Posts Tagged ‘self directed ira’

The Real Self-Directed IRA Pros and Cons

Monday, June 5th, 2017

Self-directed IRA’s are quickly moving to the forefront of retirement options for working (and in some cases non-working) adults. In an economy where many businesses are cutting back on matching 401Ks for employees, workers can take matters into their own hands with a self-directed IRA account.

A Self-Directed IRA

Self-directed IRAs are Independent Retirement Accounts (IRA), that offer direct control to account owners with investment selection. Unlike other retirement plans where IRA’s offer limited investment options, an SDIRA allows owners the opportunity to choose and manage their own investments. Through this type of IRA, there are rarely limits on the type of investment choices that can be made. Most SDIRA account holders invest their finances into real estate, precious metals, and private placements.

The Benefits

Obviously one of the best benefits of an SDIRA is that you have the power over investments being made. Traditionally, younger and employed account holders take risks with their IRAs and invest in larger or uncertain items. While older adults closer to retirement invest their money in more stable markets to ensure a large amount is left when retirement comes. Regardless of the matter the age bracket or the status the account holders may be in. The choice is theirs on how to invest and potentially grow their retirement funds through a self-directed IRA.

Another benefit to investing retirement money into an SDIRA is that there are often excellent tax advantages for account owners. Through better tax advantages as well as investment options, account holders can work to secure future retirement funds more effectively than other retirement options such.

Lastly, if a self-directed IRA is set up similar to an LLC, the proprietor of the account can have the benefit of checkbook control. Instead of having investment choices discussed with a custodian, account owners can manage the entire account and its corresponding decisions without restriction.

The Disadvantages

As with any investment retirement account, there can be disadvantages. With a self-directed IRA, one of the detriments is the same as its benefit. The ability to have complete control of investment opportunities. Many account owners lack the in-depth knowledge needed to responsibly invest their retirement money. For an example, say an account proprietor has no knowledge of the real estate market. It may be wise to not invest into that market with a self-directed IRA. However, this can be easily rectified by account owners doing research and becoming knowledgeable about potential markets before the investment process.

Another disadvantage can be that there are several codes, rules, and regulations that accompany a self-directed IRA. Without becoming educated, comprehending and adhering to these rules, it can cause problems for retirement accounts.

Self-Directed IRAs

Self-directed IRA’s are quickly moving to the forefront of retirement options for people across America. It is through this type of IRA account that investment decisions can be made by account holders. There are several benefits to this type of retirement alternative and with proper research. It can be a wonderful asset to a financially successful retirement plan.

A Beginner’s Guide to Investing in Gold

Monday, January 18th, 2016

beginning gold - square

Only 18 days into 2016, and we can already say that it’s been a rocky year. The world is going through rough times in many ways; the second episode of the Chinese stock market crash last week has spooked stock investors across the globe. Bond yield spreads are rising, adding to investors’ fears of bigger defaults in the bond markets. And at the same time, leaving cash idle in the bank isn’t earning savers anything. With interest rates under one percent and inflation close to two percent, investors who are stashing cash stand to lose all of its worth in real terms.

In times like these, gold bullion might be looking like the next best alternative for your investment portfolio.

Bullion investing is basically gaining financial exposure to precious metals—primarily, gold, silver, platinum, and palladium. Of these, gold offers the most liquidity.

1. Physical Gold

The simplest and most direct form of gold investing is in buying gold jewelry, gold bars, with an IRA, or gold coins—jewelry from a jewelry store, bars from a bank or a dealer, through your self-directed IRA administrator, or coins from a dealer.

Coins are the most commonly held form of physical gold, after, of course, jewelry. The best options are the American Eagle, American Buffalo, and Canadian Gold Maple Leaf coins.

When looking for a coin dealer, always seek one who offers the best bargain value. Albeit small, dealers charge premiums on coins above the spot gold price, meaning that you’ll be buying these coins at a price higher than the current market price of gold. In order for you to make money on your investment, the spot price of gold must increase enough to cover the premium you paid. This is why you should look for a dealer who is selling coins for the lowest premium.

2. Gold ETFs

If you don’t want to buy physical gold, you may gain indirect exposure to gold through exchange-traded funds (ETFs).

