Choosing the correct account for yourself and your family may seem complicated and confusing, but you only have a few options when it comes to how you wish to be taxed. Below we share a comparison between a Traditional IRA vs a Roth IRA.
Traditional vs. Roth
- Traditional: You may potentially receive a write-off on your taxes for contributions, determined by your household income. The funds then grow tax-deferred by revenue and dividends generated from your investments. Upon retirement age (59.5) you can begin distributing funds from your Traditional IRA without penalty, but this income will be added to your gross household income, so you will have to pay taxes on these funds. You can, if you wish, wait to distribute any funds from your account until 70.5 years old. At that point, the IRS rules say you must begin taking Required Minimum Distributions or RMD’s. This is basically the government’s way of saying, you received a write-off when you put these funds into this account we need to make sure to get our taxes before you pass away. I know, somewhat morbid!
- Roth: You do NOT receive a write-off on your taxes for contributions. The contributions you make to this account are “after-tax dollars.” However, you will get to grow your retirement money tax-free, forever! Like the Traditional IRA, the funds then grow by revenue and dividends generated from your investments. After age (59.5 and 5 years of the account being opened) you can take a distribution that is both penalty and tax-free. This tax-free distribution increases your NET household income. This is also an excellent choice for an estate planning tool, as you do not have to take any RMD’s, at any age. You have already paid your taxes. You are free to do what you wish with your distributions.
* High-income households: your financial advisor may tell you that you do not qualify for a Roth. There is something called a backdoor conversion that you can contribute to a Traditional and not receive a write-off, then convert the next day to a Roth. There is never a no iif this is the account type you want!
These are the primary differences between Traditional and Roth retirement accounts. There are some other rules that may or may not apply to you depending on your household income. Please speak to a Mountain West IRA representative if you wish to learn more.
Are you interested in learning more? Here is a no cost, no obligation webinar for you to check out: Alternative Asset Allocation Model
Many investors still are not aware that they can invest in alternative investments. Anything that does not fall within the definition of traditional stock and bonds can be loosely defined as alternative investments. These types of investments have many benefits related to them.
1. Mitigate Market Volatility
Alternative investments can cushion a portfolio from market volatility when the investments are in asset classes that feature low correlation to the markets.
“Do not put all of your eggs in one basket” has been saying for decades. Investing in alternative assets allows the investor to spread the risk out. With all of the alternative investment options available, investors have a wide range of choices. Please visit www.MountainWestIRA.com to view popular alternative investment options.
If investors are willing to risk a little more on certain alternative investments, they may be rewarded with higher returns. Other investments, such as real estate, can provide a relatively steady income stream for many years to come.
4. New Opportunities
Not every investor is comfortable in their knowledge of the stock market, which can make investing more difficult. However, by investing in alternative assets, it opens up new exposures and opportunities where they may have more interest and knowledge. Our clients have the opportunity to set the terms of their returns or dividends by choosing their investments.
5. Lower Transaction Costs
Short-term investments can require high amounts of turnover, which can lead to high transaction costs. While alternative investments may have a higher upfront fee compared to short-term traditional investments, they will not have as high of a turnover rate, keeping transaction costs lower. Depending on your expertise Mountain West IRA has 2 different fee schedules to keep costs as low as possible.
Talk to Mountain West IRA about the alternative investments available to investors. Some of the alternative investment options include real estate, precious metals, private placements, and more.
When investors with self-directed IRAs consider investing in real estate, they usually think of rental properties or homes they can flip instead of raw land. For many people it can be difficult to imagine the potential of vacant land and the healthy returns which may be available from this type of investment.
While raw land can require a longer investment timeframe than some other real estate investments, it offers great opportunities for those who understand and are willing to take on the commitment. There are a variety of prospective uses for raw land, including:
- Residential and Commercial Development Property
If growth is expected in the area of the raw land, it could be parceled off and sold or leased to building contractors and investors. Or, investors could choose to develop the land themselves.
- Oil and Mineral Producing Land
Investors may choose to lease mineral rights to mining companies or other investors.
Soft and hard woods can be planted, harvested, and sold for profit. Tracts of the land could also be leased to others such as timber companies.
Some other uses for raw land include:
- Raising crops
- Raising cattle or other animals
When considering investing in raw land, investors should understand not only the process, but the rules set forth by the IRS regarding this type of investment.
- All income and expenses relevant to the investment must flow directly into and out of IRA funds
- Avoid prohibited transactions and dealings with disqualified persons.
- Land purchased with the intent of running a business within an IRA is subject to Unrelated Business Income Tax.
