Archive for September, 2014

Are You Ready For The Unexpected With Your Retirement?

Monday, September 29th, 2014

Retirement Curve Balls

Are you planning for your retirement? If so, one great tip that I have learned over the years is that you should always be prepared for the unexpected.

I know many of us expect to retire right around full retirement age, which is 66. Many of us also expect to be relatively healthy. While this could totally happen and things could pan out. For many, things will change and plans won't pan out. We need to make sure our retirement plan is set up and ready for these changes. Typically, we need to over plan and over budget for things. We need to have a bigger nest egg that has some good buffer in order to be able to withstand changes that will occur.

Your health might fail you and you may retire earlier than you expected. Your health my not fail you but maybe your employer will and you may get fired earlier than you expected pushing you into retirement earlier than full retirement. Being ready for these types of changes is very important.

According to EBRI, 47% of American retirees from a 2013 survey retired before they had planned to. Why? Mostly because of health or disability. These issues can and usually do spill over into the workplace and are also a factor in another big reason people retire earlier than expected, the loss of job.

If this happens to you what affect does this actually have on your retirement plans? For those who's retirement accounts don't have enough of in them to be able to cope with the earlier withdrawl they will more than likely need to take out social security before they planned. Taking out earlier than full retirement means a lower monthly check, which in turn means you'll have to take more out from your retirement accounts.  

These are the facts! What can you do now to make sure you are able to cope with the unexpected?

Always reassess your retirement

Just because you set your retirement plan up once and are following the plan doesn't mean that current plan is still your best option. It is very wise to assess your plan on a yearly basis and make sure it is still correct for your current needs, wants and lifestyle. One great way to assess your plan is to do a yearly follow up with this retirement planning guide.

Plan for the unexpected

The more you think about these types of early retirement issues the better you will be able to face it if the issue really arises. Talk about your fears, issues and potential problems if something like this were to occur. If you talk about the issues you can and see how each fear or issue would affect you and your account. Not to mention if you plan for these issues and they do arise you will better be able to encounter them emotionally and everything won't seem as bad as if you had never talked about it before.

Emergency Fund

It is always very important to have an emergency fund of at least six months worth of money for your expenses. The bigger this fund can be the better but on a general rule you should shoot for six to twelve months of money for your expenses.

Lower Expenses and Debt

The more expenses and debt you have the harder all of this is on you. Do you best to cut out all the expenses and debt that you don't need. You will be surprised just how much you can cut out.

Maximize your contributions

Maximizing your contributions each year will allow you to better face any unexpected issues that may come up with your retirement. This is hard and many times requires a lot of effort on your part to budget out all of the unnecessary things you spend on. That way the money can go to your retirement rather than being wasted on wants that loose their cool newness factor after a few days or weeks of owning them.  

Planning for retirement and implementing that plan is many times quite hard. Especially when you are trying to make sure you are doing the best things to make sure you have the best retirement possible all while still having a decent lifestyle today. The thing you need to remember though is that it is all possible and a little effort today makes for a much more relaxed and enjoyable retirement. Retirement is such a big part of our lives, so make the best of it.

If you would like to take control of your retirement and invest how you want we can help. It is so important these days to have a diversified retirement. Contact us for help making the best out of your retirement accounts.

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How To Finance Real Estate Through Your IRA

Thursday, September 25th, 2014

Real Estate In IRA

Investing your retirement funds in real estate is a great way to diversify your portfolio for retirement. Sadly, not all investors have enough funds in their retirement accounts to purchase a real estate property outright. The Good news is that does not mean that you still can't purchase real estate through your retirement account.

While it is a bit more difficult you can still purchase real estate through your retirement account without having 100% of the money by using a non-recourse loan. What is a non-recourse loan? In terms of a real estate non-recourse loan a non-recourse loan means that the borrower is not personally liable. If the borrower defaults on his loan the lender/issuer (typically bank) can seize the collateral, but the lender's recovery is strictly limited to the collateral.

In general, a non-recourse loan is more difficult to come by. Only certain banks will allow for these types of loans and most lenders require a substantial down payment of around 30%-40%. The bank is taking on much more risk doing a non-recourse loan and thus requires the heftier down payment.

