Retirement Funds Archives - Page 2 of 2

How Your Self-Directed IRA can Boost Your Tax Refund

Posted on September 2, 2014December 10, 2018 by questadmin

As we inch closer to the April 15, 2014 tax filing deadline, we’re all looking to reduce our tax bill so that we can receive back the largest possible tax refund (or reduce the size of the check we have to send to the IRS). We can decrease the annual tax burden by utilizing the greatest number of deductions that are available.

If the deduction for IRA contributions is available to you, it can prove to be an extremely valuable benefit. Here’s how your self-directed IRA can boost your tax refund:

Deductible Contributions to Traditional IRAs.

For traditional self-directed IRAs, the contribution limit for the 2013 tax year is $5,500 (or $6,500 if you’re age 50 or older). The deductibility of your annual contributions will depend on several factors: your tax filing status; your modified adjusted gross income; and whether or not you’re covered by an employer-sponsored retirement plan such as a 401(k).

If you file a single return, then you’ll be able to deduct the full amount of your annual contribution if you’re not covered by an employer retirement plan. If you are covered by an employer plan, then you can still deduct the full value of your IRA contribution if your income is $59,000 or less. If your income is between $59,000 and $69,000 then you’ll be able to take a partial deduction.

If you’re married and file a joint return, and you’re not covered by an employer-sponsored retirement plan but your spouse is, then you’ll be able to deduct the value of your contribution if your joint income is $178,000 or less. (There is a partial deduction available for joint incomes between $178,000 and $188,000). If you are covered by an employer sponsored plan then the full deduction is available for an income of $95,000 (with a partial deduction available for an income between $95,000 and $115,000). If neither you nor your spouse is covered by a plan at work then the full deduction is available regardless of income level.

Tax Benefits for Roth IRAs.

Despite the fact that you can’t take a tax deduction for contributions you make to your self-directed Roth IRA, there are still some reasons for you to consider that type of account. Withdrawals from a Roth IRA are made on a completely tax-free basis, instead of having to pay taxes on withdrawals as you would with a traditional IRA.

Furthermore, Roth IRAs are not subject to the rules on required minimum distributions. If you have a traditional self-directed IRA then you are required to make specified withdrawals every year once you reach age 70½. If you don’t need to take withdrawals from your self-directed IRA in order to pay your living expenses, the benefits of being able to let the balance of your Roth IRA continue to grow tax-free can be significant.

To learn more about self-directed Roth IRAs, contact an experienced custodian such as Quest Trust Company.

Bonds or Dividend-Paying Stocks – Which are Better For Your Self-Directed IRA?

Posted on August 8, 2014October 31, 2018 by questadmin

Regardless of your overall investment outlook, your preferred investment types, or even the size of your retirement portfolio, there’s a good chance that won’t at least part of your nest egg to be in assets that generate a regular income stream.

This is often a common scenario when someone enters retirement, and needs to begin living off of what they’ve accumulated in their various retirement accounts. Rather than having to sell off investments and reduce the size of their overall portfolio, many individuals choose investments that generate an income stream and can cover some or even all of that individuals or retirement expenses.

Differences in Risk

Bonds are generally considered to be a safer investment than stocks in terms of risk to capital. Bondholders receive their interest payments before the company can pay any stockholder dividends, and bondholders are generally near the front of the line in getting any type of payout if the company experiences any significant financial difficulty.

This generally results in greater market volatility and price fluctuations of stock investments over bond investments. Investors who are looking to make trades with a relatively short or medium term time frame will need to take these risk differences into account.

Differences in Potential Upside

In the most general of terms, stocks are considered to have a greater upside potential as compared to bonds. Bondholders are limited to receiving their stated interest payments, and those payment levels won’t grow over time, in contrast to the dividend payments at a common stockholder might receive. Furthermore, bondholders won’t share in the growth of the company in the same way that stock investors will.

But that certainly isn’t to suggest that it’s impossible to realize significant capital gains through bond investing. Remember that as current interest rates go up and down, the price of any given bond to instrument will tend to vary inversely to that interest rate change. This means that as current rates fall, the value of a bond will tend to increase.

Cash Distinguished

It’s important to note that when we’re analyzing and evaluating the relative pros and cons of bonds and dividend paying stocks, we’re still very much keyed into the investment elements of those asset classes. In other words, even where the primary investment goal is current income, we still evaluate and ultimately select our investments giving consideration to whether we can also realize gains on those investments too.

