to know the true, fair market value of your checking account, savings account, or bank CDs, you simply check your balance. It’s the same case with your publically traded stock investments; you simply log into your account while the market is open and you’ll get an instant and accurate valuation.

But what’s the fair market value of your home or your car? You might have a general idea of the proper value, but it can be challenging to come up with an accurate assessment. You may also find it a bit challenging to come up with a fair market value for illiquid investments you hold inside your self-directed IRA.

Let’s examine some of the most common illiquid investments in self-directed IRAs, how you can calculate a fair market value, and why this can be so important.

Real Estate. Real estate investments are generally considered to be illiquid, even if the property is located in a “hot” market where the number of buyers greatly exceeds the number of sellers. That’s because the sales transaction itself generally takes some time, so even if you have strong buyer interest in a property you’re trying to sell,it can take several weeks or more before you actually liquidate and receive your check.

Because a property is only worth what someone is willing to pay for it, you can calculate a fair market value for investment by looking at recent comparable sales in your area, or enlist the help of a local estate expert and draw upon their experience.

Private Equity and Debt Instruments. You’ll probably need to rely more on expert assistance when you need to find the fair market value of any private equity or private debt investments you hold within your self-directed IRA. This is due in large part to the fact that the data regarding prior transactions won’t likely be available – such transactions are not a matter of public record in the same manner as are real estate transactions.

Why Does it Matter? Knowing the fair market value of illiquid investments within your self-directed IRA is important for several different reasons. First, the more accurate the valuation information you have about the investments in your self-directed IRA (and the other investments you have), the better you’ll be able to plan, assess the risks, and diversify your overall investment portfolio.

In addition, if your self-directed IRA is set up as a traditional account, you’ll become subject to the rules on required minimum distributions once you reach age 72. This isn’t particularly problematic from an administrative perspective if all of your investments are liquid, like stocks. You always know what your account is worth, and therefore you can easily calculate your RMD obligations. You can also quickly sell whatever investments you need to in order to meet those obligations.

How a Change of Career Can Impact Your Self-Directed IRA

Posted on September 26, 2014April 13, 2021 by questadmin

Estimated reading time: 3 minutes

The process of building up a retirement nest egg doesn’t occur in a vacuum. You can come up with a savings plan and investment plan, but if the other financial elements of your life undergo significant changes, you might have to adjust those plans. One thing that can impact your self-directed IRA in several important ways is changing your job or career.

New Income Levels

As you are likely already aware, your ability to contribute to a traditional self-directed IRA or a Roth self-directed will depend on your modified adjusted gross income, as well as whether you’re participating in an employer-sponsored retirement plan such as a 401(k).

For 2021, for example, if you’re a single taxpayer and you’re covered by a retirement plan at work, you can only deduct the full amount of any contributions you make to a traditional self-directed IRA if your modified gross income is $66,000 or less. With respect to a Roth self-directed IRA it is irrelevant whether or not you participate in an employer-sponsored retirement plan, but you can only make the maximum contribution to your Roth account if your modified adjusted gross income is less than $125,000.

Clearly there are several moving parts here, but the bottom line is that whenever you switch to a new career or job, the optimal contribution strategy you used in past years may not be the best one in your new position. You may find that you’re much better off making contributions to a traditional account than a Roth account, or vice versa. (And some individuals maintain both Roth and traditional IRAs throughout their saving years for just this reason.)

Ability to Rollover Your 401(k) Account

Whenever you change jobs, you have the ability to roll over your account balance to your new 401(k) account at your new employer (assuming that your new employer offers such a plan). That has certainly been a common approach among many individuals who find themselves moving to a new job or new career.

But that change in job or career gives an opportunity to rollover the balance that’s in your 401(k) account into your self-directed IRA. Not only will this give you the opportunity to reduce your administrative burden by having fewer accounts to manage, but you’ll also have a larger pool of capital that you can use to make some of the less common retirement investments that you can only do with a self-directed IRA.

It’s true that you can generally leave your 401(k) account with your old employer, but if you choose that path you won’t be able to make new contributions to your account, and you’ll be stuck with whatever limited investment options that particular plan happens to offer.

