Investing

5 Strategies To Make the Dream of Early Retirement A Reality

June 28, 2017 by IRA Services

Many Americans dream of retiring early. Who wouldn’t want to leave work when they still have the time and energy to truly enjoy the rest of their life?

Unfortunately, for most, this remains just a dream – many Americans struggle to even retire by standard retirement age, which ranges from 59 ½ to 67. But early retirement is possible with some hard work and the help of the right financial strategies.

Make your retirement dreams a reality using the following time-tested tactics:

Save, and then save some more

To have any chance of retiring early, you need to save more aggressively than you would otherwise. An early exit from the workforce means you have less time to build your retirement nest egg, and you’ll need that money to last longer than the average retiree. This means you need to set aggressive monthly savings targets, higher than you’d set if you were planning a more traditional timeline.

Here’s an example: If a 30-year old needs to save $1,000 a month to reach their retirement savings goal at 65, they would need to save $2,000 a month to reach that same goal at 55, assuming a 7% return on their investments.

To get an idea of exactly how much you need to save, you should contact your financial advisor so they can build you an estimate based on your age, retirement target, and current salary.

Find other sources of income

Making the transition to zero income is a tough adjustment. Building up extra sources of new income will help reduce the pressure on your investments after you retire. Some people start an online business or freelance part-time. While your new venture may not always add up to a lot of money, it still supplements your retirement savings and can also keep you from getting bored – a common problem of early retirees.

Real estate is another great way to build a new income stream. Investment properties generate regular rent checks and, once your portfolio is large enough, you may be even to live entirely off your rental income. Self-directed IRAs use the tax benefits of an IRA to allow you to grow your estate portfolio more effectively, even before you retire.

Invest outside of retirement plans

IRAs charge a 10% early withdrawal penalty if you take money out before the age of 59 ½ (regardless of whether you are still working or not), while 401k accounts do not allow penalty-free retirement withdrawals until you are at least 55. If you want to retire early, you should think about investing some of your money outside retirement plans in a taxable investment account. Depending on your needs, you may be able to live off that money until you are old enough to start making penalty-free withdrawals from your retirement plans.

Pay off all your debt

Debt is a huge drain on your income. Between mortgage payments, car loan payments, credit cards, and student loans, it is not uncommon for 50% or more of your monthly income to go towards debt. If you take these payments out of the equation, you will be able to meet your needs on a much smaller monthly income. Set a goal to pay off all your existing debts before you retire and commit to staying debt-free from that point on.

Keep your work options open

While early retirement is a decision you should consider very carefully, it helps to think about a safety net, should you need to go back to work. Talk to your employer about the prospect of returning in a few years and make sure to never burn any bridges with your former employers (this is sound advice in any context).

Some early retirees also discover that they are not well-suited for the retirement lifestyle. All that spare time can leave you feeling bored. Perhaps what you actually needed was just a temporary break to travel and recharge. You may find yourself eager to get back to work, so make sure that remains an option.

Retiring early may seem like an impossible fantasy, but the right mindset and financial plan can get you there.

Four Common Retirement Fears – And How Self-Directed IRAs Can Help

May 18, 2017 by IRA Services

Four Common Retirement Fears – And How Self-Directed IRAs Can Help Retirement is no longer as easy as it once was, and there is no shortage of reasons to be worried about your retirement. Most people do not have pension plans and it’s hard to know what while the government programs like Social Security will look like 10 years from now. At the same time, previously trusted assets like the stock market seem riskier and more volatile.

Smart investors are looking at how they can protect their future plans today. Self-directed IRAs are one strategy gaining popularity – and for good reason. This type of retirement account allows you to invest in a much broader range of assets – like real estate, precious metals, and business partnerships – which can restore peace of mind about your retirement.

Read on to discover how self-directed IRAs can address some of the most common retirement fears:

“I’m going to lose everything in a stock market collapse.”

The stock market collapse of 2008 was one of the worst in history, with the market losing about 50% of its total value in just one year. For many Americans, that meant losing a huge chunk of your life savings as well.

It’s no surprise then, that investors today are still worrying about the next big downturn. But it is important to remember that while 2008 was an extreme case, downturns are a regular occurrence, happening about every ten years. How much will you be impacted by these downturns? That depends on the state of the markets when you retire, and it’s impossible to know exactly when these downturns occur. Unfortunately, in many traditional retirement plans, market-based assets are the only investment option.

