Self Directed IRA -Four Easy Ways to Fund One

“Self-directed” is a phrase that intimidates a lot of people. If you’ve never really been too forward-thinking or controlling when it comes to your personal finances, then it’s difficult to imagine a scenario in which you might be in charge of your own retirement account. But the truth is, you’re always in charge of your retirement account: you say where the money goes and when, because it’s your money. You’ll be delighted to learn, then, that a Self Directed IRA is easy to get started once you know how to fund one.

Starting a new Self Directed IRA—even if you’re working off of a previous IRA that you want to rollover—doesn’t have to be an intimidating process. Here are four ways of kicking off a new IRA in which you’re in charge:

  1. Contributions to a Self Directed IRA

The simplest form of investing in a Self Directed IRA is to insert money into it directly. You can open a new account and fund it with your personal money—it’s that simple. “Contributions” is also a term for the enduring additions you make to your IRA over time. Whether you invest in gold, real estate, stocks, and more, these “contributions” will still be called the same thing because they essentially start with you writing a check.

  1. Conversion

If you want, you can withdraw a portion or even the entirety of a traditional IRA and put the money into a Roth IRA, thus “converting” the money into the new retirement account. However, there are some rules in play here: most specifically, you’ll be expected to move the funds within 60 days, otherwise it’s not really a “conversion.” There are also tax consequences in a conversion, which means you’ll want to keep track of everything that goes on in order to ensure that all of your taxes are in line and appropriate considering the actions you’ve taken.

  1. Rollover

You’ve likely heard this phrase “rollover” on television—there’s no end to the commercials telling you about IRA rollovers and what they can do for you. But they don’t really get into specifics, do they?

A rollover happens when cash and/or assets from a retirement account are given to you directly for the purpose of reinvesting in another retirement account. You get one “rollover” per year, which means you can’t constantly shift money between retirement accounts. As is the case in the conversion, you need to make the switch within 60 days or else it won’t be considered a “rollover.”

  1. Transfer

Directly transferring cash and/or assets between one retirement account and another. Directly transferring these investments has a number of advantages; true, you don’t see the money yourself in your personal account, but so long as that’s not your purpose, you should be fine with that. Because these transfers are seen as trustee-to-trustee transfers and you aren’t taking direct possession of the money and/or assets involved, there’s no limit to how many of these you can execute per year. Unlike a rollover and a conversion, wherein you receive the money, you never “receive” the money from your accounts in this case, removing many of the tax consequences of rollovers and conversions.

If you’re interested in taking control of your financial destiny, you’ll want to be aware of everything that goes into using a Self Directed IRA. And that includes funding options. You’ve read the four funding options supplied here, but if you want to learn more about these IRAs and how to get started with them, you can call us at 828-257-4949 or simply keep browsing AmericanIRA.com.

Self Directed IRA -7 Income-Generating Investments For Yours

One of the many advantages of adopting a Self Directed IRA investing strategy is that you can take a ‘go anywhere, do anything’ approach to investing. You aren’t limited to the asset classes that traditional investment advisors sell or even know about. This lets you add additional diversification to your portfolio while still giving you the flexibility to discover additional yield over and above what you can get from the run-of-the-mill investments your old boss would approve in a boring 401(k). But you can still go back to the old standbys when market conditions warrant it!

Here are some examples of solid-yielding investments or savings vehicles, – all of which are doable in a Self Directed IRA, and all of which may be appropriate for the income-focused investor.