ETFs indirectly track the price of a basket of assets. Gold ETFs, in particular, come in three forms: 1) those backed by physical gold, meaning they track gold’s spot price; 2) those backed by gold miners’ stocks, such that they track the stock prices of a handful of prominent gold mining companies; and 3) those backed by gold futures, meaning they track the prices of derivative contracts that speculate the future price of gold.

3. Gold Stocks

The third possible way to add gold to your investment portfolio is to buy gold stocks. By “gold stocks,” I mean companies that are involved in the mining, exploration, development, and production of gold.

The risk involved here is that like any other listed company, gold stocks are exposed to stock market fluctuations. The same rules of investment will apply here that apply to any stock on the stock market, in that you’ll have to weigh the financials and fundamentals before jumping into any of these stocks.

4. Gold Derivatives

Finally, gold options and gold futures contracts are an indirect way to invest in gold—but a very risky one. Experts say that gold derivatives should be the last investment resort for any novice investor.

Unlike the spot gold market, where the prices are listed as they are, the futures market trades contracts on future price speculations. Because of the risks involved and the level of sophistication required, investors should strike this option off their radar if they’re not a seasoned trader.

To wrap it all up, gold derivatives, gold stocks, and gold ETFs that are not physically backed by gold are some of the riskier investments. On the other end of the risk spectrum, there’s physical gold and gold-backed ETFs, which are relatively simpler, safer investments.

IRA Q&A: is it Possible to Contribute to an IRA Without a Job?

Thursday, January 14th, 2016

without a job - square

Here’s a question that popped into my head just the other day: Can you put money in an IRA or a Roth IRA if you don’t have wage income?

And the answer I found is that Individual Retirement Accounts (IRAs) were introduced in the mid-70s to help employees save for retirement and reduce their taxable income. So it stands to reason that to make a contribution—and get the tax benefit—you’d have to have income from a job. And, in fact, contributions to both traditional and Roth IRAs can only be made from what the IRS determines to be “earned income.” However, wages aren’t the only form of earned income. So let’s start by looking at the definition.

What’s considered earned income

You don’t have to work for someone else to have taxable earned income. You can also work for yourself. Compensation from either type of employment would be considered earned income. But the complete definition is a bit broader. According to the IRS, taxable earned income includes:

  • Wages, salaries and tips
  • Union strike benefits
  • Long-term disability benefits received prior to minimum retirement age
  • Net earnings from self-employment

In terms of an IRA contribution, the amount of your earned income is also important. The maximum contribution you can make for 2011 is $5,000 ($6,000 if you’re over 50). But if your taxable income is less than the maximum contribution, you can only contribute up to the actual dollar amount of your earned income for the year. In other words, you can’t contribute more to your IRA than you earn.

What about unearned income?

Because there are other ways to make money, it’s probably equally important to understand what’s not considered to be earned income. Things such as interest and dividends from investments, pensions, Social Security benefits, unemployment benefits, and child support—even though they may factor significantly in your monthly bottom line—aren’t considered earned income for tax and IRA contribution purposes.

The Spousal IRA exception

Fortunately for married couples, there is one way to make a contribution to an IRA if you don’t have wages—a Spousal IRA. This is a tax-advantaged retirement account designed specifically to allow a working spouse to make contributions on behalf of a nonworking spouse. Under current laws, if you’re married filing jointly, you can contribute the maximum into an IRA for each spouse—even if one of you has no earned income—as long as the working spouse has income equal to both contributions.

So let’s say both you and your spouse are over 50 and want to contribute the maximum of $6,000 to each of your IRAs. Whichever one of you is working would have to have earned income of $12,000 or more to cover both contributions.

Another good thing about the Spousal IRA is that, should the non-working spouse go back to work, he or she can contribute to the same IRA. That’s because, once opened, a Spousal IRA is an Individual Retirement Account like any other.

Making retirement top priority no matter what

Even if you don’t qualify for the tax advantages of an IRA or other type of retirement account, if you have income from other sources besides wages, I advise you to save for retirement—and save consistently. Open an investment account or other type of savings account, earmark it for retirement and direct a percentage of your income to that account each month. Ideally, you could set up an automatic transfer from your online checking account into your savings account to make it easier on yourself. Then, should your earnings situation change and you find you’re able to contribute to an IRA or participate in an employer-sponsored plan, you’ll be ahead of the game.