Self-directed IRAs allow you more investment options so that you can expand your portfolio to different asset groups. A diversified investment approach protects your savings by thereby reducing risk—some assets will probably decline in value at some point, but it’s unlikely that every investment will lose money at the same time. Thus, losses from an inevitable market downturn are less likely to impact your overall savings as much as they would if they were all in one place. For example, investing in precious metals such as gold can be viewed as complementary to stock market assets – since data from the past 10 years shows “little to no” correlation between the two.

“Inflation will wipe out my savings.”

Inflation occurs when the purchasing power of your money decreases – in other words, each dollar become less valuable and can buy less. Historical data demonstrates that some amount of inflation should be expected and factored into your retirement plan. However, it is harder to anticipate, and therefore harder to compensate for, sudden and dramatic spikes in inflation, without anticipating this possibility ahead of time.

Traditional IRA investments like stocks, bonds, and money market accounts typically lose money when inflation is high. On the other hand, physical assets like precious metals and real estate tend keep their value when inflation is high. By diversifying to physical asset investments through a self-directed IRA, you can help protect your savings against inflation.

“I will not have enough income during retirement.”

Protect your savings with a Self-Directed IRA Once you retire, your savings need to generate enough income to meet your needs for the rest of your life. Traditional investments, like bonds and CDs, may have the advantage of carrying low risk, but they produce very little income. Stocks are more volatile, so you could see some windfalls, but you are also subject to a downturn that could wipe out your source of future income.

But there are alternatives under a self-directed IRA. Real estate can be one good option for post-retirement income streams. Investment properties generate steady, reliable rental income that is often higher than what you would earn from “safer” choices like bonds/CDs. Plus, you don’t have to worry about stock market volatility.

Of course, the real estate market is also subject to its own downturns, so remember that creating multiple sources of income is your safest bet. While one income source might run into problems, it’s very unlikely that they would all stop producing revenue at the same time.

“I don’t fully understand my investment plan.”

Plan for retirement with a Self-Directed IRA Stocks and bonds are not the most intuitive topics. It can take years to truly understand how markets work, what you’re actually buying, and what red flags to look out for. Indeed, even among financial experts there’s disagreement on what is good or bad for the market. When it comes to most types of investment, it’s very easy to make costly mistakes, or end up paying hidden, unnecessary fees (and it’s always good to do your research!).

Real estate investments, on the other hand, are much easier to understand. Everyone has dealt with real estate issues – whether renting or buying – at some point in their life. With a self-directed IRA, you can move your money out of complicated financial assets into something that you understand, providing greater confidence in, and more control over, your investments – and your retirement.

Retirement should be something you look forward to, not fear. To learn more about self-directed IRA investment opportunities, click here and here.

How To Invest Your Retirement Plan In Precious Metals

November 16, 2015 by IRA Services

iStock_000019443856_Small The term “gold standard” exists for a reason.

Precious metals investments have seen a comeback over the last decade or so since the financial crisis, when the stock market crashed but gold and silver continued to show strong returns and balance against future market losses. Precious metals have also shown to provide solid protection against inflation, a common concern for many investors.

For those looking to expand their retirement investments to gold, silver and other precious metals, there are several options. But these investments are not as straightforward as other, more traditional, investment assets like stocks and bonds.

Read on for a few important rules to keep in mind when investing your retirement plan in precious metals.

Types of Retirement Plans

Your ability to invest in precious metals depends on the type of retirement plan that you have. Self-directed IRAs work best in this case. These accounts allow for the widest range of investment options, including investments in physical gold, silver, platinum, and other precious metals.

Traditional IRAs, on the other hand, do not allow for precious metal investments. However, you can still try to simulate the security and returns of precious metal investments with a Traditional IRA. Stock in a silver mining company or a gold ETF (a fund that tracks the price of gold) can be good surrogates for precious metal investments.

Work-retirement plans, like 401(k)s, typically offer the fewest ways to invest in precious metals. These type of accounts only allow investments in a list of assets pre-chosen by employers, who rarely include precious metal assets. If your plan does not allow precious metal investments, speak with the benefits department of your office about the possibility of adding these options.

If that doesn’t work, you will have to wait until after you are employed to buy silver and gold assets with your 401(k). Once you leave the company, you can roll over your old work plan into a self-directed IRA, at which point you would be free to invest in physical precious metals.