Bonds and dividend paying stocks should therefore be distinguished from cash or investments such as bank CDs. In general, the purpose of those investments is not to generate current income (particularly with the historically low interest rates we’ve seen over the past number of years), but liquidity and security of principal.

Best Practices for Managing Withdrawals from Your Self-Directed IRA

Posted on July 22, 2014 by questadmin

You’ll likely spend decades accumulating a retirement nest egg in your self-directed IRA. You’ll work hard and try to make the maximum contributions year in and year out, in order to give yourself the best possible chance for retirement success.

But what you do once you actually reach retirement? Do you have a plan for how and when to begin taking money out of your account? Here are some of the best practices for managing withdrawals from your self-directed IRA.

Tap Non-IRA Accounts First. Regardless of whether your primary self-directed IRA is set up as a traditional account or a Roth account, the longer you can leave your money in the account, the longer you can take advantage of tax-deferred or tax-free growth. Many retirees therefore begin withdrawing retirement living expenses from their taxable investment accounts long before they begin to touch their IRAs.

If you have multiple IRAs and the choice is between a traditional IRA and a Roth IRA then you’ll need to weigh the fact that withdrawals from a traditional IRA will be taxable, whereas withdrawals from a Roth are not. (There may be other reasons, such as estate planning, that you decide to forgo withdrawals from your Roth for as long as possible.)

Which Assets to Liquidate. Another consideration will be deciding which assets within your self-directed IRA you want to liquidate in order to be able to withdraw your living expenses. You may wish to sell investments that you believe no longer have great growth prospects, or perhaps you’d rather sell off those assets where the transaction costs of selling are going to be low (such as publicly traded securities).

Keep in mind that for assets such as real estate, you don’t have to liquidate them in order to take a distribution. By having your custodian transfer title of the real estate from your self-directed IRA to your individual name, you will have taken the distribution simply by taking ownership of the property.

Managing Early Withdrawals. Even though we’ve been discussing the best practices for managing withdrawals during retirement, you may be faced with a situation where you need to take money out of your account before you reach age 59½. As you may know, you’ll be faced with a 10% penalty, as well as the possibility of current year taxation, depending on whether your self-directed IRA is set up as a traditional account or a Roth, unless the withdrawal satisfies one of the specified exemptions. The first best practice for making an early withdrawal before retirement is clear – do everything you can to stay within any exception you have available.

Plan Ahead. The most important piece of advice is valuable and important for virtually any investment or financial undertaking, and that’s to plan ahead. When you budget your expenses during retirement and stick to that budget you’ll be able to plan and manage your retirement account withdrawals better.

Five Steps to Growing Your Self-Directed Roth IRA

Posted on July 3, 2014 by questadmin

Your self-directed Roth IRA is likely the foundation of your retirement plan. It’s important to try to accumulate as much as possible in this account, so here are five steps for growing your self-directed Roth IRA.

Make the Maximum Allowable Contribution Each and Every Year. It’s extremely important to make the maximum contribution to your self-directed IRA every year. For 2014, this means up to $5,500 across all IRAs (or $6,500 if you’re age 50 or older). By making the maximum contributions to your account year in and year out, you’ll give your money the longest possible time to grow on a tax-free basis.

Even if you’re eligible to contribute to a traditional IRA and take a tax deduction, it still might be a better long term financial decision to make those contributions to your self-directed Roth IRA instead.

Consider Your Investment Portfolio as a Whole. Chances are that your self-directed Roth IRA is not your only investment vehicle. It might not even be your only IRA. In order to be sure that your overall portfolio is adequately diversified, always evaluate your overall investment position by considering all of your investment and retirement accounts together.

Avoid Penalties and Taxes. The next step in growing your self-directed Roth IRA is to avoid taking any steps that would reduce the balance of your account. For example, you should only take money out of your account as a last resort. Remember that once it’s out, you can’t make up for it or redeposit that borrowed amount later. The only way you can make direct contributions to your account is subject to the IRS annual contributions limits.

Similarly, any early withdrawals you’re forced to make from your self-directed Roth IRA should be made consistent with any IRS rules, so that you aren’t faced with a 10% penalty on those withdrawals.