Make sure that you structure this as a direct rollover, not as a distribution and contribution of funds. The negative tax implications of taking a distribution from your 401(k) could be significant.

Can You Use a Self-Directed IRA to Invest in Tax Liens?

Posted on September 14, 2014December 9, 2019 by questadmin

Estimated reading time: 3 minutes

When you have a self-directed IRA as part of your retirement strategy, you’ll have a much wider range of investment options available for your nest egg. With a custodian such as Quest Trust Company, you’ll be able to invest in precious metals, private equity, and real estate. Individuals who first become interested in opening a new self-directed IRA often get that interest because they think they might be interested in making real estate with their retirement funds.

But direct investments in property are only one way to invest in real estate related items. You can use a self-directed IRA to make private mortgage loans secured by real estate, and you can invest in tax liens as well.

What are “Tax Liens”?

A tax lien is essentially an encumbrance worked at that place on certain property (usually real estate) when the owner of that property fails to pay their taxes. There are several important legal implications of tax claims. For the property owner, the most important implication is that if they fail to make good on their tax debt, then the taxing authority (generally a local government) will eventually have the legal right to foreclose and force a sale of the property in order to

Local governments do this out of necessity. Simply put, they need the cash immediately, in order to fund operations, and can’t afford to wait for the taxpayer to make good on their property tax obligation. In order to obtain their funds, the local government will sell the right to receive those tax revenues to a private investor. The investor receives the legal right to receive payment of the tax from the delinquent property owner, plus interest that occurs at a predetermined rate.

Investing in Tax Liens With a Self-Directed IRA

Tax liens are essentially a debt instrument secured by a piece of property. As such, they are a permissible investment class for a self-directed IRA.

However, unlike many investment types that you may be familiar with, the actual process for making investments in tax liens varies from local government to local government. One common approach is for the local government to auction off each lien individually, with the beginning at the face value of the debt owed. In most tax lien auction scenarios with more than a few properties up for bid, there will be a range of premiums that are bid.

The Right to Receive Property

The biggest source of confusion surrounding investments in tax liens is the right of the tax lien investor to take possession of the underlying property in order to receive payment. While it’s generally true that after a certain period of nonpayment the holder of the tax lien can foreclose upon the property, this procedure is not available quickly, and there are usually multiple opportunities for the taxpayer to redeem their property interest.

The bottom line is that tax liens may be a suitable investment for your self-directed IRA, but you should not make those investments in anticipation of taking title to real estate at a deep discount.

The Downsides of Making an Early Withdrawal From Your Self-Directed IRA to Pay Your Child’s College Expenses

Posted on June 10, 2014November 29, 2018 by questadmin

Estimated reading time: 2 minutes

With the cost of a college education rising faster than inflation, and at a higher rate than most are earning with their investments, many families are considering different options for trying to pay for tuition, room and board, and other higher education expenses for their children. Loans are an option, of course, but we’re seeing that many recent college graduates are having trouble handing tens (or even hundreds) of thousands of dollars of debt.

Some individuals are familiar with the various exceptions to the rules that prohibit early withdrawals from their IRAs. In particular, there is an exception that allows an IRA account holder to make withdrawals from their IRA without having to pay that 10% penalty in order to pay for certain qualified higher education expenses.

While this might sound like a good solution to the problem, it’s important to understand that there are some significant downsides to making an early withdrawal from your self-directed IRA to pay for your child’s college expenses.

You Lose Time Value Compounding. You probably know that the longer you have funds actively invested in your account, the greater chance you’re giving your account to grow. But when you take money out of your account when you’re still years (and maybe decades) away from retirement, you’re short-circuiting that growth. Withdraw $10,000 this year to pay for your child’s education, and that money could have been worth almost $50,000 in your account in 20 years (assuming an 8% rate of return). Now consider that the average yearly tuition at a private college in the U.S. is over $30,000 – and that $30,000 figure doesn’t include room and board.

You’ll Lose Investment Options. When you make early withdrawals from your self-directed IRA to pay for your child’s college expenses, you reduce the balance in your account. This provides you with fewer investment opportunities going forward. For example, because there are negative tax consequences to borrowing money within your self-directed IRA in order to purchase real estate, it’s usually preferable to try to purchase investment real estate in an all cash transaction. Having less money in your account means that you’ll have fewer options to make such an all cash purchase.

