Americans Need to Save More. Here is How Self-Directed IRAs can Help.

Millions of Americans need to do more to prepare for a secure retirement. Those are the results of the newly-released 2018 Planning and Progress Study from Northwestern Mutual. Nearly 8 out of 10 Americans are concerned about their own retirement security, and more than two thirds are concerned about outliving their retirement savings.  Self-Directed IRAs may be the key to securing a nice retirement.

Key Findings:

  • One out of five Americans have no retirement savings whatsoever.
  • 33 percent of Baby Boomers – now nearing or entering their retirement age, have $25,000 or less in retirement savings.
  • Three out of four Americans believe it is only “somewhat likely” or “not at all likely” that Social Security will be there for them in retirement.
  • Almost half of all Americans have not taken any steps to help ensure they will outlive their retirement assets.

More Americans expect to be working longer into their traditional retirement years. Nearly 4 in 10 (38 percent) expect to be working at least to age 70 – well past the traditional retirement ages of 60 to 65 years. Only 33 percent expect to be able to retire during that traditional age range.

Additionally, fully 55 percent of respondents – more than half – expect they will need to work past age 65, with nearly three quarters of them reporting insufficient savings as the primary driver of the decision to keep working. Other contributing factors include the expectation that Social Security will not be around for them in its present form, and concerns over increasing health care and long-term care costs.

You can read more about the study and its methodology here.

What To Do About It

The gap between retirement income needs and the capacity of individuals’ assets to generate retirement income is substantial. Experts recommend increasing savings and investment. Here are some of the things you can do to help maximize the chances of having a secure, successful retirement:

1.)  Start saving early. The sooner you begin saving in earnest, the more compounding can work in your favor, and the less investment risk you will need to take to meet your retirement income needs.

2.)  Maximize tax-advantaged saving and investing opportunities. Save as much as you can in Self-Directed IRAs, Self-Directed Solo 401(K)s, Thrift Savings Plans and other tax-favored account types. If you have self-employment income or own a business, start a retirement plan of your own, and contribute as much as you can.

3.)  Start a Self-Directed IRA. These increasingly popular Self-Directed IRAs are designed to enable investors to expose themselves to a wider variety of asset classes not readily available from traditional investment companies, which focus on stocks, bonds, mutual funds and annuities. Self-Directed IRAs enable you to take direct ownership of hand-selected real estate, gold and precious metals, tax liens and certificates, private placements, venture capital and other assets not normally available from retail brokerages and investment companies.

4.)  Own real estate. Real estate offers a powerful combination of current income, increasing income potential, capital appreciation, leverage and downside risk protection. We recommend owning at least some real estate within a Self-Directed Real Estate IRA, which allows for both income and capital appreciation on a tax-deferred basis, or in the case of Self-Directed Roth IRA accounts, tax-free.

5.)  Reduce the fees you pay. The average actively-managed mutual fund can sap your portfolio of 20 percent or more of its value over a lifetime, thanks to high mutual fund expense ratios and other hidden transactions. Consider migrating some of your assets to index funds and pull assets from accounts with expensive “wrap” fees and assets-under-management fees to firms that charge a much more reasonable flat rate for services rendered. For example, if you are a long-term, buy-and-hold investor, it makes little sense to subsidize other investors’ trading by paying a high expense ratio, which can eat away at your retirement nest egg like termites.

This can cost thousands of dollars per year in a good-sized investment portfolio. A flat rate, menu-based fee schedule may cost a small fraction of the fees and expenses you’re currently paying to a traditional broker or investment company.

6.)  Start taking positive steps today. For example, open a Self-Directed IRA or Real Estate IRA with American IRA, LLC. American IRA is one of America’s leading providers of administrative services for Self-Directed IRAs of all stripes. Once your account is open and funded, it is very easy to purchase assets – including entire houses and apartment buildings – for your retirement portfolio.

