Quest Trust Company›Blog›Self Directed Iras

Tag: Self Directed Iras

How to Roll Over a 401k to Roth IRA

Posted on by Quest Trust Company
Estimated reading time: 2 minutes

Image credit: Philip Taylor PT

When you leave a job where you had a 401k retirement plan, you’ll need to determine what you want to do with your account. You have the option to rollover your account to an IRA or individual retirement account. Many people prefer a Roth IRA to a traditional IRA. 

With a traditional IRA, you don’t pay taxes on your contributions, but you will pay taxes on your distributions in retirement. 

With a Roth IRA, you’ll make your deposits after taxes, but then you won’t need to pay taxes when you make your distributions. Here’s how to roll over your 401k to a Roth IRA.

Decide on an Account

Many financial institutions have Roth IRA options, so you’ll need to decide which one is best for you. Look at providers to see the fees they charge, the types of investments they offer, and the level of customer service they offer to their clients. 

Ideally, you’ll want an account that won’t charge you unnecessary fees, and that offers an investment option you are knowledgeable about. 

Ask for a Direct Rollover

When transferring your 401k to a Roth IRA, make sure to ask your 401k plan to give you a direct rollover. This means they will transfer the funds directly to your new account, instead of writing you a check directly that you would need to deposit. You will need the account information for your new IRA in order to do this. Most of the time, this will trigger a taxable event. 

Most 401k’s or employer sponsored plan contain pre-tax money. The amount you move to a Roth IRA will become taxable income for the year in which you made the conversion. From there on our, your earnings will grow tax free and ideally your distributions in retirement will be too. 

Pick your Investments

Once you have transferred the funds to your new account, it’s time to pick your investments. Different Custodians offer different opportunities, for example you may move funds to a Brokerage firm that offers mutual funds, however if you locate a “Self-Directed” custodian, you could use retirement funds for alternative assets such as Real Estate. 

If you’re unsure of which investments to choose, talk to an advisor to see what they’d recommend.

If you’re planning on rolling over your 401k to a Roth IRA, consider using Quest Trust Company to set up your new account. Quest offers truly self-directed IRAs with flexible investment options, as well as short processing times of less than 48 hours and minimal fees. Contact a Quest IRA specialist today to rollover your 401k to a Roth IRA.

How does a Solo 401k Work?

Posted on by Quest Trust Company
Estimated reading time: 2 minutes

Solo 401k plans are employer-sponsored retirement accounts that offer self employed individuals with no common law employees other than a spouse the opportunity to establish a Profit Sharing Plan. 

Many companies offer solo 401k accounts to their employees, but not many people understand exactly how they work. 

Here’s what you need to know about your solo 401k before you get started:

You are the Employer and Employee of the Account

Although your solo 401k is an employer plan, it allows the business owner to be the Trustee of the plan, granting them access to make fiduciary decisions.

The Trustee will work with a financial institution to set up the account, and they will determine where to hold the funds, how much you contribute to the plan, and what investment to partake in. 

Rollover of previous accounts into the Solo 401k

You may have pre-existing 401k plans or IRA’s that you may want to consolidate inside of your Solo 401k. As long as those funds are pre-tax they can be rolled into the plan.  

If you are looking for a Roth Solo 401k, you may conduct “in plan Roth conversions” to convert your pre-tax funds to Roth. 

You are not able to move Roth IRA’s or previous Roth 401k’s into your solo 401k. However, You are able to contribute to a separate Roth IRA if you have one while continuing to make contributions to your Solo 401k. 

Taxes Advantages

By Contributing to your solo 401k and possibly to another Traditional IRA, you may be eligible to receive a tax deduction. This all depends on your modified AGI (adjusted gross income) in determining if you are eligible or not. 

Keep in mind that Solo 401k accounts are retirement accounts and non-qualified distributions are subject to penalty and taxation. The Solo 401k does have an option to take a loan out but it is limited to 50% of the account balance.

If you’re looking to set up a retirement account, contact the experts at Quest Trust Company today. We offer Self-Directed IRAs and Solo 401k plans for individuals looking to invest into alternative assets. Our financial experts can help you find an account that makes sense for your financial needs.

