Posts

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.

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.

Self-Directed IRA Administrators vs. Custodians

More and more people are coming to understand the power behind Self-Directed IRA strategies.  Further, they are embracing the wisdom of diverse and unconventional asset classes while liberating their retirement portfolios from the narrow outlooks frequently characterizing the big Wall Street investment firms.

As such, with that knowledge comes the increased openings of Self-Directed IRA accounts.  Many of these new investors are not yet clear on the role of custodians and third-party administrators in the Self-Directed IRA industry – and the important distinctions between the two.

Let’s take a closer look.

IRA rules prohibit investors from taking personal, direct possession of assets within their Self-Directed IRAs. Yes, you can own the house down the block within your Self-Directed IRA, but you cannot personally reside there. What is more, you cannot keep the gold coins your IRA owns in a safe in your living room.  To use a more traditional example, it is no different than not being able to personally hold your stock certificates residing in a Schwab IRA account.

Custodians hold your Self-Directed IRA assets on your behalf.  Administrators process the paperwork on behalf of the custodian.  American IRA is an administrator and New Vision Trust Company, a South Dakota chartered Trust Company, holds the assets.  New Vision Trust Company and American IRA, LLC are an integrated financial company providing both custodial and administrative oversight for your Self-Directed IRA transactions.

A custodian handles transactions and holds Self-Directed IRAs and other retirement assets on your IRA’s behalf. The IRS has stringent requirements for Self-Directed IRA custodians. These businesses are subject to regular inspections and audits by federal regulators. They can hold titles, cash, investments and other types of property on investors’ IRAs’ behalf, and handle a lot of transactions.

If you own gold or other precious metals, or physical assets within an Self-Directed IRA, chances are there will be a custodian in the mix, holding the gold or other assets in a secure, insured facility somewhere – or at least physically holding certificates.

An IRA third party administrator, such as American IRA, LLC, has a more tapered scope of engagement. Administrators are the account record-keepers responsible for generating statements and documents. We do not hold assets directly, but work with New Vision Trust Company, a South Dakota chartered Trust Company on your behalf.  New Vision Trust Company and American IRA, LLC are an integrated financial company providing custodial and administrative oversight for your IRA transactions.  We simplify the process, document your transactions, generate statements and 1099s, and work with your advisors to help you stay in compliance with IRS rules and regulations.

We do not advise on the suitability or non-suitability of any particular investment for your individual portfolio. That is up to you and your own financial advisors. We focus on quickly and accurately executing and recording the transaction on your behalf, in accordance with IRS regulations.

Moving down the Self-Directed IRA industry hierarchy, there are other professionals and salespeople known in the industry as “promoters” and “facilitators.”

These individuals do not handle transactions and do not hold assets on your behalf, but they support the Self-Directed IRA process in other ways.

One type of promoter might be a real estate agent who focuses on helping investors find properties for their Real Estate IRAs, and who becomes very knowledgeable in that niche. Others are financial advisors, RIAs, IARs, accountants and attorneys who also promote the Self-Directed IRA approach and help facilitate your Self-Directed IRA strategy.

For example, an attorney may help create entities within your Self-Directed IRA such as C corporations and LLCs which may help insulate other properties and IRA assets against the claims of creditors.

Every Self-Directed IRA investor needs a custodian or administrator affiliated with one or more custodians to create and maintain a functional Self-Directed IRA account. Few are totally go-it-alone beyond that. Most investors require a knowledgeable and experienced, multi-disciplinary team of professionals to get the most out of their self-directed retirement accounts.

Fortunately, getting started in Self-Directed IRA investing is very easy, and our team of professionals at American IRA, LLC is available to help you throughout the process.

To learn more about our services as one of the leading Self-Directed IRA administrators in the country, or to set up an account and get started investing, call us today at 866-7500-IRA (472), or visit us at www.AmericanIRA.com.

You can also read more on this subject at our blog, here.

Do not delay! Give us a call today! We look forward to working with you!

Baby Boomer, Gen X Retirement Saving Inadequate, Study Says

When it comes to retirement saving, the Baby Boomer generation is in trouble.

Despite many of them now entering retirement, the majority of those born between 1946 and 1964 report having less than $250,000 in retirement assets. Only about 1 in 3 Boomers has that much saved up – leading to a retirement income shortfall of between $3,864 and $12,072, according to research from the Insured Retirement Institute.

And things are not looking too great for Gen Xers, either. According to the Insured Retirement Institute’s (IRI) fourth biennial report on Generation X, about 4 in 10 members of this generational cohort do not have money saved for their retirement. Despite an overall improvement in the economy, this represents a deterioration of about 5 percentage points from two years ago.

Of those with retirement savings, about 6 in 10 have saved less than $250,000. On the other hand, the percentage of those who have saved at least $250,000 or more has nearly doubled over the same time frame, rising from 12 percent in early 2016 to 23 percent in 2018.