You Might Be Less Judicious in Your Spending. There are many IRA holders that have significant balances in their accounts. Unfortunately, this can sometimes lead to those individuals not fully appreciating just how costly it is to take out an additional $5,000 or $10,000 out of their account.

It’s obviously important that your child be able to get a quality education, but there are likely to be other ways that you can help them pay for it. You may wish to consider refinancing your mortgage or even downsizing your home, for example. It’s important to understand that the downsides of getting those funds from your self-directed IRA are significant.

Using Your Self-Directed IRA to Invest in Illiquid Assets

Posted on May 22, 2014 by questadmin

Estimated reading time: 3 minutes

When most investors think of investments they tend to focus on assets and asset classes that are relatively liquid. We’re talking about investments that you can trade in and out of relatively easily and at relatively low cost – things like stocks, mutual funds, banks CDs and the like. Liquidity means that your money is always available if you have an emergency or other pressing expense. (While it’s true that you may have to forfeit some of the interest you earned in order to liquidate a bank CD before maturation, the money is still there for you to use.)

For this reason, there’s sometimes a tendency to avoid investments that are illiquid. These investments include assets like real estate and investments in private companies. If you ever need to sell these investments, you might find that it takes a bit of time to actually “cash out.” Some investors are reluctant to have their funds tied up in this way.

Fortunately this type of illiquidity is perfectly consistent with the long-term investment timeframe of the self-directed IRA. Withdrawing money from a self-directed IRA before retirement generally incurs penalties (and in the case of a traditional account, taxes as well), so account holders are generally more comfortable with holding illiquid investments because they wouldn’t easily be able to use the underlying funds outside of the account anyway.

Real Estate. Real estate is a popular illiquid investment to hold in a self-directed IRA. Given the costs that are generally imposed on both the sellers and the buyers of any real estate transaction, most real estate investors tend to have a medium-term to long-term outlook, and rightly consider these investments to be illiquid.

Private Mortgages. Owning a piece of property outright is not the only way to invest in real estate. With a self-directed IRA you can lend money to others to enable them to purchase real estate. Many investors find that they can generate healthy returns by becoming active in lending markets that their local banks and mortgage companies don’t participate in.

This might mean commercial lending, or lending to first-time or high-risk lenders that may find difficulty in obtaining financing through traditional means. As you might expect, with higher risk comes a higher interest rate that you can charge.

Remember that as the originator of the private mortgage, you have to be prepared to carry the note to maturity. While a borrower can always choose to pay down their mortgage early, there’s no way for the lender to force early repayment. It’s possible to sell your mortgage note to another investor, but this secondary market is probably quite thin and potentially expensive to take advantage of.

Private Equity. By the same token, private equity investments are also highly illiquid, and therefore are well-suited for self-directed IRAs. It’s important to understand that the investment documents themselves may prohibit transferring the interest to third parties, so these may be the least liquid of any of the investment types we’ve discussed.

If you find an investment opportunity that’s going to tie up your money for a number of years, consider participating in it within your self-directed IRA.

What to Do If You’ve Saved Too Little for Retirement

Posted on March 9, 2014April 12, 2021 by questadmin

Estimated reading time: 3 minutes

For many adults who are nearing their 60’s (and even some adults much younger than that), one of their biggest financial concerns is being able to save enough for retirement. The average American who reaches age 65 can expect to live for about another 20 years, so if that individual plans to stop working once they retire, they will need to have accumulated a significant nest egg to cover their ongoing living expenses. Many adults find that they haven’t save enough.

So what happens if you find yourself in this position? What do you do if you believe that you’ve saved too little for your retirement?

Don’t Assume it’s Too Late. The first step is to evaluate your situation again. Don’t assume that it’s too late for you to meet your retirement goals. It may be helpful for you to get a second opinion from a trusted financial advisor – they may be able to help you realize that the situation is not quite as dire as you may have assumed.

Readjust Your Expectations. One thing that can lead some to conclude they haven’t saved enough for retirement is that their expectations for the lifestyle they hope to have during retirement may be unrealistic. When you began saving for retirement, for example, you may have envisioned yourself spending the last 20 years of your life in a luxury home located on a championship golf course.