One important thing to note when doing a loan through your IRA is that payments are paid through your IRA cash balance. You need to make sure your IRA account has enough cash inside the account to be able to pay the monthly payments. If you have a rental property the money made on the rental goes back into the IRA account and that can be used as the funds to pay the monthly payment. You cannot use your own funds to pay off the monthly payment, again everything has to come from the IRA account.

While investing with an IRA may sound tricky it really isn't as long as you follow the rules to investing with a self directed IRA.

Another thing to be aware of when getting a loan with a bank or anyone through your IRA you are subject to Unrelated Debt Financed Income, also known as UDFI. It applies to any income that was generated by a property that was partially financed by debt. For example, if 60% of your initial purchase was financed than 60% of the earnings would be subject to UDFI taxes. This percent will continually change each year as you are paying down the percent that is financed by debt. The best advice would be the quicker you can pay off that loan the better because you then wouldn't be subject to UDFI. This also applies if you sell the real estate and make a profit and a percent was financed. Whatever your percent finnaced that same percent would be subject to UDFI.

These are just a few of the examples or reasons UDFI may need to be paid but there are also reasons it may not need to be paid. Because of this, and the fact that your situation is unique, it is very important to consult a tax or legal professional for help with your situation.

Contact us today for more information about investing with your IRA.

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Know your Retirement Accounts. The Simple, SEP and Solo 401k

Tuesday, September 23rd, 2014

Retirement Accounts Simple, SEP and Solo

Being aware of the different types of retirement accounts that are available to you is important to get the most out of your retirement and retirement planning. The accounts that are available to most employees are your typical IRA and 401k with Roth and Traditional kickers. However, your account options are much more plentiful if you are self employed. Beyond the typical Roth and Traditional IRA/401k self employed persons have a Simple IRA, SEP IRA and Individual 401k available to them.

While being self employed gives you a few more retirement account options you for the most part these other options function very much like a traditional IRA.  With that in mind let's talk about these other options and if you have any questions about these types of accounts and if they will work with as a self directed account feel free to contact us anytime.

Simple IRA

Functions much like a traditional IRA. The primary difference is the contribution limit. The following is the contribution limit for a Simple IRA:

An employee contribution equal to 100% of your net earnings from self-employment, up to $12,000 for 2014 ($14,500 if you are 50 or over). Plus…
An employer contribution equal to 3% of your net earnings from self-employment.

FYI, net earnings is your revenues, minus your expenses, minus your deduction for one-half of your self-employement tax.

SEP IRA

Very similar to a traditional IRA, the main difference between the two is the contributions you can make. 2014 contributions for a SEP IRA are as follows:

You can contribute whatever the lesser of the two happens to be
25%  of your net earnings from self-employement or
$52,000

Again, net earnings is a bit different than you may think but it is basically calculated as… revenues minus expenses minus the deduction for one-half of your self-employement tax and the deductin for contributions to SEP IRA.

One more important thing to note about a SEP IRA is that you cannot take any deductions out before you are 59.5 without being penalized.

Individual 401k

This is also referred to as a solo 401k or a self employed 401k. This plan is much like a 401k with an employer. The difference between a solo 401k and a regular employer 401k is that you are allowed to make a contribution in behalf of the employee and in behalf of the eomployer. How does this work? You are allowed the following two contributions:

The employee contribution of 100% of your net earnings from self employement, up to $17,500 for 2014 ($23,000 if you happen to be 50 or older) 

An employer contribution of 25% of your net earnings from self employment.

Another thing that makes the solo 401k such an attractive plan is the ability to have it in the form of a roth account.

If you are interested in a 401k with roth option. You need to be aware that only the employee contribution can be counted as a roth contribution. The employer contributions have to be made as a traditional contribution (tax deffered).

Summary

There are many different retirement account options available to a business owner. While each one of the mentioned options can be quite extensive the overall idea has been conveyed hopefully in a way that gives you the an idea that will work best for you. Typically, the best option available to you is the one that is going to allow you to contribute the most per year based on your income. In many cases this will come out to be the Solo 401k. One of the downsides to a solo 401k is that not every custodian offers them and they usually require more paperwork. If those things aren't a problem for you then a solo 401k might be the right option for you.

Remember, all of these types of plans are available through a self directed IRA. If you still need futher help or information please feel free to contact us at anytime in order to get the most out of your retirement.

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Post Retirement Investing Is Very Important. Do It Right.