To get started, call us today at 866-7500-IRA (472) or visit us on the Web at www.AmericanIRA.com.

Self-Directed Solo 401(K)

When saving for retirement, many people use a Self-Directed Solo 401(K) plan. This plan is designed particularly for small businesses which employ only themselves and their spouse.

Since passage of the Economic Growth and Tax Relief Act of 2001 (EGTRRA) Solo 401(K) plans became a much better choice for sole proprietorships. This law allows one to reap all of the benefits of Traditional 401(K) plans with a number of significant advantages.

 

The Self-Directed Solo 401(K) allows you to put aside more money for retirement

Under the 2018 rules, a Traditional IRA only allows someone to contribute a maximum of $5,500 annually until the age of 50 or $6,500 50+. However, a Self-Directed Solo 401(K) is more generous. Under the age of 50, the Self-Directed Solo 401K) plan allows you to contribute a maximum of $18,500 annually, and $24,500 each year after then. Perhaps the most significant advantage to a Solo 401(K) is the permitted profit-sharing contribution. Your business can also make a profit-sharing contribution of 20%, until a combined maximum limit of $55,000 is reached. After the age of 50, a $6,000 “catch-up” contribution can be added which increases the combined maximum amount to $61,000. If your spouse also contributes to the business, you can both contribute funds into your own accounts, which effectively doubles all of these limits.

Another benefit of a Self-Directed Solo 401(K) is a Self-Directed Roth IRA Option, which allows you to make after-tax contributions, unlike the Traditional Self-Directed 401(K) which only permits pre-tax contributions.

 

Eligibility Requirement for a Self-Directed Solo 401(K)

In order to qualify for a Self-Directed Solo 401(K), your business may have no other full-time employees besides you and your spouse. The business also must pay you a salary or wage as an individual.  The deadline for establishing a Solo 401(K) plan is the last day of your business’s tax year (December 31, for a calendar tax year). However, if the business is incorporated, you would probably want to form your Self-Directed Solo 401(K) early in the year because you cannot contribute any income which is not earned that year before the Solo 401(K) was formed.

 

Permitted Investments for a Self-Directed Solo 401(K)

Your Self-Directed Solo 401(K) plan can invest in almost anything. This allows you to both diversify your investments or and maximize returns – whichever is more important to you.

 

Tax Advantages of a Self-Directed Solo 401(K)

If you invest funds from your Self-Directed Solo 401(K) in real estate, there are significant tax advantages. When purchasing real estate, you can use nonrecourse leverage which avoids UDFI rules and is exempt from UBTI taxes. This is a substantial savings, as the UBTI tax is approximately 40% for 2018.

There are also tax deductions which can be claimed when using a Self-Directed Solo 401(K). Because you are paying for the Solo 401(K) with business funds, you could claim the cost of the plan as a tax deduction.

 

You can borrow money from your Self-Directed Solo 401(K)

Unlike many other retirement plans like Self-Directed Traditional IRA plans, which are forbidden from making loans, you can borrow money from your Self-Directed Solo 401(K). This can be up to $50,000 or 50% of your account value. There are no restrictions on the use of these funds. An additional benefit to this type of loan is the interest rate, which is essentially 0%, since you are both the lender and the borrower.

For more information on Self-Directed IRAs or Self-Directed Solo 401(K)s, call us today at 866-7500-IRA (472) or visit us at www.AmericanIRA.com.

Self-Directed IRA Private Lending

What is Self-Directed IRA Private Lending?

One of the many lesser known but lucrative ways to benefit from your Self-Directed IRA is through private lending. Perhaps the best “alternative asset” to is providing others with the capital to make major purchases such as real estate. Instead of a bank collecting the interest, the Self-Directed IRA makes this profit. Many loans made by Self-Directed IRAs are for purchasing real estate. Some people who may be creditworthy but still are unable to secure financing from a bank will look for other sources for loans. They might not really be such bad risks, but since banks have tightened up their guidelines, such individuals will have to find alternative sources for financing. Some examples of these people who may be unable to qualify for traditional loans are the self-employed or those who earn their income from commissions. However, it is vitally important to do your own due diligence into the potential borrower. Once you determine this person is an acceptable risk, you can proceed with the transaction.