Five Changes Coming to the Retirement World in 2016

Monday, January 11th, 2016

2016 changes

It’s still early in 2016, but big changes are coming in the retirement world, as it’s always changing. As you plan for retirement, it’s important to stay on top of specific changes that can affect your self-directed IRA retirement accounts, regular retirement accounts, Social Security and investment vehicles. These changes could impact your saving strategy:

The new myRA is now available

The myRA is a Roth individual retirement account (IRA) that has no fees, and the government guarantees that it will never lose its value. We talked about myRA’s back in September, and weighed the pros and cons. This is pegged as an ideal option for those who are just getting started on their retirement savings because it’s easy to set up contributions.

The saver’s credit threshold increases

People who make slightly more money might have a better chance qualifying for the saver’s credit in 2016. The limit for adjusted gross income (AGI) increased $250 to $30,750 for single filers, and for married couples filing jointly, the AGI limit rose $500 to $61,500.

Obama’s 2016 budget focuses on retirement

President Obama’s budget proposals include eliminating the special tax break for net unrealized appreciation on retirement accounts, limiting Roth conversions to pretax dollars, putting a cap on retirement savings and more.

While some or all of Obama’s proposals might not happen, these changes could impact what you can do with your retirement accounts.

No more ‘restricted applications’

The “restricted-application” option is being eliminated. Before this new law, couples would file a “restricted application” after reaching full retirement age to receive only spousal Social Security benefits while their own benefit earned delayed credits until age 70. But now, only those who were 62 years old at the end of 2015 qualify.

Rebooting ‘file and suspend’ strategy

Spouses have been using the “file and suspend” strategy to increase their Social Security benefits. Changes are coming by May. As CNBC reports, in order for your spouse to receive a benefit based on your earnings record, you need to actually be receiving benefits as well. Some extensions are possible for those 62 and over.

Unique Types of Properties to Invest in With an IRA

Thursday, December 31st, 2015

unique properties - wide

Flexibility is one of the main reasons savers and investors use self-directed IRAs for real estate transactions. A property can be acquired quickly, with the required fees and costs being directly paid for from the IRA, and in turn, any profits will funnel straight back into the self-directed IRA account.

Commercial Property

The inconsistent performance of the stock market in recent years, and the ever-growing threat of a Federal rate hike has made commercial real estate a prime target for investors. This shift in investment focus has helped fuel the commercial real estate market. That’s because investors who use their IRAs to purchase commercial properties that generate excellent cash flow and appreciation can gain a number of awesome tax benefits. For instance, in the case of a Roth IRA, which is funded with after-tax money, investments are not taxed while growing, and are tax-free upon distribution. Roth IRAs also have no minimum distribution, so savers can decide when and how much to take as distributions. Traditional IRAs are funded with pre-tax money and are taxed at the time of distribution, which is the main difference between the two plans.

Real Estate Overseas

The most common investments made with a self-directed IRA are in real estate, but only a small percentage is invested in real estate overseas. Throughout most of the world, it’s not really possible for a foreign buyer to just borrow money from a local bank and use that money to buy real estate. This is where your self-directed IRA comes into play.
Using the property as a rental property, think how Airbnb does it, where a property is rented out, maybe by someone new almost every week (if not every night), makes it easy to remotely operate from anywhere.
You can purchase real estate, but just as it is with property you own in the US, once you move in, or make use of the property yourself, the total value becomes taxable as a distribution under the terms of your retirement account, and your entire IRA account could get hit with repercussions from the IRS.

Farms

Who knew that you could invest in a farm without owning farmland? Well you can with a self-directed IRA! There are a few more options like REITs, or mutual funds, or ETFs, but today, we’re just going to talk about self-directed IRAs.
Farmland can help your IRA grow in a few ways as an agricultural investment. A farm that produces crops ranging from fruits and vegetables to cotton and other raw materials for manufacturing tend to be the most profitable because these crops, of course, produce income when they are sold (and most regrow annually). In addition, the value of the land may increase, resulting in a capital gain. Before your IRA can buy anything with an IRA, you have to fund it. As of 2015, you can contribute up to $5,500 a year to an IRA, or a $6,500 catch-up limit if you are 50 and older. Keep in mind that you can also rollover money from another retirement plan to buy a farm, and another funding option is to buy partial ownership of the property, and have other investors.