Characteristics of the best IRA custodian

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

The internal revenue service (IRS) decree holds that Individual Retirement Accounts (IRAs) should have a custodian. The custodian is a financial institution that holds the account’s investments just for preservation. The custodian also ensures that all the government and IRS regulations are honored accordingly. While custodians are very easy to find, the problem is how to make the best choice. First, you have to decide the type of IRA you need and the type of investments you need to make with it. 

Traditional vs. Roth IRA 

Both accounts allow the money to grow free of income tax. The difference between the two is: 

  • In Traditional IRA, a tax deduction is made on the contributions from that year; this defers any tax payments until withdrawals are made years later. 
  • Whereas for Roth IRA, there is no tax break on the amount of money invested. In a nutshell, there are no taxes owed on the amount earned. 

Self-directed IRA

Whether Traditional or Roth, as an investor, you can choose to have your custodian manage the investments for you entirely or be self-directed. 

A self-directed IRA allows for expanded investment options. Although the name self-directed makes it seem like the owner has all the control, that’s not how it is. A Self-directed IRA will allow you to move away from the traditional publicly traded assets and utilize your money for alternative assets: Real Estate, Private companies. 

With this in mind, an investor, whether self-directed or not, would want to get the best custodian. 

The following are characteristics of the best IRA custodian. 

An Experienced Custodian – The best custodian for your self-directed IRA is a financial institution with significant experience in offering that service. Also, a custodian that focuses its efforts on providing self-directed IRA custodial services is more likely to serve your needs.  

Smooth Account Set-up – The process of setting up an IRA with a traditional custodian should be as brief and quick as setting up a self-directed IRA. Quest Trust Company, for example, provides easy downloads for new account information packages and forms on its website. 

Low-fees – Cost is one of the essential factors in business because it determines the total amount of profit expected. The most common fees for a custodian are the annual account maintenance fees, commissions, and loads for the mutual funds. All custodians do not charge the same. For example, maintenance fees are not a must. And if you are thinking of investing in mutual funds, it would be better to look for a custodian offering no-loads. 

Wide Selection – It would be best to have a more excellent variety of investment options, especially the individual stocks and bonds. 

Customer Service – It is imperative to have a knowledgeable person answering your calls and emails. It is very frustrating to receive incomplete or confusing information about your accounts. Therefore, while looking for a custodian, always vet the customer service. 

No Restrictions – As an investor, you must get a custodian that doesn’t limit your investment options. 

Education – Even if you are an experienced investor, you can benefit from an IRA custodian who provides you with educational opportunities. It would be wise to look for custodians who have relevant educational materials on their websites, such as in-person courses, live webinars, and overall educational resources.

Consolidation Savvy – For people having multiple IRA accounts, most custodians advise consolidation of the accounts into one single fund. Therefore it will be advisable to get a custodian who thoroughly understands the rules regarding consolidation.

After considering all of these characteristics, you should be able to make an informed decision about choosing the best custodian to help you set up and maintain your Self-directed IRA. 

At Quest Trust Company, we offer self-directed IRA accounts that place the customer at the heart of the decision-making process. Contact us today to discover how our expert staff can ease the administrative burden and help you to make the investment that is right for you.

The SAFE Choice When Choosing a Self-Directed IRA Provider

Posted on by Quest Trust Company
writing-828911_1280
Estimated reading time: 4 minutes

The last decade brought about a sweeping change to the world of investing. The genesis of this change occurred around 2007, when Americans faced the hardship of the financial crisis. Despite the struggles of many nationwide, Americans began seeking new opportunities to regain their financial stability. Though Self-Directed IRAs have been in existence since the 1970s, it’s apparent that there is a link between their dramatic increase in popularity and a change in mindset for the average American.

Self-Directed IRAs provide investors with the opportunity to use their knowledge and invest in private assets, such as real estate, promissory notes, private companies and more. As more Americans begin to realize that they have the ability to part ways with the traditional methods of investing and that they hold the keys to their metaphorical financial vehicle, it’s important to mention that not all Self-Directed IRA companies are created equal. The easiest way to identify the best Self-Directed IRA provider is by making the SAFE decision; an acronym that represents the provider’s Specialization, Account fees, Funding timeframe and Education.