You might not have saved enough to be able to make that plan come to life (and it might not be due to lack of effort or planning on your part – the cost of your desired retirement lifestyle may have increased at a much faster rate than your investments have grown). But that doesn’t mean your chance for a comfortable retirement is gone; you may just need to readjust your expectations of what your retirement lifestyle will look like.

Reevaluate Your Other Expenses. Even though you likely saved for retirement in dedicated accounts such as IRAs and 401(k)s, you shouldn’t evaluate your retirement options nearly by looking at the balances in those accounts. Consider all of your wealth when making retirement decisions, even if you may have previously earmarked other assets for different purposes. For example, one reason that some new retirees find that they haven’t saved enough for retirement is that they’ve over-extended themselves in other areas.

These days, one of the most common is paying for all of the child’s higher education expenses. The cost of a college or university education has skyrocketed over the past two decades, so you may need to re-examine how much of your child’s education you’ll be able to pay for. Don’t deplete your other savings just to cover the tuition bill in its entirety. Instead, consider a less expensive school and or having your child borrow or otherwise be responsible for a greater portion of their own education expenses.

Wait Until Age 70 Before Taking Social Security. Finally, you can maximize the amount of Social Security benefits you receive by delaying your decision to receive benefits until age 70. By waiting this long, you may be able to almost double your monthly income (and that’s income you receive for the rest of your life) as compared to taking Social Security at the earliest possible time.

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.

Ways to Come up With Your Annual IRA

Posted on January 21, 2014April 12, 2021 by questadmin

Estimated reading time: 5 minutes

Take a look at the budget that you follow for your personal finances; do you have a line item for making your annual IRA contribution (perhaps it’s understood to be part of the “savings” or “retirement savings” amount)? But do you always follow through and make sure that you’re contributing the maximum amount to your IRA each year? If not, then here are some tips to help you come up with new ways to make your annual IRA contributions.

Use Last Year’s Tax Refund. Too many individuals have gotten into the habit of thinking of their tax refund as a windfall or “found money.” While there may be a certain degree of satisfaction and enjoyment that comes from using your tax return to treat yourself or your family to something nice, you should also consider what you could be doing with your tax reTake a look at the budget that you follow for your personal finances; do you have a line item for making your annual IRA contribution (perhaps it’s understood to be part of the “savings” or “retirement savings” amount)? But do you always follow through and make sure that you’re contributing the maximum amount to your IRA each year? If not, then here are some tips to help you come up with new ways to make your annual IRA contributions.
Use Last Year’s Tax Refund. Too many individuals have gotten into the habit of thinking of their tax refund as a windfall or “found money.” While there may be a certain degree of satisfaction and enjoyment that comes from using your tax return to treat yourself or your family to something nice, you should also consider what you could be doing with your tax refund instead; namely, making all or part of your IRA contribution for the coming year.
Use the First Few Months of Next Year if Necessary. Even though the tax year closes on December 31, you actually have until the date on which you file your taxes to make a contribution for that tax year. So, if you wait until April 15 to file your taxes for the prior year, then you have those three and half months (from January 1 until April 15) in which to make an IRA contribution for the tax year that just closed. If you find yourself in a bit of a cash crunch at the end of the year, using this extra time can be a financial lifesaver.
Dip Into Your Emergency Fund. This technique is a bit risky, but it’s worth considering for some taxpayers. If you fail to make the maximum contribution to your IRA in any tax year, there’s no way to make up for it later. Missing out on this opportunity can significantly reduce the funds you have available at retirement. If you have a large emergency fund, you may wish to use some of that money in order to make the maximum IRA contribution – provided that you are able to replenish your emergency fund soon thereafter. Making IRA contributions is important, but so is having funds available in case of an emergency occurs.
Contribute Over Time. Don’t fall into the trap of assuming you need to make your entire $6,000 contribution (or $7,000 contribution if you’re age 50 or older) all at once. Those amounts are merely the annual contribution limits, and you can make as many individual contributions as you want during the tax year, provided that the total amount of contributions does not exceed the limit. Some people find the best solution is to contribute a pro rata amount each and every month during the year.
Don’t wait another year and take a chance on missing out on making the full IRA contribution. Use the tips above to make sure you can max out your IRA each and every year.
fund instead; namely, making all or part of your IRA contribution for the coming year.

