Retirement is looming ever closer, but is there any good way to prepare for it? After all, you’ve probably never retired before. To take some of the uncertainty out of retirement, here are 5 steps to test drive retirement before it actually arrives:
- Plan ahead—well in advance of your retirement, make a comprehensive plan that includes your budget, investments, Social Security, health care costs, provisions for common elderly concerns, and a generous rainy day fund for unforeseen events. Also, it’s not too late to start self-directing your IRA to increase your wealth.
- Get your spouse involved—these can be hard conversations, but you’ll need to discuss survivor benefits, your spouse’s intended activities, whether or not he or she will be retired, and future living arrangements.
- Take care of legal concerns—you may need to consult a lawyer or professional planner regarding items like power of attorney, wills, debts, healthcare documentation, and asset titles.
- Live on your retirement budget—to ensure you’ll have a livable retirement income, try living on your retirement budget without any exceptions for a year before you retire.
- Don’t let the cat out of the bag—don’t tell your coworkers or boss that you plan on retiring until a month before the planned date. That prevents the possibility of your boss withholding certain privileges with the knowledge you’re retiring.
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.
- They’re difficult to set up—while it might be difficult to navigate the process entirely on your own, setting up a self-directed IRA with Mountain West IRA is simple. When you open your account with us, our step-by-step process provides you with a blueprint to open, fund, and complete self-directed IRA investment transactions quickly, safely, and accurately.
2. There are plenty of investment choices within a standard IRA—unless you’re content to stick with stocks and bonds, a standard IRA just isn’t going to cut it. Traditional approaches to retirement investing lead many otherwise savvy investors to overlook one of the most lucrative wealth-building strategies available. With the great tax advantages provided by a self-directed IRA or 401(k), as well as the wider range of possible investments, you can potentially build wealth and secure your future much more effectively than you can through traditional plans.
3. My (CPA/attorney/broker/friend/other person) said that buying and selling real estate in my self-directed retirement plan was illegal—this has been a long-lived myth. Neither the IRS nor the Department of Labor has ever published a list of legal investments. However, there is a list of Prohibited Transactions and Disqualified Persons that deal with what is not permitted. Real estate and other investments are permitted provided you follow the rules.
4. Signing up for a self-directed IRA with a firm means that they can do whatever they want with my money—as a custodian, we don’t handle your money. Rather, we show you how to take advantage of self-directed retirement plans. All the funds not invested are held for your benefit in our 100% FDIC-insured custodial bank account at Sterling Bank.
5. Many people I’ve spoken to have never heard of a self-directed IRA and have told me it’s probably a scam—it’s a common misconception that the only investments allowed in a retirement account are stocks, CD’s, and mutual funds. The truth is that broader investment options have been available to the public since the inception of the IRA in 1975
The self-directed IRA industry is growing very strong with trillions of dollars invested in IRAs containing non-traditional assets. There are over 50 million retirement account holders, and less than 4% of those are held in non-traditional assets. This number is expected to grow significantly over the next five years as more individuals and their financial advisors attain a greater awareness of self-directed IRAs.
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.
Over time, real estate investments have afforded many people the powerful combination of appreciation and income. The purchase of real estate through a self-directed IRA is a popular choice for this and other reasons. Concerned you don’t have enough funds in your IRA for the entire purchase? If your self-directed IRA doesn’t have enough money to pay for the entire purchase on its own, you may be able to finance or leverage the purchase of the income producing property. Keep in mind, if you don’t have enough money in your retirement account to purchase the real estate, the IRS forbids you from extending credit to your own IRA account. So, what are your options?
Real estate investment accounts can use borrowed money as long as the account holder’s credit history, income, or assets are not used to guarantee loan repayment to the creditor. In other words, there can be no personal guarantee given by you as the account holder and consequently, there can be no personal recourse against you since the property and the loan are held within the retirement plan. The loan your IRA would need to acquire is normally known as a non-recourse loan. Be aware that loans for property inside of IRAs may require the payment of Unrelated Business Income Tax (UBIT). It is the IRA holder’s responsibility to have the tax form (990T) prepared by a tax advisor and have the IRA administrator submit the appropriate forms for the property owned by the IRA. The staff at Mountain West IRA can maintain the appropriate records for your self-directed IRA real estate investment. Our goal is to assist you with your alternative asset purchases while paying little or no taxes. Contact Mountain West IRA for additional information.