According to the IRI, about 60 percent of Generation X respondents report being generally confident they will have enough money saved for retirement. Their top three economic concerns are changes in Social Security (66 percent), higher than expected health care expenses (64 percent) in retirement and running out of money (59 percent).

Ultimately, people across the generations need to get serious about putting money away.

Use “Catch-Up Contribution Limits”

The Baby Boomers and the oldest of the Generation Xers can both take advantage of “catch-up contribution” limits, available to those ages 50 and older. Congress anticipated the need for older Americans to sock more money away as they enter their peak earning years and their children have reached adulthood.

For Self-Directed IRAs, individuals age 50 and older can put an additional $1,000 away each year in combined Roth IRA and Traditional IRA contributions – over and above the normal $6,500 annual limit. Some limitations apply for those at higher income levels.

Older Self-Directed 401(k) beneficiaries can also increase salary deferral contributions. As of 2018, those ages 50 and older can contribute an additional $6,000 per year to employer-sponsored Self-Directed 401(k) plans, on top of the generally applicable $18,500 contributions, for a total potential employee contribution of $24,500 per year.

Similar provisions also apply to 403(b) plans, the federal Thrift Savings Plan and many Section 457 deferred compensation plans for public employees. They also apply to Self-Directed 401(k)s and small business Self-Directed 401(k)s.

Those turning 50 and older this year should consider taking full advantage of these more generous tax-advantaged compensation limits.

Working longer

Many Americans will have little choice but to stay in the work force longer and put off retirement. This means more years of earning an income, and more years of potential retirement contributions and compounding within retirement accounts. It also means higher monthly Social Security benefits, if you can put off collecting Social Security until you reach full retirement age.

Staying in the work force also means you do not have to stretch your retirement income over as many years. With today’s advances in health care and nutrition, it has grown commonplace for Americans to live into their late 80s and 90s. Taking income out of your portfolio for 10 years rather than 20 years can make a big difference in the sustainability of your retirement income.

For more information on getting started with Self-Directed IRA investing, call American IRA today at 866-7500-IRA (472).

Return of Stock Market Volatility Underscores Need For Self-Directed IRAs and Diversification

February 2018 has been a stressful month for stock investors. Volatility is back with a vengeance: The Dow Jones Industrial Average components – what we used to call “blue-chip stocks” for their safety and staidness, took some big stumbles early in the month. This happens every once in a while, – but this time the declines triggered some program trading, computers were programmed to dump stocks as soon as the Dow, S&P 500 or some other signal dropped below a given level. The selling forces stocks lower, triggering even more program trade selling, and so a vicious cycle takes over.

And that, despite an economy that is prospering by most metrics, is how the Dow recorded a record 1,175 point loss on February 8th.

One might call it a reaction to a bull market that stockholders have appreciated over the last year. While we have seen a recovery since then (and stocks are setting new highs), the recent volatility has hopefully reinstated a healthy appreciation for risk: It is pretty scary to see 5 to 10 percent of your retirement nest egg disappear in a couple of days. Volatility can hurt.

Fortunately, the vast majority of our clients did not need to bat an eyelash. Indeed, some of them may even benefit from the volatility, as investors dump stocks looking for safer assets.

Self-Directed Investing means you do not have to worry about what the stock market does every day. Many of our clients have much of their long-term money invested in far more sound assets than stocks such as:

  • Rental properties
  • Commercial real estate
  • Tax liens and certificates
  • Gold and precious metals
  • Closely-held companies, LLCs and partnerships
  • Farms and ranches
  • Land
  • Private equity
  • Venture capital
  • Private lending
  • Mortgage lending
  • Equipment leasing

… and more.

While the value of each of these investments fluctuate, none of them are tied to the day-to-day fickleness of the stock market. Our clients have the luxury of being indifferent to most of the noise on Squawk Box and Jim Cramer’s Mad Money.

Most mature investors regard shows like these as a waste of time. The smart money is always way ahead of what the average consumer sees on TV.

As television and radio personality Dave Ramsey is fond of saying, “investing is a crockpot, not a microwave.” That is the approach taken by most Self-Directed IRA owners, who define holding periods in terms of years and decades, not hours and days. The longer your holding period, and the longer your investment time horizon, the less you have to worry about short-term volatility.

For alternative asset investors, there is no daily price index to track – and certainly no intra-day prices to obsess over. The focus is on the intrinsic value of the investment, and not on the opinions of millions of strangers – most of whom are not very smart anyway.

The lack of intraday pricing, and an overall more deliberate approach to investing and valuation, makes it much easier to avoid falling into the many traps of stock market speculation such as:

  • Focusing on the short-term
  • Panic selling on an impulse
  • Program trading causing you to sell when you should be buying
  • Thinking you are diversified when all your assets tend to move together

For many of our investors, the lack of correlation with the fickle stock market is a source of comfort. They derive piece of mind, knowing however fearful the talking heads on TV are behaving (generally at the wrong times), they do not have to participate in any correction or bear market.