The Self-Directed IRA holder can select the borrower, interest rate, security (which may be real estate, businesses or another asset you agree on) as well as all other terms of the loan such as length and frequency of payment. Like all investments, there is a risk to Self-Directed IRA Lending. The borrower may have not been able to arrange for financing due to legitimate reasons such his credit history, and possibly be unable or unwilling to pay. Should the worst happen, and the borrower fail to honor his/her commitment, you will still have the agreed-upon security to fall back on. If you are willing to take a potentially serious chance in exchange for more income, you can provide an unsecured loan. This will usually generate a higher interest rate, but it can also represent a serious risk because it is not backed by any collateral.

Another type of borrower could be more an entity which wants to raise capital while using a promissory note with company stock as the collateral. The risk to you with this type of secured note is that the value of the collateral is directly impacted by the success or the failure of the company that has issued the note

 

Benefits of Self-Directed IRA Private Lending

The benefits of Self-Directed IRA Lending are many and varied. Some of these advantages are another way to diversify your investments and create a pre-established return on your money. The loan’s principal and interest payments provide a steady, secure income stream to your Self-Directed IRA. You are essentially investing in both the borrower and the asset pledged as security, since this is ultimately available in the event of a default on the loan.

Another significant advantage of private lending with a Self-Directed IRA comes at tax time. Profits from this lending still benefit from all of an IRA. All gains from this type of investment are tax-deferred until a distribution is taken from your Self-Directed IRA. An additional advantage of a Self-Directed IRA is the ability to adjust the timing of these distributions if you have more than one retirement account, as long as you remove enough funds in total. The distributions from your retirement accounts are not required until the IRA owner reaches the age of 70 1/2. Even better, if you have a Self-Directed Roth IRA, these profits are tax-free permanently.

 

Regulations of Self-Directed IRA Private Lending

The first essential regulation regarding IRA lending is that it must be a Self-Directed IRA. One of the principal regulations regarding Self-Directed IRA Lending must already be in place. The IRA is a separate legal entity and not your personal finances. All of the necessary paperwork involved with lending money from your Self-Directed IRA will have its own legal name.  It is the IRA itself, and not you, who is making the loan. Therefore, all income produced from this transaction goes directly into the Self-Directed IRA.

Another rule for private lending from your Self-Directed IRA is that the loan must be for a real economic transaction. Additionally, funds from a Self-Directed IRA can only be lent to a “non-disqualified person.”  Certain family members are disqualified people. They include you, your spouse, parents, grandparents, children, etc. However, other relatives such as siblings, cousins, nieces and nephews, as well as aunts and uncles are non-disqualified people.

For more information on Self-Directed IRAs, call us today at 866-7500-IRA (472) or visit us at www.AmericanIRA.com.

The Advantages and Regulations for Self-Directed Gold IRAs

There are many benefits to Self-Directed IRAs, the chief of which is allowing you to invest in many ways. One excellent example of this is the Self-Directed Gold IRA. Although certain other precious metals can be used in this type of Self-Directed IRA, gold is by far the most common.

Perhaps you have heard the old saying “good as gold” when referring to something that is both secure and valuable. When it comes to investing, that old saying can certainly be true. In times of uncertainty, gold has always been the ultimate safe harbor.

Your investment can be held in either gold company stock or exchange traded funds that track a gold index as well as physical gold. Holding the actual metal provides the ultimate amount of control, eliminating any risk of the fund getting into trouble.