Thursday, September 18th, 2014

Retirement Done Right

Retirement investing can be quite stressful. There are so many variables to be aware of when retirement investing. One variable that isn't talked about often that needs to be talked about more is the issues that come with post-retirement investing. Many times when we arrive at retirement with the next egg we were hoping for we think everything is done and we don't have much left to worry about. The truth is you still need to have a post-retirement plan in order to make your nest egg stretch as long as it needs to while also not getting eaten alive by inflation, any potential major down turns in the market or big health costs.

How to invest your retirement egg while in retirement? One thing I have come to learn over the years is that there are many solutions to the same problem. This also applies to retirement investing. There are so many different ways to invest that can allow you to complete your goals for your retirement and so there is no one fits all answer for everyone. The following are some great tips to help anyone investing their retirement nest egg post-retirement:

Stay Invested- On average if you were to retire at 65 you would have roughly 20 years left to live and that means your retirement egg needs to stretch 20 years. One of the biggest things to worry about during this time is making sure your portfolio isn't eaten by inflation so your portfolio should still be invested in things that will provide growth potential. How risky and how much of your portfolio is invested in this growth potential is another story. You still need to be in the game but it many only be 10% or less of your portfolio.

Stay Diversified- This is one that really will pay off especially when there are big downturns in the economy. You can't afford to loose everything you have been working for now. Making sure you have things diversified is just plain ol' smart. On thing to help with diversification is investing in things in and outside of the stock market. Not everything has to plain ol' stocks and bonds. Before retirement why not invest with some of your retirement accounts into real estate? This can be done through a real estate IRA.

Adjust On The Fly- You never know what is going to happen. The market could tank, another investment could go south. You need to be able to adapt and adjust. Even if nothing major happens you should always be evaluating how much you can withdrawal and if you are on track. Planning is key to success.

Don't Be Against Working Part Time- If your health is good and you need something to take up some of your time why not work part time? Any income that will lower the amount you need to withdrawal from  your retirement accounts will make a difference.

Retirement is just another stage in your investment portfolio. You want that money to be able to last you all of retirement. Following these steps are going to keep you on the right path to retirement success.

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Diversify Your Retirement Portfolio Through Self Directed IRA Investing

Monday, September 15th, 2014

Diversify Your Portfolio

One of the biggest benefits that comes through a self directed IRA is that you can choose the types of investments that you want in your retirement account. In general, you can invest in just about anything as long as it passes the rules provided by the IRS. We have talked about these rules time and time again and if you need more information about self directed IRA rules you can check out our past post, Important Self Directed IRA Rules You Need To Know.

I wanted to talk briefly about probably the most popular investment inside a self directed IRA. What is that? It happens to be real estate. This typcially is in the form of a residential single rental property. You can get commercial rentals and multi-units as well. Whatever suits your situation and investment goals best.

So how is the housing outlook in the United States? It is actually quite mixed. The applications for U.S. home mortgages fell last week to the lowest since december 2000. This is more than likely due to the increase in interest rates that happened for the first time in four weeks.

The Mortgage Bankers Association has said that its sesonally adjusted index of mortgage application activity has dropped 7.2 percent. This includes refinancing and home purchase demand. They also noted that their index of refinancing applications has dropped 10.7 percent. This happens to be the lowest since November, 2008. Another key indicator for home sales, loan requests, is down 2.6 percent.

What is the current average mortgage rate for a 20 year mortgage? The answer, 4.27 percent. This is up from a week ago which was at 4.25

Currently the outlook it a bit grim. Yes the housing market has its ups and downs throughout the year and it is typical to see a down turn around this time of year but the the rising interest rates may have you discouraged about the housing market.

The thing with a self directed IRA that is great is that you aren't limited to the housing market. Currently, the gold market is around lows that we saw at the beginning of the year and according to many different gold investment experts, now may be a great time to buy as many investors are turning more bearish. More on the gold market from MarketWatch. Interested in gold in your IRA? Check out, Buy Gold Today With Your IRA.

A great retirement portfolio is one that is diversified. While now may not be the best time to buy real estate it may be a great time to buy gold or another investment. Take advantage of a self directed IRA as it isn't limited to certain types of investments like most IRAs and 401ks are. Doing this helps you limit your risks as well as increase your profits for your retirement portfolio.

If you would like more information about self directed IRAs, including the rules to self directed IRA and investing with a self directed IRA we can help. Contact us today.

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