Diversification is a fundamental principal of sound investing. Most individual investors do not do nearly enough of it, and find themselves over-exposed to a volatile stock market at the wrong time.  Self-Directed IRA strategies help you diversify, providing a much-needed hedge against stock market volatility – while still exposing you to opportunities for long-term growth and income.

If you want to do a thorough portfolio review, and find out how you can benefit from implementing Self-Directed IRA strategies in your own retirement investing, call us today at 866-7500-IRA(472).

Are You Ready for a Self-Directed IRA?

A Self-Directed IRA is a proven way for investors to gain access to alternative asset classes not normally offered by most Wall Street investment companies. Most of them readily offer access to trade stocks, bonds, ETFs and mutual funds. Some of them also support trading in options on stocks and margin trading. But for the most part, if you want to diversify your portfolio into other asset classes in order to increase your expected returns, decrease your exposure to volatility, or both, while preserving the tax advantages of a retirement account, you are going to have to look at Self-Directed IRAs.

Self-Directed IRAs is it the right fit for you? Some people just do not have the skills or financial sophistication to take personal charge of their IRA investments, pulling them from the control of a money manager. They may need the assistance of a professional mutual fund manager or stockbroker to help them manage their portfolio. Or, they may simply not have time for managing investments, because they do not enjoy it.

Who is Ready for a Self-Directed IRA?

A Self-Directed IRA can be an excellent match for certain investment minded people. If the following criteria apply to you, you may be ready for a Self-Directed IRA.

1.) You have professional-level knowledge of real estate, precious petals, private equity, technology, small business or some other asset that gives you a meaningful competitive trading advantage over the market.

2.) You understand the different kinds of risk that could affect your investments, including, but not limited to, market risk, systematic risk, interest rate risk, inflation risk, legislative risk and company or investment-specific risk.

3.) You generally have an independent or entrepreneurial spirit.

4.) You know how to read a cash flow statement and a balance sheet.

5.) You understand the rules governing prohibited transactions and prohibited investments in IRAs.

6.) You want to save hundreds and possibly thousands of dollars in fees every year, compared to the high assets under management (AUM), wrap fees, expense ratios, 12-b-1 fees and other fees the Wall Street firms charge.

If all these apply to you, it may be time for you to consider a Self-Directed IRA

There are some important things to understand before you invest:

Self-Directed IRA Rules

You cannot buy an investment in your own name, expecting to transfer it into a Self-Directed IRA later. The law prohibits your IRA from buying or selling to you, personally. Your IRA also cannot transact directly with your spouse, children, grandchildren, parents, grandparents, or any entities they control.

For example: John is an experienced real estate investor and finds a promising property that would make a great candidate for his first investment in a Self-Directed IRA. However, he does not have a Self-Directed IRA account set up with a custodian or third-party administrator. So he goes ahead and has his own real estate investment LLC buy the house. He cannot then transfer the house into his IRA. Since he controls the LLC, the IRS could disallow the entire investment, and force him to take a distribution on the entire value of the account. This would result in a big income tax bill and potential penalties for early withdrawal – plus a bunch of legal fees.

Making Your First Self-Directed IRA Investment

The correct way to go about buying your first Self-Directed IRA investment is to:

  • Contact American IRA, LLC directly at www.AmericanIRA.com, or by phone at 866-7500-IRA(472).
  • Fill out a couple of forms to open an account. You can choose to open a Traditional IRA, a Roth IRA, or if you have self-employed income or a small business, a SEP IRA, SIMPLE IRA or a Solo 401(k).
  • Transfer funds from a qualified source into the account. If you qualify, you can make up to $5,500 in new contributions to an IRA or Roth IRA per year – and you have until April 15th to make IRA contributions for the previous calendar year. You can also roll over money from another IRA or qualified retirement account. In most cases, the best way to accomplish this is via a trustee-to-trustee transfer. This way, you will not take personal possession of the assets – and risk making a costly mistake. If you are transferring money from a 401(k), you also will not have to worry about your old 401(k) custodian withholding 20 percent to forward to the IRS to pay expected taxes.
  • Identify the asset you want to purchase for your Self-Directed IRA (or other retirement account).
  • Provide American IRA, LLC with detailed instructions on what to purchase, from whom, and for how much.
  • Have any attorneys involved draw up the title naming your Self-Directed IRA as the owner, NOT YOU. Mistitling the assets in a Self-Directed IRA can lead to big problems down the road.
  • Confirm the purchase is made correctly.

American IRA will log the transaction and ensure it is completed according to the law.

Note, American IRA handles the transaction. We do not determine whether the investment is appropriate for you or your portfolio. That is between you and your financial advisors. We work with your existing advisors to make sure your directions to us are handled promptly and accurately.

That is part of what it means to have a Self-Directed IRA: You take more direct and personal control of your retirement investments. You may hire some advisors to help you, but ultimately, you, and not some distant fund manager who does not know you or your goals, are in charge of managing your Self-Directed IRA portfolio.