Specialization

The investment interests of an individual should be one factor that dictates their selection of a Self-Directed IRA provider. Choosing a provider that specializes in a specific investment type is important, especially as a portfolio begins to grow into advanced investments. Investors may experience a learning curve when doing a new or advanced investment, however the Self-Directed IRA provider should already be well-versed in the investment type. Choose a provider that can educate you on their internal process for funding your specific investment, not the other way around.

Account Fees

When comparing Self-Directed IRA providers, the second factor to consider is the account fees. It’s imperative to read the fine print and ensure that the company doesn’t have the tendency to ‘nickel-and-dime’ their clients. The company must charge fees for their business to remain operational, however arbitrarily charging clients for services that should be included appears to have become a widely accepted practice for many Self-Directed IRA providers. Conversely, simply because a Self-Directed IRA provider has low-priced account fees, doesn’t necessarily equate to that company being the best provider for you. The ultimate goal in determining whether the provider’s account fees meet your needs should be the value provided, not just in fees you’ll incur, but also including intangible factors such as highly experienced professionals and responsiveness to client needs.

Funding Timeframe

Arguably the most important factor and item that separates a Self-Directed IRA provider from the rest of the pack is their funding and processing time. In the real estate industry it certainly seems that the phrase “time is of the essence” regularly applies. When a Self-Directed IRA provider cannot fund investments in a timely manner, an investor may stand to experience prolonged delays or worse, jeopardize the investment altogether. However, even a client with a lengthier funding timeframe should not be required to allocate sometimes up to a month for the processing of a deal. Investors on their quest to find the best Self-Directed IRA provider should do their due diligence and determine the timeframe for the establishment of an account, funding of an investment or disbursement of funds to pay an investment related expense.

Education

Good real estate investors continue to strengthen their skills by furthering their education, because the most educated investors usually become the best investors. As the saying goes, “knowledge is power.” However, the real estate industry is chock-full of clubs and gurus who aim to provide their take on the best methods for real estate investors. Seeking education isn’t difficult in this industry, however obtaining accurate, reputable and accessible education may prove to be a challenge. Gaining education from a Self-Directed IRA provider allows you to obtain unbiased information on many different topics. The best and most reputable provider will not only provide accurate education, but will also make it accessible to investors nationwide.

Quest Trust Company is the premier Self-Directed IRA provider, holding assets like real estate, promissory notes and private companies. With over 18,000 happy clients nationwide, Quest Trust Company prides itself in having account fees that provide clients with the best value for the outstanding level of service. Quest Trust Company processes everything from setting up an account to funding an investment in just 24-48 hours, and without the dreaded expedited funding fee either. Quest Trust Company aims to provide both clients and future clients alike with education on the need-to-know topics in the industry. Investors across the United States can take advantage of the free education provided by Quest Trust Company either by attending a class or seminar in their city or watching the weekly online webinars. Next time you’re reflecting on choosing the best Self-Directed IRA provider for your needs, remember to make the SAFE decision.

Self-Directed IRAs and the American Dream

Posted on by Juan Deshon

Estimated reading time: 3 minutesIf you asked a group of people what the American Dream was, you would probably receive a different answer from each person. However, the responses would probably revolve around the central themes of having enough resources to cut down on everyday stresses and/or having a family to share life with. What attracts much of the world’s immigrants to the United States is the hope of success and prosperity, or just the opportunity to increase the quality of one’s life. While some people get lucky and are born into success or were born at the right time to have economical success come a little easier, success and prosperity are mostly gained through working hard and using your resources wisely.

It’s pretty clear that how one goes about achieving the American Dream is far different than it was 50 years ago, or even 30 years ago. A college degree isn’t a guarantee for getting a better job, and even the housing market is prone to major crashes, as we all witnessed in 2008. While we could debate for years over what the best strategies are for success, what we do know is that generations entering the work force now are having to be much more adaptable and innovative to make the American Dream into their reality. Many of these young workers are disillusioned with traditional 9-5 company jobs and are turning toward entrepreneurship.