 

Advantages of Self-Directed Gold IRAs

There are a number of advantages to using Self-Directed Gold IRAs. The most important is the security that comes with gold, perhaps the planet’s oldest store of value. Like all investments, gold prices will fluctuate, but having a portion of your assets invested in gold is perhaps the safest bet. Gold prices frequently move in the opposite direction of paper assets, meaning if much of your portfolio falls in value, it will provide a cushion against those losses. Since the financial crisis of 2008 and the resulting Great RecessionSelf-Directed Gold IRAs have become much more popular. Self-Directed Gold IRAs also provide an insurance policy against inflation.

 

The Regulations Governing Self-Directed Gold IRAs

Self-Directed Gold IRAs can are subject to the same regulations as other types of Self-Directed IRAs with some additional rules specific to gold or other precious metals. Some of these regulations involve the trustee requirements, types of metal permitted and storage plans.

 

Trustee Requirements for Self-Directed Gold IRAs

Just like all other Self-Directed IRAs, in order to comply with IRS requirements, a Self-Directed Gold IRA must be held by a U.S. trustee. Therefore, legally speaking, precious metals in a Self-Directed IRA are in the custody of the trustee or custodian, not the IRA owner. According to the IRS, “A trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian.”

 

Types of Gold Which Can be Used for Self-Directed Gold IRAs

If you choose to hold gold in physical form, it may be either in bullion or coins, and there are specific requirements for each. These regulations are set by everyone’s favorite organization, the Internal Revenue Service. Gold held as bullion must meet certain requirement standards. It must be a fineness level of .9950% and come from a COMEX or NYMEX approved refiner. Certain types of gold coins are also permissible. Only the certain coins are allowed, which excludes a number of “collectable” coins. The permitted coins include:

 

Types of Storage Plans for Self-Directed Gold IRAs

There are two types of permitted storage plans for gold which is held in the Self-Directed IRA. They are known as either national storage plans or local storage plans.

When using a national storage plan the gold is sent directly to an approved national depository. When using this method, the national facility is responsible for security, but you never see your gold because it is sent directly to the facility and not your trustee.

When using a local storage plan, your gold is sent to the manager of the Self-Directed IRA and you choose where to store it, provided the site meets certain requirements.

 

Costs Involved When Using Self-Directed Gold IRAs

Owning gold in a Self-Directed Gold IRA does come with some special expenses, in addition to those associated with all other types of Self-Directed IRAs. Some of these charges that an investor will have to pay include the seller’s fee, custodian fee and storage fees. The seller’s fee (or markup) can vary depending on what type of gold you purchase, such as bullion or coins. The custodian fees are an annual expense which may be higher for Self-Directed IRAs than other types of accounts. There are also the annual storage fees which are charged by the storage facility where your gold is kept.

 

Required Distributions from Self-Directed Gold IRAs

Just as with Traditional IRAs, an investor must start to take required minimum distributions, or RMDs, once they turn 70½. Account holders are required to remove a portion of assets from their Self-Directed IRAs each year as a distribution, so the government can begin collecting taxes on your savings. If you have multiple Traditional IRAs you can “aggregate” your distributions from different accounts, possibly allowing you to keep more in the Self-Directed Gold IRA provided you remove a sufficient amount in total.

When you begin making distributions from your Self-Directed Gold IRA, you can sell some of the gold and withdraw the money as cash. You can also take a “distribution in-kind” and receive the physical gold itself and be taxed accordingly.

For more information on Self-Directed IRAs or Self-Directed Gold IRAs, call us today at 866-7500-IRA (472) or visit us at www.AmericanIRA.com.

The 5 Best Suburbs in the SouthEast for Self-Directed Real Estate IRA Owners to Retire To

Real Estate IRA investors and property owners looking to relocate after retirement know the south has some of the best towns in the county to live.  Many Self-Directed IRA owners are interested in keeping their investments close to their retirement destination.

Real Estate IRA owners are looking for homes at a reasonable price, relative to rental yields, stable or improving employment prospects, and the ability to get into a new property without having to commit $1 million or more into an overheated housing market.