Consider Converting Your Traditional IRAs. Another way to grow your self-directed Roth IRA is to convert any traditional IRAs you may have into your Roth account. You’ll be responsible for paying taxes on the amount of the conversion, but then you’ll be able to make tax-free withdrawals during retirement. And Roth IRAs have other advantages over traditional IRAs, including provisions that give you extra options when it comes to estate planning. In addition, if you have 401(k)s with prior employers then you can roll these accounts over to your Roth IRA as well.

Embrace the Long Term. Given that you’re not going to be liquidating investments quickly, you should embrace the long-term outlook that a self-directed Roth IRA gives you. This means that you should consider illiquid investments (like real estate and private equity) that you might not feel as comfortable investing in with your taxable accounts.

You can follow one or all of these steps. Keep in mind that having a larger balance in your self-directed Roth IRA will give you additional options when it comes to the types of investments you can participate in.

3 Reasons Why Self-Directed IRAs are Worth the Time and Energy

Posted on March 28, 2014October 31, 2018 by questadmin

You’ve likely found that setting up a new IRA is usually a quick and easy process. After all, many traditional IRA custodians use online forms and (in the case of a bank or brokerage that’s acting as custodian) these custodians generally allow you to instantly transfer money to fund your new IRA from other accounts you may have at the same institution.

But setting up a self-directed IRA isn’t that much more time consuming than an IRA with a more traditional custodian. It’s true that it might take a little extra time to fill out an extra form or two, or to fund your account. But what’s more important is that the benefits of having a self-directed IRA instead of a traditional account far outweigh the small amount of extra time and energy you’ll have to expend.

1. The Opportunity for Greater Gains. If you have an IRA with a bank or brokerage as the custodian, then you’re going to be significantly limited in the types of investments you can choose for your account. Traditional IRA custodians generally limit investments to stocks, bonds, mutual funds and bank CDs. While there’s nothing inherently wrong with this selection of investments, many individuals would like to be able to invest at least a portion of their retirement funds and investment classes that have an opportunity for higher rates of return.

With a self-directed IRA with a custodian such as Quest Trust Company, you’ll also be able to invest in precious metals, real estate, private equity, mortgages and other negotiable interests, and even privately held companies.

2. Great Opportunities for Real Estate Investing. As noted above, a self-directed IRA with a custodian like Quest Trust Company gives you the opportunity to invest in real estate. For many individuals, their largest single investment asset (apart from their primary residence) is their IRA. This means that the IRA balance you’ve accumulated over the years can be put to use investing in the wide variety of opportunities in the real estate market.

For example, it’s possible to use a self-directed IRA to invest specifically in the property or piece of real estate that you intend to live in during retirement. Some self-directed IRA account holders have used their accounts to purchase a future retirement property, rent that property out to third parties (thus generating additional income to their account), then simply take a distribution of the entire property from the account once they retire. This can provide great peace of mind for individuals who may be worried about their living expenses and situation once they enter retirement.

3. Pinpoint Targeting of Your Investing. Let’s say you’ve researched a particular market or industry or type of product and want to invest in it. With a traditional IRA, unless you’re able to identify a publically traded company with exposure to that market (assuming such a public company exists), you’re frozen out of that investment option. With a self-directed IRA you can invest in private companies in that market, make loans to those companies, and various other types of related transactions.

In short, the self-directed IRA will give you investing opportunities that simply don’t exist elsewhere.

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

Posted on March 9, 2014 by questadmin

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.

When Should You Start Your Estate Planning?

Posted on March 7, 2014 by Nate Hare

For some people, any mention of the term “estate planning” is likely to conjure up images of an extremely wealthy individual preparing a complicated series of wills and trusts in order to pass down their assets, money and real estate holdings to various family members, friends and charities.

In truth, estate planning is a concept that’s much broader than that (estate planning can also be accomplished with beneficiary designations on your financial accounts and by holding real estate with right of survivorship, for example), and is an important consideration for individuals of many different income and wealth brackets. While everyone’s estate planning needs are different, it’s likely that you may need to begin your estate planning efforts sooner than you might think.

Estate Planning is for Everyone. First things first – estate planning is the act of making sure that your assets will disposed of in whatever manner you desire after you pass away. This is true regardless of the size of your estate. Even if you don’t believe that you’re particularly wealthy, chances are good that you want certain things to happen with those resources after you’re gone. Estate planning is the means by which you achieve those types of goals.

When to Start Your Estate Planning. While you can always begin considering your estate planning goals whenever you choose, there are a few situations and circumstances that practically demand that you do so. Here are some of the most common:

Whenever you get married. Getting married is one of the most common triggers for first beginning to consider estate planning goals.