  • Rental real estate. Real estate has its ups and downs, like any asset class (ask anyone big into real estate between 2008 and 2010!). But over the long haul, rental real estate has been a proven wealth creator and income generator for centuries. Many of the worlds’ great fortunes have been built on land and rents. Real estate provides a unique combination of simplicity (anybody can understand it!), income and potential for capital gains – magnified by the ready availability of leverage for real estate investments.
  • These are financial assets, but they are specifically designed to produce income – either now or at some point in the future. Assets in an annuity grow tax-deferred, similar to a traditional IRA, and are normally taxable when you take the money out. You can hold them in a Self Directed IRA or 401(k). While some advisors don’t like to double up the tax deferral benefit, some investors like the many guarantees that you can get with an annuity contract, such as an attractive guaranteed minimum income benefit. You can’t get those with mutual funds or stocks. For example, when you own a lifetime income annuity, you own a contractual guarantee that you will not run out of the promised income for as long as you live – subject, of course, to the continuing solvency of the insurance company.
  • Closed-End Funds. These are mutual funds whose shares are bought and sold over the stock exchange, rather than issued directly to and from the fund company. As a result, the price of a closed end fund can and often does differ markedly from the net asset value of all the securities in the fund’s portfolio. As a result, you can often buy income-generating closed end funds at a discount. But you still get the entire dividend. The net effect: A nice boost to your yield.
  • These are essentially stocks in real estate holding companies. But unlike C corporations, which pay taxes before they issue dividends (thereby reducing income to their shareholders, who have to pay income tax on those dividends), REITs are ‘pass through’ entities. As long as the REIT gets 75 percent of its income from its real estate operations and distributes at least 90 percent of its income to shareholders, the IRS gives REITs favorable tax treatment.
  • Business Development Corporations. These are designed as pass-through income entities similar to REITs, but they invest in early stage companies rather than in real estate. They can pack a substantial income wallop, but they are, of course, subject to the same risks as any other fund devoted to small cap equity investment or lending. They invest in a similar space as a venture capital or private equity fund, though you don’t have to be an accredited investor.
  • Tax Liens and Certificates. These can generate substantial current income, though it is pretty lumpy. Here’s how it works: When a homeowner doesn’t pay property taxes, the county may foreclose on the property to collect. However, the county doesn’t want to foreclose. They just want the tax money. So they allow investors to pay off the tax owed, in exchange for a lien on the home. Essentially, you are lending money to the homeowner, with the loan secured by the home. Interest rates on these loans can be quite high, which allows for the possibility of a substantial return on investment. If enough time goes by and the homeowner still hasn’t paid the tax, you can potentially foreclose on the property yourself. The downside is that you don’t know for sure when the homeowner will pay off the lien and you can recover your investment with interest.
  • Muni Bonds. These oldies but goodies are popular among investors in high tax brackets – especially in states with income taxes. Municipal bond income is generally exempt from federal taxes, and from state income taxes, too, if the owner is a resident of the state in which the municipal bond was issued. Munis typically have a low nominal interest rate – but higher interest rates on an after-tax basis than other income investment alternatives.

Need help getting started or navigating the world of income investments? We’re here to help! American IRA, LLC is one of the leading Self Directed IRA administrators in the country. We have successful clients involved in all these types of investments. Give us a call today at 828-257-4949. Or visit us online and take advantage of our extensive library of educational information, booklets, pamphlets and seminars. We look forward to working with you.

Self Directed IRA Investing – Beware of the Liquidity Premium

Everybody needs some liquidity in their portfolio. After all, all of us are going to have to go to the grocery store at some point before the end of the month, and we’ll have to pay cash. Cash flow is a very good thing. But Self Directed IRA owners should know that IRA money is long-term money.

This isn’t money for your next grocery store trip, or next month’s mortgage payment, or ‘walking around’ money. For the vast majority of Self Directed IRA owners, their retirement money is money they intend to invest over time, and to let it compound over time, to gain the maximum benefit of the tax advantages of IRA/401(k) investing.

Self Directed IRAs and Alternative Asset Classes

And that’s precisely why more investors should consider using more alternative asset classes within their retirement accounts: Assets like direct ownership of real estate, non-traded REITs, private equity and venture capital, and on the debt side, private lending and tax liens and tax certificate investing each have risks, of course (depending on the collateral you lend on!), but in general, the expected long-term returns of each class are usually going to beat the long-term returns on publicly traded, popular securities that are easy to buy and sell at the drop of a hat.

