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
When making the choice to invest in an IRA, the decision can seem a bit daunting. You may be wondering what type of IRA would work best for your needs. Additionally, the terminology and volume of information may have become overwhelming.
Mountain West IRA offers multiple retirement savings options to our customers. It’s important to understand that SEP IRA and Simple IRAs as well as individual 401(k) plans all revolve around meeting business needs. If, however, you are attempting to meet your own retirement needs, regardless of your employer, the Roth IRA or Traditional IRA are two options available to you. Did you know that all of these different types of IRAs can be done in a self-directed IRA account?
To begin, let’s take a look at the similarities:
Maximum Contributions: The maximum contribution limit for both IRAs is $5,500 for 2014. The only exception is for those who are age 50 or older. These individuals may contribute an extra $1000 to their IRA as a catch up contribution.
Contribution Deadlines: Contributions to an IRA must be completed by April 15 to count for the prior year.
Here’s a comparison of the Roth IRA and the Traditional IRA:
Tax and penalty free growth, and qualified (conditions apply) withdrawals after 5 years
No tax breaks for contributions
Tax deferred growth
Tax deductions may apply in contribution years
Income restrictions apply
No income restrictions
Contributions are withdrawn tax-free
Earnings are withdrawn tax-free after 5 years and only when meeting certain conditions
Withdrawals of pre-taxed contributions and all earnings are taxed when withdrawn
Non-qualified withdrawals are penalized with income tax and a 10% tax
Withdrawals prior to 59.5 years of age are subject to a 10% early withdrawal tax
starting at the age of 70.5
After the 5 year holding period, up to $10,000 can be withdrawn (tax and penalty free) to cover first-time homebuyer expenses
Contributions lower your adjusted gross income providing tax benefits
Up to $10,000 may be withdrawn (penalty fee but still taxed) to cover first-time homebuyer expenses
Although these guidelines provide some great information you’ll want to consult your tax professional for the plan that best suits your individual needs. Regardless of which IRA you select, Mountain West IRA would be happy to help you open your self-directed IRA account. With your self-directed IRA you’ll be able to take advantage of a host of different IRA investment options to assist you in your quest for a happy and comfortable retirement. Please contact Mountain West IRA today to discuss the possibilities.
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!
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.
- 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.
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.
For some retirees, living in a retirement facility or assisted living home can’t compare to the excitement and ever-changing destinations a cruise ship has to offer. A substantial number of guests on cruises are retired, enjoying the many amenities cruises have to offer. Would you consider retiring on a cruise boat? Here are 5 reasons why some people do:
- Travel—while some retirement communities may occasionally organize local outings, retirees on cruise ships get to travel almost anywhere in the world they want to go. On a cruise, the cost of rent and travel is combined, whereas travel in addition to monthly rent at a retirement facility can be very cost-prohibitive.
- A large community—cruises offer retirees plenty of opportunities to socialize. There is ample entertainment and plenty of social functions, and retirees get to interact with a much more diverse age group than they do in retirement homes.
- Entertainment—cruises have a well-planned itinerary and hosts to entertain cruise guests day and night. A day of entertainment may include bingo, excursions to the port of call, comedians, and musical performers.
- Food—food is included in the price of the cruise package, and there are many exciting options to choose from. Instead of retirement home food, retirees on cruises might have the option to enjoy fresh, tropical fruit and a world-class buffet.
- Price—while cruises range in prices and amenities, it is conceivable to live on a cruise boat for less than $30,000 a year. This is comparable to some retirement communities and can be significantly less than some full-service retirement communities. If you love to travel and aren’t in need of significant assistance, retiring on a cruise boat might be just the option for you. Your investments back home can continue to generate income while you enjoy life on the fair seas.
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.
Coming on the heels of our recent expansion of services into Florida and Washington, Mountain West IRA is proud to announce the opening of our permanent office in Largo, FL. We are thrilled to better serve the needs of our clients with the opening of our new Florida office. This Southeast Region Grand Opening will be November 1st!
As one of the nation’s leading independent self-directed IRA and 401(k) administration companies, we are proud to expand our services to offer individual and small business owners more options for investing in alternative assets. While our office is growing you can still expect the same industry-leading customer service Mountain West IRA is known for. We remain passionate about helping our clients build wealth through their self-directed retirement plans and can’t wait to get started in Florida.
Our Success is your Gain: Mountain West IRA has more exciting news. For clients on our transaction-free value fee schedule, your account may see lower fees for account sizes of $100,000 and $750,000. There will be no changes under $100,000 or over $750,000. Our fixed asset fee schedule will remain the same. It’s time for you “To build the Ultimate Retirement Machine” and see lower fees.
Many people dream of starting small businesses or starting a new venture but fear using traditional small business financing or taking out loans with high interest rates. However, prospective entrepreneurs and business owners don’t often realize that existing retirement funds can be used to fund start-up businesses. If you’re confident the business has the potential to be a success over the long run, investing your retirement funds can be a very savvy financial decision. By rolling your existing retirement savings into a Mountain West self-directed IRA, you can now invest in a business or start-up without tax penalties. There are IRS restrictions, but you should certainly consider using this smart and viable financing option.
Investing your self-directed IRA in a start-up or small business allows you to affect the value of both your small business and retirement account. You have the ability to lower the overhead of your start-up while accelerating the growth of your IRA. In addition, the following benefits make investing in a start-up a win-win situation:
- Use funds from your self-directed IRA without early distribution taxes or penalties
- Start your small business without incurring as much debt while gaining substantial tax benefits
- Invest up to 100% of your self-directed IRA or use a percentage
- Combine your self-directed IRA funds with those of your spouse or business partner
- Net substantial savings on interest fees and protect your credit
- Roll profits you gained back into your business or retirement plan
- Put yourself in the fast lane for financial success
To learn how you can invest your self-directed IRA in a start-up or small business, contact Mountain West IRA. Now’s the time to enjoy the substantial savings that come along with the tax and credit advantages of a self-directed IRA.