When you have children. Having children is another significant life change that spurs many individuals to begin estate planning.

Whenever you inherit a large sum of money. Surprisingly, one of the most common situations that prompt many individuals to begin estate planning is when they receive a large sum of money as a result of someone else’s estate planning.

Be Prepared to Update Your Plan. Keep in mind that the estate plan you prepare when you’re 30 years old and just married is quite likely to be different from an estate plan that’s appropriate for when you’re 65 or 70 years old and have multiple children. This means that even after you have an estate plan in place, you’ll wish to revisit it periodically, including whenever you experience a significant personal change in life. For example, any of the occurrences listed above will likely trigger a reexamination of your plan, but so too will getting a divorce, or the death of someone in your family.

You might also wish to update your estate plan as your wealth grows over time. Individuals with more wealth sometimes decide that in addition to providing for their loved ones, they wish to include additional beneficiaries in their estate plans – organizations such as charities, colleges or universities, or other causes that they feel strongly about.

The important thing is to not put off the estate planning process. Even if you feel like you don’t have much to pass along, it’s vital that you start to consider the implications of estate planning early in life.

How to Compare Real Estate Investments with Other Investment Types

Posted on October 6, 2013June 7, 2019 by questadmin

It can be financially risky for an investor to become overly committed to a single investment class, Becoming too focused on a particular type of investment makes it difficult to maximize the performance of an investment portfolio because not all investment options are being considered.

While the single most important factor in each investment choice you make is likely to be the expected or anticipated investment performance, most investors are also likely to consider overall portfolio diversification as well as suitability of any particular investment to their individual risk profile. Comparing investments within a particular investment class (for example, one stock versus another stock) is relatively straightforward, but it can be more challenging to compare across different investment types.

Since real estate is a particularly popular investment for individuals that have a self-directed IRA with a custodian such as Quest Trust Company, let’s examine some of the factors that are relevant to comparing real estate investments to other investment types.

Liquidity. Liquidity is perhaps the biggest distinguishing factor between real estate and many other types of investments. When you hold investments in publicly traded stock, for example, it’s easy to open or close investment positions whenever the market is open. Some investors may even trade in and out of a particular stock multiple times within a given trading day.

In contrast, the timing of a transaction to buy or sell real estate is generally measured in days or weeks (and often even months). It’s therefore important to assess your liquidity needs before making any real estate investment. Investors or retirement savers with significant other assets, or whose investing timeframe is very long) are generally in a better position to bear the potential downsides of relatively illiquid real estate investments.

Leverage. Using leverage (i.e., borrowing money to make an investment) is generally much more common for real estate investments than other investment types. With the proper use of leverage an investor can significantly boost their investment returns, but only if your total cost of borrowing is low.

Furthermore, in the context of a self-directed IRA, using leverage to purchase real estate can trigger certain unrelated business taxable income (“UBTI”) liabilities for the IRA. If the UBTI rules are not fully understood, an investor who uses leverage to purchase real estate in a self-directed IRA can find themselves in a very bad financial position trying to come up with the funds to pay those taxes.

Expenses and Taxes. Real estate investments generally involve a much higher level of ongoing expenses. Whereas investments such as stocks and mutual funds may not cost you anything beyond your brokerage commissions to buy and sell, owning real estate comes with property tax liabilities, maintenance and upkeep fees, as well as possibly even management fees. These expenses are generally tax deductible against any income you receive on the property, but the value of this deduction will generally be lost within a self-directed IRA. When trying to compare real estate with other investments, be sure to fully consider all associated expenses.

Regardless of the size of your self-directed IRA, there’s a good chance that real estate can help you meet your retirement goals. Understanding how to compare real estate investments with other investment types is the first step in making the right financial decisions.

How Your Self-Directed IRA can Profit from Undeveloped Land Investments

Posted on September 25, 2013June 7, 2019 by questadmin

To many retirement savers, the term “real estate investment” conjures up images of buying or investing in apartment buildings and commercial developments. While those are certainly popular and common types of real estate investments, they’re certainly not the only options available.

One of the oft-overlooked possibilities for potential real estate investors is buying undeveloped land; that is, land that has not yet been built upon or developed for any specific or particular purpose. Here are some tips for considering this type of investment.