Liquidy is a fine thing, and a necessary thing when it comes to income that you need to live on. When you’re deep-sea diving, you cannot live for long on oxygen stored in tanks on the boat!

But there’s a price to be paid for liquidity. Indeed, liquidity can be very expensive indeed.

Why should this be so? Well, simply because the people looking to attract your Self Directed IRA capital to fund very liquid projects can get away with it. The people who want to tie up your capital for months or years at a time know they have to offer investors a sweeter deal, to compensate for the lack of liquidity.

Think of it: Imagine two classes of shares in the same real estate development project. Both are expected to have a value of $100 per share in three years, at which time the company expects to liquidate. The Class A share comes with a guarantee that the investment company will return your money to you within 24 hours, upon request. Class B share, on the other hand, comes with no such guarantee. They only want B-share investors who are willing to commit to leaving their money in place for the entire three year period.

Everything about each share class is the same, and the amount each share generates at the end of the three year lock-in period are identical. But the A shares come with liquidity and the B shares have no built-in liquidity feature. Do you think these two shares are going to sell at the same price? No. The B-shares will sell for a much lower price!

The difference between the two share prices is called the liquidity premium, and simply shows how expensive liquidity is.

Another way to look at it is to compare the annualized interest rates on a money market – convertible to cash at the end of the day no matter what (almost, anyway!), and a 1-year certificate of deposit. Going to Bankrate.com today, the average interest rate on a 1 year CD is 1.11 percent. The average rate on a $10,000 money market account is 0.56 percent.

For risk-free money, the liquidity premium costs a Self Directed IRA investor half his or her returns in a single year.

For assets you don’t need to liquidate for a number of years, you will get a much better rate of return on your investment if you buy them at a much better price.

The Self Directed IRA Advantage

That’s where Self Directed IRA strategies have an advantage over conventional IRAs. By expanding their options beyond the off-the-shelf funds, bonds and annuities offered by most investment companies, they have the opportunity to buy assets at much better discounts to future NAVs, and sidestep the substantial cost of liquidity.

With offices in Asheville and Charlotte, North Carolina, American IRA specializes in working with investors who reduce hidden expenses, improve expected returns increase diversification by including alternative asset classes in their retirement strategies.

For more information or a no-obligation consultation, contact us at 828-257-4949, or visit our website at www.americanira.com.

 

Self Directed IRA Owners – Don’t Make These IRA Mistakes

Every so often, it’s worthwhile to go over the most common mistakes Self Directed IRA owners make.

Surprisingly, even though the vast majority of our own Self Directed IRA clients are successful and experienced investors, we find that even these folks are prone to making some of these mistakes, though occasionally we can alert them before they commit, or their financial or tax advisors can show them how to avoid making them.

  1. Don’t get too religious about the Roth IRA. Yes, it has some great benefits for a lot of people. But it is not always the most tax efficient vehicle in the long run – especially when you can contribute tax deductible dollars, or when you’re going to retire in a very high tax bracket.
  1. Don’t wait until the last minute to contribute. If you think your investments are going to go up over time (that’s why you’re making them, right!), don’t wait until April to make your contributions for the previous year. The sooner you contribute your earnings or money from taxable accounts, the more interest and growth will be sheltered from taxes, and the more it’s likely to compound for you.
  1. Selling Assets Prematurely to Contribute to a Self Directed IRA. While we think you should contribute to your IRAs and other self-directed retirement accounts as early in the year as you can, there are times you should be a little patient. For example, if you need to sell appreciated assets in a taxable account to raise money to contribute, and you bought the assets 11 months ago, then it’s probably wise to wait another month before selling. That way, you qualify for long-term capital gains treatment rather than short-term capital gains.

Conversely, if you have assets that have fallen in value and you’ve held them less than a year, then it may be wise to sell and lock in some short-term capital losses.

4.) Converting to a Roth and paying taxes from within the account. Always use money from outside the account to pay income taxes on IRA conversions, if possible. This maximizes the amount of capital that is free to compound tax-free. If you take money out of the IRA and hand it over to the IRS, you’re paying a substantial price in what economists call “opportunity costs.”