3 Benefits of Leveraging Your Self-Directed IRA:
- Tax considerations—one of the great benefits of an IRA is tax-deferral. As an investor, you’re able to put more money into investing than you would with a taxable account. When your investment generates income that exceeds expenses, you will be subject to the UBIT. However, the taxes you pay when computing UBIT can be significantly lower than traditional income taxes.
- Benefit from growth—leverage allows an investor to purchase a larger, more valuable asset and profit from its growth, with only a smaller out-of-pocket expense.
- Diversification—instead of investing your entire self-directed IRA balance on one property, you can split the balance among several properties as a down payment and use leverage to finance the rest. By diversifying your investment portfolio, you generate revenue on several properties and minimize your financial risk.
Using a non-recourse loan in conjunction with your Mountain West self-directed IRA is a powerful tool to build your wealth. However, it’s one that needs to be carefully managed. For over six years, Mountain West IRA has been showing individuals and small businesses how to take advantage of self-directed retirement plans as one of the nation’s leading independent self-directed IRA and 401(k) administration companies. With a knowledgeable staff and our clients’ best interests in mind, we offer the outstanding customer service that only an independently owned and operated administrator can. If you’re ready to start your own self-directed IRA, contact Mountain West IRA today.
With a traditional IRA, contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances, and generally, amounts in your traditional IRA (including earnings and gains) are not taxed until distributed.
For 2013, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:
- $5,500 ($6,500 if you’re age 50 or older), or
- your taxable compensation for the year.
The IRA contribution limit does not apply to:
- Rollover contributions
- Qualified reservist repayments
A Roth IRA is an IRA that, except as explained below, is subject to the rules that apply to a traditional IRA.
You cannot deduct contributions to a Roth IRA.
If you satisfy the requirements, qualified distributions are tax-free.
You can make contributions to your Roth IRA after you reach age 70 ½.
You can leave amounts in your Roth IRA as long as you live.
The account or annuity must be designated as a Roth IRA when it is set up.
The same combined contribution limit applies to all of your Roth and traditional IRAs. Your Roth IRA contribution might also be limited based on your filing status and income.
So, how do you know which one to choose? These are some of the factors to take into consideration:
- Deductibility–contributions to Roth IRAs are never deductible, so if you want to get tax deductions on your contributions to your IRA, you will want to choose a traditional IRA. Your eligibility to deduct traditional IRA contributions depends on whether you meet certain criteria.
- Contribution age limitations–there is no age limit for contributing to a Roth IRA, while you have until age 70 1/2 to contribute to a traditional IRA.
- Income–income caps don’t apply to a traditional IRA, whereas your income must fall under a certain limit to contribute to a Roth IRA
- Tax treatment–distributions from a traditional IRA are treated as ordinary income and may be subject to income tax. Early distributions are also subject to tax. Roth IRA distributions are tax and penalty free. Roth IRA distributions are considered qualified if they meet the following requirements:
- A distribution is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
- The payment or distribution is:
- Made on or after the date you reach age 59½,
- Made because you are disabled,
- Made to a beneficiary or to your estate after your death, or
- Used to purchase a first home (up to a $10,000 lifetime limit)
The Roth IRA may be a better choice if your tax rate after retirement will not be lower than it is now. A traditional IRA may be better if your tax rate will be lower than it is now.
Contact a Mountain West IRA professional to establish either a self-directed traditional or Roth IRA.
Jon Galane will be traveling throughout Florida from October 14-November 15, 2013, visiting realtor organizations and meeting with clients. If you would like to schedule an appointment with Jon to set up your self-directed IRA or obtain more information about the benefits of having a self-directed IRA, contact the Mountain West IRA office by phone at 208-377-3311 or email.
Free Seminar on Healthcare Reform
If you are like most people, you have heard a lot of bits and pieces about healthcare reform (penalties, exchanges, surcharges, tax credits) but still are left wondering – how does this actually apply to me?
At Mountain West’s offices on September 26 at 10:00 am, Keller CPAs will be holding a free one-hour seminar that will finally answer your questions. They will break down this overwhelming topic in easy-to-understand terms, explain how it will affect your bottom line, and provide proactive strategies to minimize the impact of healthcare reform.