Make Sure You Have a Long Investing Timeframe. One of the common characteristics of any investment in undeveloped land is that the investor should have a long-term investment outlook. Undeveloped land is almost always purchased with an eye towards a significant capital appreciation that occurs only after many years. Make sure that your investment strategy supports a long wait before investing your self-directed IRA into undeveloped land.

Short to Medium Term Leases. Fortunately, your long term investment property does not have to remain vacant or otherwise unproductive as it appreciates in value. In rural or mountain areas, for example, a landowner can often enter into short or medium term leases to allow their property to be used for grazing or other agricultural purposes. In an urban area, undeveloped land can often be put to productive use as a parking lot or other revenue generating use. Just be sure that any interim use complies with the applicable zoning rules and regulations.

Validate Your Investing Assumptions. By the same token, if you’re buying a piece of undeveloped land with a specific future use in mind, you need to understand any zoning limitations that may apply to the property. Don’t automatically assume that you can buy a plot of land and eventually build a home on it – the property might not be zoned for residential use. Not validating your assumptions can greatly detract from the future profit you realize on this type of investment.

Buy an Undeveloped Parcel in a Subdivision. Another way to profit from undeveloped land is by purchasing property that’s part of an existing subdivision. Often times a developer will create a properly zoned subdivision and sell individual parcels to prospective homeowners. As homes are built, the value of each property tends to rise. A savvy investor can profit by purchasing land early in the process, then waiting until the development is nearly finished before reselling or building on the property themselves. Just make sure there are no covenants that require you to build within a certain period of time (or that you’ll be able to meet them).

Develop Your Dream Retirement Property Step by Step. Finally, you might be able to secure the land now, and then build in five or ten or more years, after you have accumulated the funds to do so. This could end up involving a much lower commitment of financial resources compared to buying a finished property, and end up generating a fairly significant effective investment return.

If you have any questions about how you can use your IRA assets to invest in real estate, contact Quest Trust Company.

Click here to know more about Quest Trust Company.

Should You Roll All Your Retirement Funds into a New Self-Directed IRA?

Posted on October 10, 2012 by questadmin

If you’re considering taking control of your retirement future by opening a new self-directed IRA, chances are good that you’ll consider funding your new account by rolling over assets from one or more of your existing IRAs.

Depending on whether you’re participating in an employee sponsored retirement plan at work, as well as your annual income, you may be eligible to contribute up to $5,000 to your account each year (or up to $6,000 per year if you’re age 50 or older). But these annual contributions will only allow you to accumulate relatively limited amounts in your account. In order to maximize the total value of your self-directed IRA, you’ll probably also want to roll over some of your existing retirement accounts into your self-directed IRA.

Why would it matter that you accumulate as much as possible into your self-directed IRA? Remember that with self-directed IRAs you have the ability to invest in many types of investments, including asset classes such as private equity and real estate. And these investments often require a significant amount of resources – just think about how much money you might need to buy a desirable piece or rental real estate.

So should you roll all of your existing retirement accounts into your self-directed IRA? The best way to come up with an answer to this question is to consider your investment goals. If you want to maintain a significant portion of your retirement nest egg in stock and bond investments, then you might want to consider keeping a portion of your funds in an account that you’re already using to make those types of investments. (Of course, you can generally still make those types of investments in a self-directed IRA, including self-directed accounts offered by Quest Trust Company.)

However, if you want to maximize your opportunities for bigger ticket investments, you’ll probably want to roll over accounts with enough funds into your self-directed IRA that you’ll be able to make those larger investments.

Remember that it’s not just your existing IRAs that can serve as a source for rollover funding. Making rollovers from company retirement accounts such as a 401(k) can often end up contributing significantly more. If you consider the higher annual contribution levels for company sponsored 401(k) accounts, and the fact that many of the 401(k) programs offer company matching funds, a retirement saver’s account can often grow much larger than their IRAs. If you’ve left an employer but kept your account in place with the 401(k) custodian, now may be the time to roll those funds over into your new self-directed IRA.

You can even open your own “solo” 401(k) account if you work as a consultant or otherwise own your own business. Solo 401(k)s have contribution and profit sharing components that allow for an even higher level of contribution than traditional 401(k) plans. (In fact, Quest Trust Company even offers these plans if you’re interested in learning more about the Solo 401(k) structure.)

Chances are you’ll want to roll over most, if not all, of your existing accounts into your new self-directed IRA. Doing so will ease the administrative hassles of managing multiple accounts, and give you the greatest flexibility with your investment choices.

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Tag: Retirement Funds