5.) Not remaining liquid enough in Self Directed IRAs. Remember: Unless you’re in a Roth, you’re going to have to begin making required minimum distributions by April 1st of the year after the year in which you turn age 70½. That means you’re going to have to have some cash or other easily-liquidated assets in the IRA. Indeed, you may simply need the cash flow before you make it to that age. Other scenarios where we’ve seen Self Directed IRA owners run into a cash crunch include suddenly needing a new roof for a house in their real estate IRA – but finding that they are fully invested in real estate. That means they’d have to sell another property within the IRA before they can raise the cash to put a new roof on. Always maintain enough liquidity to take on needed repairs, maintenance, property management bills and other expenses from within the IRA. Don’t paint yourself into a liquidity corner.

American IRA, LLC works with thousands of successful investors pursuing all different kinds of Self Directed IRA strategies from coast to coast. Whether your interest is in alternative asset classes, real estate, land banking, private lending, owning partnerships, LLCs, MLPs, or any one of scores of other strategies, we’d like to put our unique expertise and experience in handling Self Directed IRA transactions and administration to work for you. Call us today at 828-257-4949, or visit our online library and event calendar at www.americanira.com.

We look forward to working with you.

Self Directed IRA Investors – “Less Than Zero.” What Should They Make of Negative Interest Rates?

Here in the United States, Self Directed IRA investors have generally taken it for granted that the interest rates commonly available on ‘safe money’ – what investment theorists refer to as the “risk-free rate of return’ will be positive.

Sure, we understand that inflation could outpace the rate of return on money markets. But at least we have the consolation that the nominal rate of return on safe money will have some sort of positive value.

But as millions of people in Europe and Japan are now discovering, that’s not entirely the case. Central banking authorities in a number of major economies have now set their key rates lower than zero. That’s right – these central banks have set the time value of money at a negative number.

That’s a direct attack on the world’s savers and lenders. And the rot is spreading through the world’s bond markets: According to Bloomberg, some 25 percent of all the global outstanding bond debt in the world has a negative interest rate. That amounts to more than $7 trillion of issued debt.

Yes, in America we’ve had moments in which a ‘flight to safety’ resulted in a temporary glut of savings moving to Treasuries, forcing yields slightly below zero for a brief period of time. That’s just investors paying a premium for bonds. But what’s happening in Europe now, and what’s happening in Japan, is different. These negative yields are a direct and intended result of national monetary policy. Their governments and central bank authorities (to the degree they have independence) are desperate to stimulate consumption that they will rob investors to provide them with an incentive to spend now, rather than provide the capital their economies will need to create productive assets in the future.

They can get away with this for a while if they anticipate a deflationary cycle. After all, if deflation is faster than the negative interest rate, these deposits still earn a net positive rate of return compared to domestic alternatives. But money doesn’t necessarily have to stay local.

What should Self Directed IRA investors do?

Self Directed IRA enthusiasts have some key advantages compared to conventional IRA investors: You can retain the tax advantages of an IRA or other retirement account while still retaining the ability to invest nearly anywhere. While the folks who have all their money in an account with a major investment house are getting advised to just sit there and take it, you have the ability to seek greener pastures elsewhere – particularly if you are willing to take on a bit of risk in the process.

Here are some examples:

Borrowing is cheap. If returns on bond investments are low, that means money is available cheap. If you want to leverage up and buy some assets – in whatever class – now’s the opportunity to do so. When the time value of money is negative, then it makes sense to borrow and invest as much as you can.

Time to buy gold. As returns fall, so does investor interest, and so does the local currency, most of the time. Gold – and by extension, silver – is a proven hedge against declining currency values. If central banks are not defending their currencies, than it’s up to you to defend yourself.