Additionally, it is nice to have favorable landlord-tenant laws and a decent state tax environment. State and local income and property taxes can really eat into Real Estate IRA profits if you are not careful.

And lastly, since many of our clients are here in the southeastern United States, we’re also always looking for great spots that are close to family – especially grandchildren.

The editors of USA Today recently published a useful guide to the top ten suburbs for retirees, primarily using the following criteria:

  • Modest cost of living
  • Median home prices
  • Property tax rates

A number of towns here in the Southeast made the cut:

  • Bermuda Run, North Carolina

This charming town in Davie County is one of the most promising suburbs of Winston-Salem. The town was incorporated in 1999 as one of only three gated communities in the state to be designated an official municipality. It recently annexed the nearby Kinderton Village community.

Property taxes are very low at $1,666 per year, on average, based on a median home price of $167,450. Meanwhile, the population is quite affluent, with a mean household income of $108,558. So, there is lots of room for house prices to grow.

  • Plantation, Florida

This bustling Broward County suburb just west of Fort Lauderdale is an easy commute from downtown – just down Broward Boulevard. It is home to a lot of city employees and has homes available at a variety of price points.

Homes in this area are on the pricy side: The median home last year listed for $329,250, with property taxes adding an average of $4,122 to the annual cost of ownership. Incomes are relatively low, here, too, relative to house prices, with a mean household income of $79,797.

Florida has some benefits that could reflect well with investors.  The lack of a state income tax means you can enjoy more of the rental income your properties produce.  Florida is also very friendly to investors, from a bankruptcy protection perspective. This is important for Self-Directed IRA investors, as real estate can generate liability if you are not careful – though assets within Real Estate IRAs are not generally considered personal assets at risk in the event of bankruptcy.

  • Fairfield Harbour, North Carolina

Fairfield Harbour, in Craven County, is a resort community near New Bern in beautiful coastal North Carolina. Among the chief attractions: The beautiful Fairfield Park golf course. Like Bermuda Run, it is a gated community. The median list price for Fairfield Harbour is $189,900 – well within the reach of the area’s mean household income of $65,903. Property tax is quite low at $1,343.

Fairfield Harbour and the nearby town of New Bern are two of the best kept secrets in America when it comes to affordable coastal living.

  • Sunset Beach, North Carolina

This upscale Brunswick County community sports median home listing prices of $324,900, making it one of the pricier areas in North Carolina. The town consists of two mainland neighborhoods and a barrier island, which has about 1,200 homes. The area is home to three golf courses – Oyster Bay, Sandpiper Bay and Sea Trail resort – and the developments around these courses represent the bulk of the residential real estate.

The mean household income in Sunset Beach is $70,992, which means many families are stretching to afford the homes they have now – especially more recent buyers.

Annual taxes of $1,348 make it among the lowest-tax communities on the list.  This is a plus for Real Estate IRA investors looking to relocate.

  • Timber Pines, Florida

This small community in Hernando County, Florida offers some of the best freshwater fishing in the country. The closest major cities are Tampa to the south, and Ocala, to the northeast. It is a popular destination for retirees, including many Real Estate IRA investors attracted by the year-round mild climate and the lack of state income taxes on rental income.

The median house price is quite modest for Florida, at $159,900, within easy reach for the average household in the area, which logs an income of $56,974 per year.

For more information on Self-Directed Real Estate IRAs, or to schedule a no-obligation consultation, visit our website at www.AmericanIRA.com. Or call us today at 866-7500-IRA (472).

We look forward to serving you.

Self-Directed IRA Investors – Get A Proof of Funds Letter

In today’s smoking hot real estate market, buyers need to move fast. To have the best chance of securing the winning bid and successfully acquiring the asset, Self-Directed IRA investors, like everyone else, need to be fully prepared going into a transaction.  This is particularly important in the hotter, more competitive markets, where sellers are entertaining multiple bids from competing buyers.