We have all heard of the phrase “It takes money to make money,” and for the large part, you will need some resources to launch a business of your own. Utilizing Self-Directed IRAs is one way to gather the required resources. Unlike conventional IRAs, which limit the kinds of investments investors can make, Self-Directed IRAs open up the possibilities of investment to nearly anything, including your small start-up. Self-Directed IRAs call these “private placements”, and some entrepreneurs rely on investors to invest on them through this avenue.

Keep in mind, you can’t invest your own retirement funds into your business idea, and neither can your family or close friends. However, a handful of smart investors who see value in your idea might just provide you with the funds necessary to see it come to life. Usually investors are keenly aware that Self-Directed IRAs are inherently riskier than the safer stocks, bonds, and mutual funds they are used to. However, they also understand that with greater risk often comes greater reward.

Investors in Self-Directed IRAs like to stick with what they know or in a single industry in order to stay well updated on trends and news. They will likely vet potential investment opportunities before putting their money anywhere, and the process can sometimes take months of intense study. After all, not only are business owners relying on investors for launch money, but the investors are relying on the business for retirement money. In the right situation, investments in Self-Directed IRAs can turn out to be a win-win for everyone where all players get the sweet satisfaction of the American Dream in the end.

Self-Directed IRAs: Three Things You Should Know

Posted on by Juan Deshon

Estimated reading time: 3 minutesSelf-directed IRAs are just what they sound like—IRAs that you call all of the shots for. These accounts allow for investments with larger rewards, but you will only reap them if you know what you are doing. Self-directed IRAs are inherently riskier than accounts controlled by a plan manager. Since you are the one choosing the investments, not just picking from a list, you will need to contribute research and prior knowledge into the process in order to play smart. Read on to learn more about what you should know about Self-Directed IRAs before starting one of your own.

Knowledge is Power

Most people who utilize Self-Directed IRAs stick with what they know. If they have a background in technology, or know a lot about real estate, they can make wise choices with those investments. Gathering as much information as possible, keeping up on the latest news in the industry, and checking projections are all ways to make the most of your investments. Remember, there are some restrictions for Self-Directed IRAs that can cost you in penalties. Avoid these at all costs.

Going into an investment blind could end up costing you big time, and you don’t want to be too risky with your retirement! However, the bigger the risk, the bigger the reward most of the time. Just keep in mind, there’s risk and then there’s calculated risk. Stay on the calculated side to avoid big blunders.

One Misstep Can Cost You Thousands

Not only do you have to be aware of the risk and rewards of each investment, but you also need to understand the total price as well. Some investments carry with them an added tax burden that investors should calculate into the total cost of the investment before purchasing. Just because these investments do have tax consequences doesn’t mean you should automatically write them off, however. The rewards for some outweigh the costs, but it’s important to at least be aware of them before you get yourself into a situation you weren’t prepared for. Typically, Self-Directed IRAs have lower management costs, so don’t forget to calculate in that piece as well.

Investment Opportunities are Abundant

Most retirement accounts have a list of investments that plan owners can choose from. Sometimes these options are just what you are looking for, and other times not so much. Self-Directed IRAs offer more room for experimentation and opportunities. If you have kept up-to-date on trends in your industry and see an opportunity that could pay off big time, a Self-Directed IRA is one way to make that happen. You can also invest in real estate, gold, private businesses, and tax liens with a Self-Directed IRA, which you can’t do with typical IRAs. However, like with conventional IRA accounts, you can choose between Traditional, Roth, SEP, SIMPLE, Individual 401(k), etc. for your plan type.

If you would like to diversify your portfolio or invest in something specific, you can use a Self-Directed IRA to accomplish your goals. As long as you understand the investment and calculate your risk, these types of investments can pay off handsomely.

Investments That Aren’t Allowed in Self Directed IRAs

Posted on by Juan Deshon

Estimated reading time: 3 minutesOne of the major benefits of having a self-directed IRA is the wide array of investment options that become available to you. In normal IRAs your investment options are mostly limited to stocks, bonds, mutual funds and CDs. With self-directed IRAs, however, in addition to the traditional investment options, things like real estate, notes, private placements, and many other investments become available. However, there are still limitations to possible investments in order to stay within IRS guidelines. A few of the investments that are not allowed are covered below.