Real Estate may be attractive. Obviously, local factors will dominate global ones. But where the currency is not defended, real estate, like gold, becomes more attractive. Even though the real estate market has appreciated substantially (the easy money has probably been made), rents continue to climb on strong rental demand in many markets. While very expensive markets like San Francisco are risky, there are lots of opportunities in smaller inland cities that are experiencing strong economic growth, where populations are increasing steadily and which continue to attract business and investment.

Think Outside the Box. Safety is getting more expensive in traditional asset classes. But leveraging is still relatively cheap and where interest rates go negative they actually pay you to do it! There are still opportunities in tax liens and tax certificates, for example, and hard-money lending to borrowers who traditional lenders are not serving well. This leads to some compelling spread opportunities for adventurous Self Directed IRA investors.

If you don’t want to be stuck in the same 60/40 stock-bond asset allocation or whatever some broker is suggesting for you even as central banks crush your expected returns by driving interest rates down to less than nothing – if you want to create an escape hatch from pathetic returns, we want to work with you.

American IRA, LLC, works with investors all over the country who want to take an off-ramp from conventional investing, Wall Street companies and their long history of high expenses and low returns. Our clients all take personal control of the assets in their IRAs and declare independence from the big investment firms through Self Directed IRA investing.

They benefit from the vastly greater freedom of movement, diversity in asset classes available to them, and more access to leveraging strategies, and greater personal control of their investments. In many cases, our Self Directed IRA investors have a controlling interest in the assets in these accounts. That’s a very different scenario than owning a few shares of a big mutual fund whose manager will never take your call!

To learn more about self-directed investing, visit us on the Web at www.americanira.com, or call us today at 828-257-4949.

We look forward to hearing from you.

 

 

Self Directed IRA Success: Habits of Successful Investors

What do the most successful Self Directed IRA investors have in common?

Well, besides having chosen a generally profitable portfolio of investments within their Self Directed IRA, that is. Self Directed IRA investors are a fairly diverse lot. And successful investors as a whole are even more diverse. But having worked with literally thousands of people over the years, we can drill down to some of the core attributes and habits our more successful clients generally have in common.

  • An amazing work ethic. By and large, the wealthy in this country did not inherit it. Instead, they worked very hard and had the foresight to create successful businesses. In other cases, they delayed consumption early in life and built a habit of investing early – usually in their 20s or 30s. None of the ones we know who have achieved true financial security have done so by being lazy.
  • A healthy respect for risk. Getting wealthy is one thing. Staying wealthy through several economic cycles is quite another. Anyone can get lucky by rolling the dice on a single penny stock, for example. But the people who relied on being lucky to become wealthy in the first place tended not to stay lucky 10 or 15 years later. Those with early success in narrow asset classes who have stayed wealthy and continued to add to their wealth through one or more recessions or market crashes nearly always took steps to diversify their wealth or to protect it from wild market moves as they got older.
  • They take care of themselves. The wealthier-than-average are also healthier-than-average. They tend to eat right, and work out regularly, either by going to a gym or by participating in outdoor activities – anything from yoga, biking, golf, tennis, swimming, hiking, kayaking, walking, jogging, fishing, surfing, sailing – you name it. Most of them get off the couch one way or the other. The wealthy take some time off work to take care of themselves.
  • They Keep a To-Do List. Tom Corley, author of Rich Habits, has found that nearly everyone he interviewed with liquid, investable assets of $3.2 million or more kept a to-do list or task log of some sort, whether digital or on paper. The format doesn’t matter much. What matters is that you use it!
  • They have a high savings rate. Yes, this is to be expected. But how high is high? Among those who have amassed more than $1 million in their 401(k)s, self-directed or otherwise, the average payroll contribution rate as 19 percent. That is, successful 401(k) owners diverted at least 20 percent of their salaries to long-term savings, according to data from mutual fund giant Fidelity Investments.
  • They Return Calls. 86 percent of individuals with $3 million of investable assets return phone calls right away – no matter who called.
  • They Get Help With Finances. Few of the wealthy are fully do-it-yourself investors. They overwhelmingly seek the services of experts when it comes to their finances. Nearly 8 in 10 people with net worth of $1 million or more retain one or more financial professionals to manage their wealth in some capacity, according to the PNC Wealth and Value Survey.