Use the First Few Months of Next Year if Necessary. Even though the tax year closes on December 31, you actually have until the date on which you file your taxes to make a contribution for that tax year. So, if you wait until April 15 to file your taxes for the prior year, then you have those three and half months (from January 1 until April 15) in which to make an IRA contribution for the tax year that just closed. If you find yourself in a bit of a cash crunch at the end of the year, using this extra time can be a financial lifesaver.

Dip Into Your Emergency Fund. This technique is a bit risky, but it’s worth considering for some taxpayers. If you fail to make the maximum contribution to your IRA in any tax year, there’s no way to make up for it later. Missing out on this opportunity can significantly reduce the funds you have available at retirement. If you have a large emergency fund, you may wish to use some of that money in order to make the maximum IRA contribution – provided that you are able to replenish your emergency fund soon thereafter. Making IRA contributions is important, but so is having funds available in case of an emergency occurs.

Contribute Over Time. Don’t fall into the trap of assuming you need to make your entire $6,000 contribution (or $7,000 contribution if you’re age 50 or older) all at once. Those amounts are merely the annual contribution limits, and you can make as many individual contributions as you want during the tax year, provided that the total amount of contributions does not exceed the limit. Some people find the best solution is to contribute a pro rata amount each and every month during the year.

Don’t wait another year and take a chance on missing out on making the full IRA contribution. Use the tips above to make sure you can max out your IRA each and every year.

Finding a Property Manager for Your Self-Directed IRA Real Estate Portfolio

Posted on September 23, 2013June 7, 2019 by questadmin

Estimated reading time: 3 minutes

The potential upside and cash flow possibilities of investment real estate make it a highly attractive option for retirement savers who have self-directed IRAs. Unfortunately, some investors may be somewhat reluctant to invest in real estate because of the higher level of attention that particular asset class demands.

Unlike equity and debt investments, investing in real estate involves a physical asset that the owner is responsible for maintaining, promoting and safeguarding. The most common solution to these issues is for real estate investors to retain the services of a property manager. Here are some options for finding the right manager for your self-directed IRA real estate portfolio.

Hire an Individual. If your real estate portfolio is relatively small, you might be able to hire someone you already know to manage the property. Sometimes a local handyman can be all the assistance you need to manage a single property. If you choose an individual manager, then be sure that person carries an appropriate type and amount of liability coverage.

Hire a Property Management Service. If you own multiple properties, or are looking for a higher level of service, then you should look to hire a professional property management service. As you might expect, the property management industry is fairly well developed. This means that for practically any area of the country you’ll be able to find a service that can manage your real estate holdings. Make sure to understand the services that are available, as well as the fees that you will be responsible for.

It’s worth noting that a professional property manager may also be able to provide you with valuable assistance if you ever find yourself in a situation where your tenant is not complying with the terms of their lease. A manager that has experience with eviction or similar proceedings can be invaluable.

Understand What You’re Looking For. Before you start trying to find a property manager for your real estate investments, you should evaluate the types of services you need. The first step is likely to be making a list of all the maintenance and upkeep obligations that you are responsible for as the property owner. For example, if your rental property is a condominium, or a single-family home that’s subject to homeowners association (HOA) rules, then you need to be confident that your property manager will be able to meet all of those obligations.

If you own a multi-family home or apartment building, there may be some local or state regulations that you also need to satisfy. If you’re not familiar with these duties, an experienced property manager can help you bridge the gap in your expertise.

Finally, there’s one last option to consider – managing your real estate investments yourself. You won’t be able to pay yourself any compensation from your self-directed IRA (whereas fees can be paid to a third party property manager), but you might find that you have fewer worries about your investments knowing exactly what’s happening with them.

Visit here to grab more information on self directed IRA and investment plans.

Who is an IRA custodian?

Available investment options

Charges

Complex transactions

New Income Levels

Ability to Rollover Your 401(k) Account

What are “Tax Liens”?

Investing in Tax Liens With a Self-Directed IRA

The Right to Receive Property