Permitted Investments

The IRS has certain rules around which type of precious metals are eligible for self-directed IRA investment. For example, the metals must be over a certain level of physical purity, a regulation that is meant to prevent investors from buying collectible items that usually lack long-term investment value. The acceptable level of purity varies depending on the type of precious metal. Gold bars, for instance, must have at least a 99.5% level of purity.

There are also regulations around precious metal coins. Only certain coins are acceptable, such as the American Eagle gold and silver coins, Canadian Gold Maples, and American Buffalo gold coins. Other coins, like the South African Krugerrand, are not allowed.

If you fall afoul of these IRS regulations, the agency could force you to take the ineligible asset out of your account, leading to extra withdrawal costs and taxes.

Managing Your Investments

There are certain procedures to keep in mind when making precious metal investments. First, you must make any purchases for your self-directed IRA through your designated IRA custodian, usually the company managing your account. Futhermore, you are not allowed to add precious metals that you already own into an IRA. Instead, you must use cash in your IRA to buy precious metals through the custodian. This IRS rule is meant to prevent any unfair dealings that take advantage of tax deduction benefits.

In addition, any physical precious metal assets you purchase for your IRA must be stored outside your home, with your IRA custodian. Custodians that sell IRA precious metal investments usually provide storage services for a fee.

Finally, when you sell your precious metals, you will not owe taxes on the proceeds, as long as you keep that money in your IRA. By reinvesting those earnings in other investments, you can delay taxes further.

Alternative investments can offer a valuable balance against more traditional investments in uncertain times. To read more about how to maximize retirement benefits through precious metals and other alternative assets, read our article about opening multiple IRAs.

7 Advantages Of Real Estate Investing For Savvy Entrepreneurs

October 15, 2015 by IRA Services

investing, ira advantages

Real estate investing isn’t for everyone. It takes a lot of self-motivation, a willingness to keep up with local market trends and an appetite for some calculated risk. But for those that have a touch of the entrepreneurial spirit, the right real estate investments can yield big rewards for your portfolio.

Here are seven of the biggest benefits of investing in real estate. Are you taking advantage of these?

1. Immediate positive cash flow

When you start a conventional business, it can take years to turn a profit and start earning positive cash flow. But investment real estate properties can be cash-flow positive almost immediately. In most markets, monthly rents are higher than the payments on a long-term mortgage so, even after expenses, you start earning money once you find a rental tenant. The profit margin can also grow over time as you gradually increase monthly rent, while your mortgage payments stay the same.

2. Tax deductions and lower rates

The federal government has a number of tax benefits that encourage real estate investment and can add up to big deductions on your annual tax bill and enhance your overall earnings. You are allowed to deduct all the expenses you incur for renting the property from your rental income, including a large depreciation deduction for the amount you paid to buy the property. Rental income is also taxed at a lower rate than regular business income because you don’t need to pay self-employment tax. In addition, when you sell an investment real estate property, your gains are taxed at the lower capital gains tax rate, instead of regular income tax rates.

3. Tax savings through an IRA

Investing in real estate as part of your retirement plan can offer even more ways to save on your tax bill. The IRS allows investments in real estate through a self-directed IRA, but be mindful of some caveats and exclusions. One of the main benefits of doing this is that you defer paying taxes on your real estate gains as long as you keep those gains – which includes both rental income and profitable property sales – in your IRA. If you use a Roth self-directed IRA, you also won’t owe any taxes on your investment gains when you make withdrawals during retirement.

4. Long-term appreciation

The hallmark benefit of a real estate investment is the steady, long-term returns it creates. While there are market fluctuations – sometimes severe, as we saw in the 2007 crash –real estate values have still consistently increased faster than inflation over the long run. As the United States population continues to grow, so does the need for housing, pushing up market prices. Over the long term, real estate returns are comparable to the stock market, but that’s before factoring in additional tax savings on real estate.

5. Control over your investment

While stock market and real estate investments may yield similar returns, you have much more control over the latter. When you buy a company’s stock, you have minimal to zero ability to influence company decisions that could affect your investment. But with real estate investments, you have a far greater ability to influence your returns. You can research and choose the most profitable investments, add value to the property through reparis and renovations and set rental rates. While rental properties certainly demand a lot of work, the payoff can be considerably more rewarding than stock market investments.