Collectible items are not permitted in IRAs for a few different reasons. Generally speaking, collectibles do not raise in value enough to become a benefit in retirement funds. The risk outweighs potential benefits. So, things like comic books, stamps, wine, antiques, and other popular collectible items are not considered reliable assets. In order to protect investors and their retirement funds, the IRS excludes these items from IRA investments.

Term life insurance is a cash value insurance which means you don’t actually earn anything from it. For this reason, it is not able to be invested in self-directed IRAs. They don’t hold any financial benefits, so they wouldn’t do anything to aid your retirement funds, which defeats the purpose of investing. Whole life insurance on the other hand is able to generate an income over the years. However, you would lose the tax-benefits that they already have by putting them in a self-directed IRA.

The home you’re living in is not allowed because, according to the IRS it becomes a conflict of interest. If you were to invest your own home you would basically be renting it to yourself. You’d lose several financial benefits that you get for owning your own residence, so financially it is better to leave it out of a self-directed IRA anyway. You are, however, allowed to invest in other real estate as it can raise in value for your retirement fund. This is a good option if you’re planning on buying a retirement house because you can invest it and rent it until you are ready to live in it after reaching retirement age.

Personal loans are a bit more complicated when it comes to self-directed IRAs. Loans from your IRA account work similarly to normal bank loans where interest and repayment schedules are concerned. However, the IRS does not allow loans to be made to people with whom you have a personal connection to, as it can pose a risk to your retirement account. This includes family members and close friends.

While these are some of the main investments to avoid in self-directed IRA, there are other investments that are more conditional that are important to be aware of. With investments like precious metals and derivative contracts, there are more stipulations that go into what can or cannot be invested. So, if you’re considering any of those options it’s important to do some additional research so you remain compliant with the IRS and don’t miss out on any of the tax-advantages that IRAs offer.

The Three Situations Where You Might Consider an Early Withdrawal From Your Self-Directed IRA

Posted on by Ingrid Chavez

Estimated reading time: 3 minutesIt’s important to understand that the default IRS regulations regarding early withdrawals from an IRA. In general, taking a distribution from your account before age 59½ will subject you to a 10% penalty on the amount of the distribution, plus whatever taxes may be due.

In each of the situations below, there are specific requirements that need to be met in order to avoid having to pay the 10% penalty, but in all cases you still may owe taxes on the amount of the distribution. Pay close attention to all the requirements. If you make a mistake in the distribution process it could prove to be quite costly.

  1. To Purchase a First Home. The IRS regulations allow you to take a distribution of up to $10,000 to pay for a down payment on your home if you are a first-time homebuyer (which is defined to mean that you haven’t owned your own home in the past two years). You can also use this penalty free provision to assist a child or grandchild with their down payment, if having access to these additional funds would make the difference between getting a home and not – but it may be worth forgoing future growth of those funds
  2. For Certain Uninsured Medical Expenses. There are actually two situations in which you can use your self-directed IRA in order to pay for some of your medical expenses. The first is in situations where you need to pay for certain unreimbursed medical expenses. The second situation is to pay for medical insurance premiums for you and your family when you are unemployed. one reason taking this type of early withdrawal can be so important is that it eliminates any temptation that might otherwise exist for you to underinsured or yourself or otherwise not seek necessary medical care.
  3. Higher Education Expenses. The third exception we’ll discuss is taking an early withdrawal in order to pay qualified educational expenses. Generally this means paying tuition or room and board for your child, but you can also make such a withdrawal for your own educational expenses, those of your spouse, or those of a grandchild.

There are no limits for how much you can take out of your account early for these purposes. However, given that an early distribution means that you’re losing out on the long-term growth potential of those funds, you may wish to explore other funding options first, including student loans (which in some cases can involve interest and that’s tax-deductible).

In fact, in each of these three situations, it’s always important to consider other alternatives prior to taking an early distribution from your self-directed IRA. Just because you’re authorized to do so doesn’t mean there isn’t a better way.

In addition to losing out on future investment growth, there are other ways in which taking an early distribution can be a bad financial decision. For example if you need to liquidate certain investments early, then the effective loss you experience by taking the early distribution is effectively much greater than the amount of the distribution.