- If the IRA took out a loan to purchase the asset, Unrelated Debt Financed Income Tax may apply.
For those interested in diversifying their portfolio by investing a self-directed IRA in raw land, contact Mountain West IRA. They can answers question investors might have before starting the process.
Some investors do not realize it is legal to purchase non-traditional assets using an IRA. In 1974, the Employee Retirement Income Security Act passed the responsibility of retirement savings from the employer to the employee. The next year, IRAs were created. Self-Directed Individual Retirement Accounts provide investors the ability to direct where retirement funds are invested.
Under both ERISA and IRS Codes, only two types of investments are excluded. These are life insurance contracts and collectibles. Collectibles include works of art, jewelry, rugs, etc. Aside from these exclusions, retirement investment opportunities have a wide range. This allows all investors to find something that works for them.
Investors may not have known about Self-Directed IRAs because the retirement industry has long been dominated by custodians focused on a very narrow selection of investments such as stocks, CD’s, and mutual funds. Mountain West IRA, on the other hand, believes in offering investors the freedom to choose with self-directed retirement accounts.
With a Self-Directed Retirement Account through Mountain West IRA, investors can choose from the following non-traditional assets:
- Real estate
- Single family and multi-unit homes
- Apartment buildings
- Cash flow properties
- Tax deeds/liens
- Improved or unimproved raw land
- Notes and Mortgages
- Unsecured notes
- Secured notes
- Precious Metals
- Private Placements
- Partnerships and Joint Ventures
- Privately held stock
Even this lengthy list of options is not all inclusive. Many investors find other creative investment opportunities or choose to utilize multiple investment vehicles including traditional assets like stocks, bonds, and mutual funds. Visit Mountain West IRA’s website to learn more about self-direction and the non-traditional investments available to investors.
One of the benefits of having a Mountain West IRA self-directed retirement account is the variety of investment options. One of these options is investing in real estate, whether it be residential or commercial.
Those looking to take the plunge and start investing their retirement savings in real estate should take into account the associated property taxes because they are the second largest fixed cost investors will face when calculating income from a property.
Property taxes are based on the sales price of the property and the market that it’s in. Investors shouldn’t always rely on what the previous owner’s property taxes were for calculations. If the previous owner bought it at as a distressed property or many years ago, the property taxes were most likely lower for them than they will be currently.
Depending on the estimated property taxes, investors can decide if the property is worth investing in, or if the taxes would eat up too much of the potential income. There are many tools and websites available to help investors look into this before buying a property.
By adding real estate to their portfolio, an investor will diversify and spread their risk. Real estate is also generally considered consistent with providing a stable, although not guaranteed, cash flow. Contact Mountain West IRA for more information about the rules of investing in real estate with a self-directed retirement account.
Even in a sluggish economy, bed-and-breakfasts are a popular choice for tourists seeking lodging off the beaten path. They offer guests the opportunity to socialize with other travelers in a more intimate setting. Many countries offer a variation of the bed-and-breakfast, but most are small lodging establishments with fewer than 10 bedrooms available to rent out. For retirees who love to provide hospitality, they also offer post-retirement job opportunities. And with their rebounding popularity, bed-and-breakfasts may also be an excellent investment opportunity for your self-directed IRA.
While it generally requires significant legal guidance to invest your self-directed IRA in a business you’re personally going to run, investors who want to avoid self-dealing can do so by investing in a business owned by someone else; perhaps a trusted colleague with great business sense. This helps you avoid prohibited transactions.
If you are interested in building your retirement portfolio, think about investing your self-directed IRA in nontraditional assets, whether it’s a bed-and-breakfast or another investment you’re interested in. We won’t tell you what to invest in—the beauty of self-directed IRAs is the freedom they offer you as the investor. Give us a call so we can help you get started with investing today. Now’s the time!
While self-directed IRAs offer a wealth of investment possibilities, getting started with investing can be a daunting task for new investors. While we do not make any recommendations about investments, for six years Mountain West IRA has been showing individuals and small businesses why they should take advantage of self-directed retirement plans. Experienced investors have a wealth of investment information to offer, including these 7 tips:
- Quality over quantity—when new investors first begin investing, many of them go for every opportunity that comes their way, whether it is because of excitement or to meet a perceived target. Seasoned investors instead sit back and wait for solid investments to come along. While new investors may not have the resources to wait for deals, many experienced investors would recommend doing one quality deal rather than a multitude of average deals.