We’re very proud of our client list, and nearly all of them have built their finances upon a firm foundation of effort, discipline and good sense – or are well on their way. Although our offices are in Asheville and Charlotte, North Carolina, we work with successful and soon-to-be successful investors from coast to coast who want to take personal control of the assets in their IRAs, 401(k)s, SIMPLEs, SEPs and other tax-advantaged accounts, using alternative asset classes and strategies and Self Directed IRAs.

Call us today at 828-257-4949 or visit us online at www.americanira.com and download or exclusive guides and e-book.

We look forward to working with you.

Self Directed IRA and Direct Participation Programs

Self Directed IRA fans have long been aware of a number of popular alternative asset classes for Self Directed IRA investing, including real estate, precious metals, tax liens.

Recently, however, more and more investors are becoming aware of direct participation programs (DPP) as an income-oriented alternative to stocks and bonds. Some have asked if they are permissible as investments in a Self Directed IRA, and we’re happy to say that yes, indeed, these investments are not prohibited investments when it comes to your IRA. If they meet your criteria for expected return, risk exposure and time horizon, they can be a terrific match. Indeed, adding some of them to your portfolio may help you increase diversification and reduce overall risk without sacrificing returns.

DPP Basics and Self Directed IRAs

Direct participation programs (DPPs) are securities that investors can buy that allow them to participate in future cash flows and taxation benefits. They commonly take the form of limited liability companies, rather than C corporations, or limited partnerships. This allows them to escape the pernicious effects of double taxation of dividends, which is a big problem for C-corporations, which must pay individual income tax before they can release dividends. Outside of retirement accounts, these dividends are taxed again on the investor’s personal income tax return when he or she receives them. That said, some DPPs, such as non-publicly-traded REITs and Business Development Companies (BDCs) may still be organized as corporations (so they can be traded on exchanges) and still qualify for favorable tax treatment if they pass through at least 90 percent of earnings directly to the investors.

DPPs are commonly sold to raise capital for investments in energy projects, real estate developments and equipment leasing programs and private equity opportunities, though they could theoretically go almost anywhere.

DPPs enable retail investors to gain access to asset classes and market segments that would otherwise be the sole province of institutions.

Self Directed IRA and Alternative Investments – When Should You Start?

Theoretically, you can open a Self Directed IRA just as soon as you are eligible – Which is just as soon as you have earned income. While you’re young, you can afford to be more aggressive, pursuing more volatile asset classes in the hope of achieving superior long-term returns. You have plenty of time to ride out the volatility, and in the long run, a bumpy ride at 10 percent is better than a smooth ride at 6 percent.

However, as you grow older and approach your retirement years, that bumpiness gets more and more scary. The flexibility and diversification that a Self Directed IRA can help provide becomes more and more important as your investment timeline gets shorter and shorter.

With that in mind, the time to begin exploring alternative investments within a Self Directed IRA is as soon as you perceive the broad stock and bond markets as either too risky by themselves, or as promising lackluster future returns, or both.

Alternative Asset Classes

While investment companies that sell pre-packaged IRAs and set up other retirement plans like 401(k)s, SEPs and SIMPLE plans have a vested interest in pushing stock and bond mutual funds (and collecting that big expense ratio in the process), Self Directed IRAs allow you to take personal control of the assets in your retirement account. And you can steer them into almost anything you want. Examples include, but are not limited to:

  • Apartment buildings
  • Commercial real estate
  • Rental housing
  • Fix-and-flip real estate
  • Farms and ranches
  • Privately-owned businesses
  • Partnerships
  • LLCs
  • Oil and gas investments
  • Pipelines
  • Gold, silver and other precious metals
  • Tax liens and certificates
  • Private lending
  • Hard money lending

The list goes on. You can choose any investment or combination of investments you are comfortable with that meets your investment criteria. There are only a few prohibited investments:

  • You cannot own life insurance within a Self Directed IRA.
  • You cannot own jewelry or gemstones
  • Precious metals must be in an approved coin or bullion form.
  • You cannot take personal possession of the precious metals. Instead, you must keep them with a custodian.
  • You cannot invest IRA money in alcoholic beverages
  • You cannot invest IRA money in artwork or collectibles.