Sellers do not want to waste time working with unqualified buyers with barriers to close.  They will quickly weed out weak buyers who cannot even come up with down payment funds.

One thing buyers love to see is a proof-of-funds letter. For most people, this is simply a verification letter from their bank they have enough cash on hand – or access to a ready line of credit – to make the necessary down payment on the property. This is especially valuable if you have not been pre-approved for a mortgage.  It is not uncommon for sellers to request the letter as part of the offer to purchase.  As such, you may need to secure a proof of funds letter from American IRA early in the process.  Ideally, having one on hand even when previewing properties is a good faith component for sellers.  If you have a pre-approval letter from the lender, if any, it is nice to be able to provide that as well.  If you are doing an all cash purchase, in or out of a Real Estate IRA, have a proof-of-funds letter is even more important!

The proof of funds letter should contain your name (or if you are using an Self-Directed IRA, the name of your IRA account), the financial institution’s name and contact information, and language similar to this:

We confirm that John Doe, owner of the John Doe Self-Directed IRA, has available funds in the sum of $_______ as of [date]. If you desire further verification of those funds, please feel free to contact us at [phone number].

Sincerely,

[Authorized financial institution representative]

In the private end buyer market, conventional mortgages could require 10-20 percent down.  They can be as low as 3.5 percent for FHA and zero down for VA loans.  In the Real Estate IRA world, down payments of 35 to 50 percent of the price of the asset are not uncommon. Add in 3-5 percent for miscellaneous closing costs and fees.

To lock the home down in a purchase contract, you may need to secure a proof of funds letter from American IRA, LLC early in the process.

Tips: Consolidate assets within your Real Estate IRA into a single cash or money market account before you go home shopping. Money in stocks or mutual funds usually will not count as funds on hand, because the assets are so volatile, and you cannot write a check on these assets. We can liquidate them for you and move them into a cash account, of course, and then send you a check, but it adds another day or two to the process, and as mentioned earlier in the article, timing is key.

Remember, if you are buying a property for your Real Estate IRA, every dime must come from within that Self-Directed IRA account. You cannot contribute any of your own personal money from outside of your Self-Directed IRA to acquire IRA assets.

For more information about Real Estate IRAs, or to arrange a no-obligation consultation, or if you are a client and need a proof-of-funds letter for a pending real estate transaction, call American IRA today at 866-7500-IRA (472), or visit us online at www.AmericanIRA.com.

We look forward to serving you.

Summer is Hot for Self-Directed Real Estate IRA Investors

Real estate is hot, and Zillow Research is projecting that it is going to get even hotter. That is terrific news for Real Estate IRA enthusiasts, who stand to benefit from several favorable trends as we roll into the peak home buying season of 2018.

First, homes are selling like hotcakes nationwide. 2017 saw the shortest time-on-market for the typical U.S. home on record. The average home sold in just 81 days last year – faster than even the crazy days of 2006-2007, just before the mortgage bubble collapse.

The high demand was not just for homes in San Francisco, Seattle and Miami. Homes sold faster in 2017 than in 2016 in nearly all the country’s 35 biggest metro markets.

July was last year’s hottest home sales month, when the average home closed just 71 days after its listing. But even that is misleading: The closing process is routinely 4 to 6 weeks long, especially for deals involving mortgages. So homes are actually coming off the market and under contract pending financing much faster than that – frequently in 30 days or even less.

On top of the lighting fast sales, the tight supply relative to demand is forcing buyers to bid against each other just to get in a home. One out of four homes sold in 2017 actually sold above their list prices.

The fastest-selling market in the U.S. was San Jose, home of the famed Silicon Valley, where buyers snapped up homes in an average of just 41 days. New York was the slowest market, with sales closing an average of 134 days after listing.