6. Debt leverage

The ability to leverage debt effectively is a crucial investment growth strategy, because it allows you to earn a profit off someone else’s money. In the case of real estate, that “someone else” is the mortgage lender financing the property. If you rent out the property over the life of the mortgage, you are able to pay off the debt incurred for purchasing the home using rental income. Eventually, the house property will be paid off, but you have only paid for a fraction of the investment out of your own pocket.

7. Positive community impact

Finally, real estate investments have the potential to positively impact your community, by improving properties in your area and providing good homes for local residents. All too often, people end up renting from dishonest owners who don’t take care of their properties. By being a reputable landlord, you can feel good about your contribution to society while earning a solid profit at the same time. There aren’t many other growth strategies out there that offer this same intangible benefit.

When you consider these advantages, it’s clear why real estate is a popular investment. Read more about the advantages of investing in real estate using your self-directed IRA.

How To Directly Invest In Real Estate Using An IRA

September 21, 2015 by IRA Services

Investing in real estate or a retirement account are two common – and smart – money strategies that can become even more advantageous when combined. By using the right type of IRA, you can invest in property as part of your retirement plan, allowing you to combine the investment benefits of real estate with the tax benefits of an IRA.

But there are IRS rules to be aware of when using this strategy and, if you run afoul of these, the penalties can be costly. Here are a few important steps and guidelines to keep in mind if you are investing in real estate using an IRA.

Setting Up a Self-Directed IRA

In order to buy real estate for your IRA, you need to set up a self-directed IRA with an investment company that allows such purchases. Self-directed IRAs are managed by custodians and offer a wider range of investment options compared to large brokerage firms, which typically disallow real estate investment. These large firms limit your investment options in order to keep their own expenses down.

Once you find the right company, setting up a self-directed IRA is a simple process. If you already have your money in a regular IRA, you can rollover those funds to a new self-directed IRA.

Buying the Right Property, From the Right Seller

While there are no rules on the type of real estate you can buy with an IRA, there are some strict rules about who you can buy the properties from. You are not allowed to transfer real estate that you currently own into your IRA. You also are not allowed to buy property from a list of “disqualified persons” determined by the IRS. This list includes family members and anyone else with whom you have an existing, personal relationship.

The IRS created this rule to prevent people from buying real estate at an artificially low price and taking unfair advantage of tax benefits when they later sell the property at market prices. The penalties for violating this rule can be steep – the IRS will force you to withdraw real estate out of your IRA portfolio, which would incur taxes and, possibly, a 10% penalty on the value of that withdrawal.

It’s also important to note that you need to put the property title in the name of your IRA, not your own name. Officially, your IRA owns the property, not you. Consult with your IRA custodian on the title when you make the purchase so that you can avoid problems down the road.

Financing Your Purchase

An all-cash purchase – meaning, in lieu of a mortgage, you pay off the entire property all at once – is probably the best way to buy real estate through your IRA. This approach can help you save on taxes and extra financing costs.

If that is not an option for you, it’s still possible to qualify for financing for an IRA investment purchase. But it is more difficult than securing financing for a regular, non-IRA real estate purchase because the lender can only use the actual piece of investment real estate as collateral. You are not allowed to back up an IRA real estate purchase loan with your personal assets. As a result, you’ll likely need to make a larger down payment and owe a higher interest rate on the loan.

Borrowing money can also lead to extra taxes on any rental income you will accrue through this property. The IRS charges Unrelated Business Income Tax (UBIT) when you borrow money to buy an income-producing property for your IRA. This tax applies to the share of the income equal to the amount you borrowed. For example, if you borrowed 50% of the price of the property, you would owe UBIT on up to 50% of your rental income.

Managing Your Investment

After you have made the purchase, you need to make sure you do not run afoul of IRS regulations when you manage the property. The IRS has very strict rules around IRA investment property management. You must pay for any expense that is related to your investment real estate using IRA funds. This includes any repairs, renovations, utility bills, property taxes, and more, so make sure you keep some extra cash in your IRA account to cover these expenses.

In addition, according to IRS rules, you are not allowed to even make repairs yourself to the property. You must hire someone for all repair and maintenance jobs using IRA funds. If you are caught breaking this rule, the IRS can force you to take a distribution.

You are also barred from living in or using your IRA investment real estate for your own personal use. For example, if you buy a beachfront property, you cannot vacation there. Once again, making this mistake can lead to a forced distribution.

Investing in real estate through your IRA takes some extra work but the tax benefits can also make this effort worthwhile.