Even with these restrictions, however, there is still plenty of room in a Self Directed IRA for you to pursue all kinds of strategies:

  • Leveraged strategies
  • Market-neutral strategies
  • Long-short investing
  • Income investing
  • Hedge funds
  • Real estate
  • Private equity
  • Venture capital
  • Dividend growth strategies
  • Defensive strategies
  • Inflation hedges

And much more.

American IRA, LLC has worked with thousands of successful and imaginative investors to help them execute their alternative retirement investment strategies using Self Directed IRAs, 401(k)s, SIMPLEs, and other tax-favored investment accounts. We have clients in nearly every state. At the same time, our unique flat-rate fee structure allows them to sidestep high assets under management fees and expense ratios while still maintaining substantial diversification. In many case, our clients are saving thousands of dollars per year in AUM and other fees and expenses compared to competitors.

And if you’re interested in increasing diversification, reducing risk, and reducing investment expenses, when would be the best time to start?

The answer is, of course, right now.

For a free, no-obligation consultation on your individual situation, please call us today at 828-257-4949. Alternatively, visit our website at www.americanira.com for much more information and a free, comprehensive e-book on self-directed investing.

Self Directed IRA -To Close the Retirement Income Gap, Contribute Early and Often to Yours

A recent study from the Insured Retirement Institute had a number of disturbing findings that drive home the importance of contributing to your Self Directed IRA early and often.

  • A 65-year-old male in good health today has a 50 percent chance of living to age 87, and a 25-percent chance of living to age 93.
  • A 65-year-old female in good health today has a 50 percent chance of living to age 89 and a 25 percent chance of living to age 95.
  • A 65-year old retiree would need more than $1 million of investable assets, plus Social Security income, to generate a reliable income through age 95.
  • By waiting until age 70 to retire, the retiree can reduce the estimated nest egg required to generate retirement income through age 95, but only modestly, to $720,000.

The use of lifetime income annuities can effectively eliminate longevity risk, of course. But at today’s anemic interest rates, the thought of locking in your future retirement income using the current low returns on investment doesn’t seem like a great idea.

Lifetime income annuities also effectively eliminate any legacy to your loved ones, once you have outlived any return of premium guarantees. There’s got to be another way.

It turns out there is. By starting early, and taking advantage of the freedom you have using a Self Directed IRA to maximize risk-adjusted returns of your retirement portfolio, while also increasing your portfolio diversity.

For best results, you do generally need to start early for two reasons:

  • The younger you are, the more risk you can accept in the expectation of higher returns. As you get close to retirement age, you may need to reduce your exposure to high-return asset classes like venture capital, private equity and partnerships where you have significant control. These are all perfectly legal to own within a Self-Directed IRA, but tend to be volatile in isolation.
  • The more years you have before you need to begin taking withdrawals, the more time your investments have to compound, tax-deferred or tax-free in the case of Roth Self-Directed IRAs.

With today’s relatively low dividends on stocks, high P/E ratios on a historical basis, and low interest rates on bonds, it’s imperative for most of us to seek out ways to eke out some additional return without taking undue risk. Self-Directed IRAs allow our clients to use their retirement capital to pursue these opportunities on a tax-advantaged basis.

According to the IRI’s report, a 50-year-old saver who makes the maximum allowable contributions to a 401(k) plan, including catch-up contributions, can make up a big chunk of the estimated retirement income gap if he or she earns 5.5 percent per year, on average, on his or her investments. This savings schedule and rate of return would theoretically generate some $239,000 in additional retirement resources over 20 years. Additional contributions to self-directed or conventional IRAs and outside savings can close the gap completely.