Getting Started with a Self-Directed IRA When Your Nest Egg is Small

Posted on by Ingrid Chavez

Estimated reading time: 2 minutesWhile you might have been initially drawn to a self-directed IRA because of the investment flexibility that this account type offers when compared to IRAs with traditional custodians (e.g., being able to invest in precious metals, and real estate, and private companies), it’s true in all areas of investing that not every investment option is suitable for every investor.

Make the Maximum Contributions Every Year. When your self-directed IRA balance is relatively small, it’s vital that you make the maximum contributions to your account each and every year. If you fail to make the maximum contribution in any given tax year (the contribution limit for the 2021 filing period is $6,000, with an additional $1,000 allowed for taxpayers age 50 and over), you won’t be able to make up for that lost opportunity in later years. Once the chance to make the maximum deposit has passed, it’s gone forever.

Consider Maintaining Two Accounts. It’s a common misconception, but taxpayers are not limited to having a single IRA. In fact, it can be good practice to maintain both a traditional self-directed IRA as well as a Roth self-directed IRA, and then decide where to make your deposits each year based on the tax deduction advantages you might be able to get from contributing to the traditional account. The key is to deposit the maximum each year, regardless of the self-directed IRA you choose. And remember that it’s always possible to convert a traditional self-directed IRA to a Roth account whenever you decide that you only want or need a single account.

Does Small Mean Little Investment Experience? If your nest egg is relatively small because you’re just starting out with your retirement savings and don’t have a lot of investing experience, then don’t feel pressured to start investing in the most complicated and advanced investment types right away. Even though the self-directed IRA structure permits investments in a wide range of investments, you’re still free to choose investments that you have more experience and familiarity with.

Use 401(k) Rollovers. Finally, another way to grow your self-directed IRA is through the use of rollovers. Whenever you leave an employer, you’re permitted to roll over the funds you’ve accumulated in your 401(k) to an IRA. Because many individuals are permitted to contribute to both 401(k)s and IRAs, this can be a great technique for building as large of a nest egg as possible.

The Biggest Secret to Retirement Saving Success With a Self-Directed IRA

Posted on by Ingrid Chavez

Estimated reading time: 3 minutesThere are certainly a lot of different retirement strategies out there. Regardless of your age, income level, or current level of savings, you’re likely to have access to multiple strategies to try to help you reach your goals.

And there’s no shortage of investment advice on what types of investments are best for you. Just pick up a copy of virtually any personal finance magazine and you’ll read about a wide range of options, some of which may even appear to be in direct conflict with one another.

But perhaps the biggest factor that will contribute to you reaching your retirement goals is common across all of these options. And it remains something of a secret even though it’s so easy to do. The secret?

Be consistent with your retirement savings.

By that we mean that if you save as much as you can each year, and you do so year in and year out, then you stand a very good chance of reaching your goals. When you are more consistent with your retirement savings, your choice of investments becomes less important. You won’t have to chase high yielding investments in an effort to boost the value of your nest egg because your account balance will grow over time merely by choosing investments

When you invest consistently, then over long periods of time your investment choices become less of a factor in determining how much you’ll accumulate. This isn’t to say that you should disregard the process of trying to choose your investments wisely, and select assets that meet your risk tolerance and other financial circumstances. Rather, it simply means that your research and analysis of your various investment possibilities shouldn’t overshadow the priority to put money aside in the first place.

In other words, your primary goal should be to contribute the maximum amount to your self-directed IRA every year, and your efforts should be focused on that first and foremost. After you’ve done the work to save as much as the IRS allows, then you can put the time and effort into figuring out how best to put that money to work.

You’ve probably seen the examples before. Looking at several different case studies of hypothetical investors — one who invests each year at the market low, one who invests at the beginning of the year, and one who is unlucky enough to invest at the top of the market — the results are surprising.

Over a period of several decades, the individual who is unfortunate enough to make their investments at the market peak each year has a smaller nest egg than the other two investors, but not by as great of a margin as you might think. And, more importantly, that bad market timer still has accumulated significantly more than an individual who didn’t save as much, or who simply contributed the same amounts to a bank account or other cash equivalent savings vehicle.