- Put your goals on paper—if you don’t develop a concrete goal for where you want to be in a year, it will be difficult to make any smart investments happen. Seasoned investment professionals often instruct neophytes to put together a plan before they even start investing. And while realistic goals are important to your investment success, it can be difficult to determine how to set those. Speaking with experienced investors in your field and asking them their honest opinions regarding profits per deal and average amount of time required to complete the deal can help you forge realistic goals. Real estate investment (REI) clubs are a good place to start for mentorship. Then, based on the information you learn and the amount of cash and credit you have on hand, create a framework for your long-term goals. Fill in short-term goals in between these long-term goals.
- Don’t limit your profits—just because you got a great deal doesn’t mean you have to pass along all of your savings to the buyer. While most investors wouldn’t recommend you gouging people, reaping profits is part of business. At some point, your profit margin may not be as large as expected, so taking advantage of large profits when they come can help secure your finances.
- Hang on to your full-time job—while it may be tempting for some investors to drop their day jobs and fully commit to investing, experienced investors recommend establishing oneself with banks and credit card companies before branching out on one’s own. Jobs provide a safety net while new investors learn the ropes of good investing.
- Start investing as early as possible—the longer investments have been established, the more growth can be obtained. So the sooner investors begin investing, the more wealth their investments build. Many experienced investors say they wish they’d gotten in the game sooner.
- Use investing partners wisely—there are plenty of eager investors out there, but smart investors choose an investing partner that complements them. This complement may be expertise, knowledge, connections, or money. However, seasoned investors would recommend against choosing a partner with little in common besides a dream or goal. If there is nothing complementary or beneficial about the partnership, it may be wise to steer clear. Again, this is business.
- Dare to dream—it’s difficult to achieve anything without dedication and perseverance. Willpower can overcome even difficult objective conditions like poor credit or little cash. If you have a dream, it’s time to enact it. Contact Mountain West IRA about setting up your self-directed IRA to achieve your dream.
Though we live in an increasingly mobile society, many Americans still haven’t adopted the desire to downsize their possessions to fit this transient lifestyle. That means storage space is at a premium, which opens up a potential investment opportunity for the savvy investor: storage units. Self-storage offers many of the same attractive investment qualities that rentals, office buildings, and other properties offer, including passive income, tax advantages, and appreciation. Investment in self-storage is also made more attractive for many reasons that include:
- Many retirees downsize their homes during retirement but aren’t yet willing to part with a lifetime of possessions. Instead, they seek out additional storage space that their smaller homes can’t offer.
- Some neighborhood housing associations and new housing communities do not allow storage of vehicles like boats, RVs, or even multiple cars on the street outside homes.
- College students use storage space during summer vacation
- Businesses that have downsized and are working out of smaller office space require additional storage space.
Small distributors, start-ups without office space, or home-based businesses use storage space from which to operate their business because operating and development costs of storage units are much more affordable than apartment or retail space. These lower costs also make break-even occupancy ranges lower than other real estate investments. Also, if a storage unit operates on a month-to-month lease, investors can adjust rental rates to compensate for demand. To add further stability to the investment, demand for self-storage is not dependent on the economy. When the economy is booming, people tend to buy more things and thus need more storage. When the economy is slow, people downsize and seek cheaper storage alternatives for the belongings they’re not ready to get rid of.
Self-storage has the lowest default rate of all property types, but like any investment, investors must take time and due diligence to make sure that the storage unit is worth the investment. Well-run, modern self-storage in a good location is desirable to investors and provides a very liquid investment, while old industrial storage units without surveillance don’t command as much demand. As it continues to rise in popularity, self-storage could provide a tangible investment opportunity for you to invest your self-directed IRA in. This is just one of many investment possibilities. That’s the beauty of a self-directed IRA. Since you self-direct your own IRA, you’re responsible for your own investments. We can’t tell you what to invest in or where to find available storage facilities. Self-direction is your choice, but we’re here to show you how to take advantage of self-directed retirement plans. Contact Mountain West to start investing with your self-directed IRA.
Mountain West will be hosting a workshop on “How to Buy Real Estate and Alternative Assets in IRAs and Qualified Plans” Tuesday, November 19.
CEO Jon Galane will be providing valuable CE credit covering the following topics:
- Buying real estate in IRAs and Qualified Plans
- Prohibited Transactions by Disqualified Persons
- Regulations regarding self-directed IRAs
- How to leverage IRAs and the benefits that can provide
$25 covers cost of lunch and all materials.
This class is good for 8 hours of continuing education credit through the Idaho Real Estate Commission.
Register here >>
Tuesday, November 19
10096 W. Fairview Ave.
Boise, ID 83704
9:00 am – 5:00 pm