The alert reader, however, will note that in order for that ‘gap’ to be closed, the 50 year old would have to have a starting point of about $400,000 to $500,000 saved up already, because it’s this amount, plus earnings, that you would have to add to the amounts generated between ages 50 to 70.

Furthermore, many investors don’t have a choice about working to age 70. Many will have health issues, or economic pressures that force them to leave the work force earlier than planned.

And so we’re back to the original point: To have the best chance of a stable retirement income at acceptable levels of risk, while still preserving a legacy for heirs, you should start saving early and often, and maximize your returns on investment at a relatively young age.

American IRA, LLC specializes in assisting retirement savers who choose to hold any number of non-traditional asset classes within their IRAs, 401(k)s, SIMPLES, SEPs and even Coverdells and HSAs. Whether you are interested in using your retirement account to pursue opportunities in real estate, venture capital, private equity, oil and gas, partnerships, precious metals or anything else, we have the expertise to help you remain in compliance with IRS rules concerning these accounts and their holdings and provide you and the IRS with full accounting and reporting – all at a fraction of the cost of most firms that handle IRA and other retirement accounts.

To learn more, contact us at 828-257-4949 or visit our website at www.americanira.com.

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Self Directed IRAs -How Young Investors Can Build a Retirement Portfolio

That word “portfolio” can be vexing to a lot of young people. It’s the kind of work that evokes images of people with millions of dollars saved away, of middle-aged men and women who have been putting away money in a 401(k) and have substantial amounts of money invested. For your average 22-year old or even 32-year old, the idea of having a “portfolio” can sound positively alien. But as the saying goes, Rome wasn’t built in a day, and neither are retirement portfolios; and if you want to get started, one of the best ways is through Self Directed IRAs.

Self Directed IRAs are simple: they allow you to invest in a retirement account with lots of flexibility and freedom.

For example, you can invest in stocks and bonds…or you can invest in real estate, precious metals, private companies, and more. There are really few restrictions as to what you can invest in with Self Directed IRAs, which is what makes them such an attractive option for someone looking to build a retirement portfolio at any age.

But we’re talking about young people in today’s article, so that’s where we’ll focus: on building a retirement portfolio that can stand the test of time. Here are some tips for getting started with your retirement portfolio even if you’re “young and broke.”

Go for the Long Haul with Self Directed IRAs

One of the most difficult—and one of the most important—aspects of building a retirement portfolio when you’re young is understanding just how far away retirement might be. Depending on how aggressive you are and what your assets may be like, retirement can be as far away as 30-50 years. Many people don’t like to think about money in terms of decades. After all, you have expenses now; how can some money put away for fifty years from now possible do you any good?

This ignores, however, the possibility of accumulating wealth through compound interest. With compound interest, the earlier you start, the better off you finish. Even if you don’t start with a sizeable portfolio, if you average a certain percentage of growth over time, you’d be surprised at where you can end up. So think about the long haul with Self Directed IRAs; even if that means putting away just a little bit here and a little bit there. It adds up.

You Can Afford to Be Risky

Unless your financial situation is dire, the younger you are, the more you can afford to be a little risky with your retirement investments. That doesn’t mean that you should throw caution to the wind; instead, it means that you can seek out calculated risks in markets that tend to be a little more volatile. Real estate, for example, can be a somewhat risky venture if you don’t know what you’re doing; as can investing heavily in the stock market.

Simply stated, you can afford to purchase gold and silver at this stage of the game, even if their prices go down temporarily, because you might trust that they’ll increase over the long-term.

Diversify as You Go

It’s tempting for many investors to diversify right away; you generally don’t have to do this if you’re very young, as you can tolerate more risk. “Diversify as you go” simply means that you can place many of your investments in “one basket” for now and slowly add other baskets as you grow older and accumulate more wealth.

If you want to know more about Self Directed IRAs and what they can do to help you grow a portfolio over the long-term, be sure to call us at 828-257-4949 or keep reading AmericanIRA.com for more information.