Here in the Southeast, Self-Directed IRA investments in real estate have been hopping.  Many of our clients have had great success with their accounts, the Atlanta metro market averaged 71 days. June was Atlanta’s fastest selling month when the average home closed in 63 days. Charlotte averaged 67 days, Tampa averaged 81 days, Austin averaged 61 days, Orlando averaged 86 and Baltimore averaged 94.

What lessons can we glean for Self-Directed IRAs with real estate investors?

According to Zillow’s market research, summer is the time to list homes for sale. People want to move when children are out of school, and summer is the traditional time for businesses to transfer employees for that reason.  You want to have the sale wrapped up by the time the kids go back to school in September.

The higher the demand, the more bids you can consider in a short amount of time. To maximize Real Estate IRA profits, bunch your bids to drive buyer competition. The time to do that is when the market (and the weather is hottest.)

Conversely, the time for your Self-Directed IRA to buy real estate is in the fall or winter.  Buyers are less competitive, and you may be able to snag a bargain for your Self-Directed Real Estate IRA investment portfolio.

You can get concessions in many markets. Another Zillow report found 76 percent of sellers had to give something up in the negotiation process.  Price, of course, was the most common.

For more information about Real Estate IRAs, or to schedule a no-obligation consultation on how you can take more direct control of your retirement finances and benefit from direct real estate ownership within an Self-Directed IRA or other retirement account, contact us today at 866-7500-IRA (472).  Or visit our extensive library of articles and blog posts and other educational materials at www.AmericanIRA.com.

We look forward to working with you.

Be a Better Self-Directed IRA Investor: Be Aware of Cognitive Biases and Emotional Traps

Are you as ‘squared away’ for retirement as you hope you are? Maybe not.  The Center for Retirement Security at Boston College has launched a new tool to help taxpayers determine whether they are on track for retirement – and to help Americans identify and address common psychological and behavioral traps that can short-circuit your retirement decision-making.  We recommend it for all Self-Directed IRA investors and conventional investors alike.

Curious Behaviors That Can Ruin Your Retirement is an interactive program on behavioral impediments to retirement planning. A host leads users through a series of exercises designed to create an “Aha!” moment as they relate to the behaviors. The host then explains how the behavior can hinder retirement planning and, coaches users through strategies that can help minimize the effects of these subconscious biases and help them develop a more rational decision-making process.

Users can then go to a “Learn More” page, which presents more information in multiple media formats. It is a terrific tool for all ages.

The tool is a fun and lighthearted look at a serious issue: Millions of Americans fall victim to irrational thought processes, emotionalism, wishful thinking, denial and a series of other misconceptions and cognitive weaknesses that cost real money.

A recent research report from Deloitte lists the following behavioral biases that can impact your ability to manage your Self-Directed IRAs:

  • Inertia: When you are used to doing things a certain way, the tendency is to take no action.
  • Present bias: The tendency to prioritize current wants over long-term needs
  • Passive decision making: The tendency to follow the path of least resistance, or to choose from the most obvious, readily-apparent options rather than investigate possible options more deeply.
  • Anchoring: The tendency to base decisions on a set value that may be irrelevant.
  • Partitioning: A tendency to make commitments piecemeal when you would be better served by bolder action. For example, the tendency to “dollar cost average” into a rising market when you may be better off investing a larger lump sum.
  • Peer pressure: Irrationally allowing other equally irrational actors to influence your decision-making.
  • Overconfidence: Excessive belief in your own abilities.
  • Effort aversion: The tendency to embrace the easy wrong option over the difficult right one.
  • Loss aversion: Allowing the fear of possible loss to prevent you from taking reasonable risks in the prospect of greater gains.
  • Endowment effect: The tendency to avoid giving up what one already has, even when a clearly better option is available.

As a group, Self-Directed IRA investors tend to be a rational bunch. Many of our clients are veteran investors and business people who have achieved significant success over the years. But all of us are human, and none of us are immune to any of these cognitive biases.

But forewarned is forearmed: Being aware of these biases and emotional traps can help you prevent falling victim to them. And that is going to make you a better Self-Directed IRA investor.