Some of the topics you will learn from this free seminar:
- How to be compliant by the October 1, 2013 deadline.
- How to avoid the $1000 per employee, $100 per day fine.
- Will dropping coverage for your employees actually make their health insurance more affordable?
- Who is subject to the new Medicare surcharge taxes and how to plan around them.
- New reporting requirements for I9’s, W2’s, and tax returns.
- Idaho’s Health Insurance Exchange – what does it mean to you?
It is important to know that all small businesses will be affected, not just those with more than 50 employees!
The seminar is FREE and you won’t be sold or pitched anything. It’s for informational purposes only.
We would love to have you attend and we are also opening up the seminar to anyone else you may want to invite (send your friends the blog link)!
We look forward to seeing you on September 26!
Register now >>
Precious metals are a great way to diversify your portfolio, but think about looking beyond gold bullion to black gold—oil. Global demand for oil will only continue to increase. While the U.S. consumes more oil than it produces, the potential for increased domestic production on American soil is promising. New technology offers the promise of tapping previously unreachable oil fields. North Dakota has been producing record-setting oil output month after month and reaping the rewards of low unemployment and enormous profit. Meanwhile, the booming production at the shale fields in Texas jumped by more than a third over the last year and production now outpaces even that of North Dakota.
The U.S. is in the midst of an oil renaissance, which makes for very profitable investment opportunities. For example, the Koch Pipeline Company just proposed the construction of a new pipeline that would carry crude oil from North Dakota to Illinois. In addition to profit, there are tax incentives for investment in oil and gas. Where some ventures may seem risky or the potential for profit unlikely, investing and oil and gas could be a hedge against high-risk investments and inflation. The revenue from a consistently producing well may pay off for many years.
Various ways to invest in the oil industry include:
- Drilling companies
- Land where drilling is taking place
Whatever you choose within the oil and gas industry, your self-directed IRA will act as a shareholder and potentially garner great profit.
How it works:
- Commit to an oil or gas company on a particular project
- Open up a new account with Mountain West IRA
- Complete the necessary paperwork for investment
- Mountain West, as the custodian of your self-directed IRA, will send investment funds to the oil or gas company
- Earn revenue from oil and gas profits
Set up your self-directed IRA with Mountain West IRA today so you can invest in the oil or gas industry.
A defined benefit plan promises a specified monthly benefit at retirement. A defined benefit plan can be rolled over to a self-directed plan, but typically only if you are no longer an active participant in the plan. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service — for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance. When you roll over a retirement plan distribution, you generally don’t have to pay tax on it until you withdraw it from the new plan. By rolling over, you are saving for your future and your money continues to grow tax-free.
If you don’t roll over your distribution, you will pay tax on the amount received (other than qualified Roth distributions) and possibly an additional tax on early distributions.Keep in mind that the portion of a distribution from a traditional IRA or pre-tax retirement plan account that is not rolled over is generally taxable in the year of the distribution. If you are still employed by the plan provider, you will need to check with your plan administrator to see if the plan allows for “in-service” distributions, which allow employees to withdraw funds from their workplace retirement plan without penalty. If the answer to that question is yes, you would be able to perform a direct rollover to a self-directed IRA. By moving funds to your self-directed IRA, you can take advantage of greater choice in investments.
Generally, to roll over your retirement plan or IRA distribution:
- Ask the plan administrator or IRA trustee to transfer the amount to another plan or IRA, or
- Have the distribution paid to you and contribute it within 60 days to another eligible retirement plan.
If the distribution from the qualified plan or IRA is paid to you, you have 60 days from the date of receipt to roll it over to another qualified plan or IRA. If you make a tax-free rollover of a distribution from an IRA, you generally cannot make another rollover from the same IRA within a one-year period. You also cannot make a rollover from the IRA to which the distribution was rolled over. If you receive an eligible rollover distribution from your plan, your plan administrator must provide you with a notice informing you of your rights to roll over the distribution and must facilitate a direct rollover to another plan or IRA. Contact Mountain West to roll over your defined benefit plan to a self-directed IRA and take advantage of the many investment opportunities self-directed IRAs afford you.