For more information about Self-Directed IRA investing, or to get started on your Self-Directed IRA investing journey, call us today at 866-7500-IRA (472). Or visit us at www.AmericanIRA.com.

We look forward to serving you.

Real Estate IRAs: Because You May Live Longer Than You Think!

The good news is longevity is way up! The bad news is longevity is way up!  Due to the increase in longevity, Real Estate IRAs are the way to go!

Well, as bad news goes, we have heard worse. It is great that people are living longer. However, longer lifespans present a problem when it comes to retirement planning: Any given nest egg must last a lot longer than it used to.  It must also generate a reliable stream of income the whole time, without fail.

People are underestimating the problem: A recent study of British senior citizens found that people in their 50s and 60s are grossly underestimating the likelihood that they will live to age 75, 85 and beyond.

The report, from the Institute for Fiscal Studies, found that people in their 50s and 60s tend to underestimate their chances of survival to age 75 by around 20 percentage points and to 85 by around five to 10 percentage points. Meanwhile, those who have reached their 80s become overly optimistic about the chances that they will see 95.

The result is a significant gap between the assets required to generate a retirement income for that long and the probable need itself.

“As individuals are given more responsibility for saving for their retirement, and more freedom over how they use those savings in their later years, it is a concern that many are systematically misjudging their longevity,” said IFS research economist David Sturrock. “When people underestimate their chances of surviving through their 50s, 60s and 70s, they may save less during working life, and spend more in the earlier years of retirement than is appropriate, given their actual survival chances.

The Value of Real Estate IRAs

At American IRA, we believe Real Estate IRAs should be part of any significant retirement portfolio: real estate is a proven long-term income generator, which also provides the potential for capital gains, and the prospect of increasing rental income as a hedge against inflation.

Leverage and Real Estate IRAs

Real Estate IRAs also have the advantage of ready access to leverage.  This greatly increases the cash-on-cash return for Real Estate IRA investors as compared to more Traditional IRA asset classes, which are typically unleveraged.

Lenders know that real estate is a relatively stable source of wealth and makes excellent collateral for loans. It is therefore much easier to get financing for real estate than for other forms of investment. While you cannot sign a personal guarantee or pledge non-real estate assets as collateral for a loan to buy property within your Real Estate IRA, there are several lenders eager to help you finance Real Estate IRA properties. You just have to do your borrowing on a non-recourse basis.

This means the loan must be secured entirely by the property in your Real Estate IRA. The lender can have no claim or recourse against you, personally, nor any assets held both inside and outside the Self-Directed IRA.

We often see lenders willing to finance about 65 percent of the purchase price of the real estate investment, though they frequently have tighter requirements for condominiums or properties in historically volatile real estate markets, such as Florida.

You should be aware of the impact of unrelated debt-financed income tax, however, which may result in a current tax liability for gains attributable to borrowed money, rather than your own contributions to your retirement fund.

Real estate is also frequently a much better asset to pass on to heirs than a closely-held small business or other more esoteric investment; as homes are usually easier to sell than businesses.  Real estate investments could also be managed easier than a small business held within a Real Estate IRA, for example.

Real Estate IRAs and Diversification

Real Estate IRAs can also help protect owners against stock market risk: The more different asset classes you have making up your retirement portfolio, the less affected you could be by unexpected declines in any one asset class. We believe Self-Directed IRAs, including Real Estate IRAs, can help investors achieve meaningful diversification across a variety of asset classes that are difficult to access using conventional off-the-shelf retirement products available from Wall Street investment firms.

The combination of steady rental income streams, access to financing and leverage, potential capital gains and the possibility of keeping up with inflation make Real Estate IRAs an excellent addition to many of our clients’ retirement portfolios.

To learn more about Self-Directed IRAs and Real Estate IRAs, call American IRA at 866-7500-IRA (472), or visit www.AmericanIRA.com.