Legacy Planning for Self-Directed IRA Owners and Their Beneficiaries

Most people who are at or near retirement start thinking about how they would like to see their savings and assets passed on. Legacy planning is the process of expressing how those things will be transferred to the next generation. The preparation includes deciding how to handle the transfer of your Self-Directed IRA to your beneficiary or beneficiaries and thinking about timing and taxation, which will be critical parts of the process.

The balances in Self-Directed IRAs have been generally higher, partially because of the alternative assets, including real estate, which can generate both an income stream and capital appreciation. These accumulations make it all the more essential that you know your options and make your plans accordingly. Here some things to consider:

Make sure your beneficiary information is accurate and up to date

Whenever you open a Self-Directed IRA, you designate a beneficiary or multiple beneficiaries to inherit the funds in your account. You can name individuals or entities, such as churches, charities, or organizations, as your beneficiary.

You will use a beneficiary designation form when you open the account, but it’s essential that you regularly check to make sure the information on the form is up to date. Otherwise, your money may end up elsewhere from what you intended.

Your current information for each beneficiary should include:

  • Full address, phone number, and email address
  • Date of birth
  • Social Security number or Tax I.D. for entities
  • Relationship to the IRA account holder

If you have more than one beneficiary, you must decide how you want the money divided

If you have chosen to have multiple beneficiaries for your account, you also have to define how the funds will be divided. For instance, if you have three beneficiaries, you could share the assets equally, with each one getting one-third. But you could also give half to one and one-quarter to each of the other two.

The most common beneficiary designation form, called the “per capita” design, indicates that if any primary beneficiary dies before you, that portion of the account is to be divided between the other remaining primary beneficiaries.  If there are no other primary beneficiaries, the deceased beneficiary’s share will be given to a successor beneficiary, if one has been named or appointed in the plan document by default.

The death of a beneficiary—along with divorce, births, adoption, or a new marriage—could affect your beneficiary instructions. That’s why it’s so important for you to review your designation form regularly. You might even consider obtaining help from a tax or legal professional whenever you initiate or change your beneficiary designation form.

Your beneficiaries will have distribution options

The IRS code allows your beneficiaries three options for receiving their distributions:

  • The five-year rule
  • Life expectancy payments
  • Special rule for spouses

It’s worth noting that the choice that each beneficiary makes is irrevocable. That means even if the inherited account is transferred from one custodian to another, the distribution election remains unchanged.

Here are the details on each option:

  1. The Five-Year Rule

You could use this option if the Self-Directed IRA account holder did not start taking required minimum distributions (RMD) before they died. That means the date of death must have been before April 1st of the year following the time that the account holder turned 70 ½.

The beneficiary may choose to keep the assets in the account for five years. On the fifth anniversary of the Self-Directed IRA account holder’s death, the recipient must take the entire account as a taxable distribution. If any funds remain in the inherited account, they will incur a 50% “excess accumulation” penalty.

  1. Life Expectancy Payments

Using a standardized life expectancy table to determine how much must be distributed annually, your beneficiaries may withdraw all of the funds in the inherited account over time. The first life expectancy payment must be taken at the end of the year following the death of the Self-Directed IRA holder.

A special rule applies if the deceased account had already started taking RMDs and the beneficiary is older than the account holder. If this is the case, beneficiaries may use the deceased’s single life expectancy instead of their own age to calculate the life expectancy distribution.

Just the same as with the five-year rule, if a life expectancy payment is not distributed, that amount will be subjected to a 50% excessive accumulation penalty.

  1. Special Rule for Spouses

Spouses who are beneficiaries may choose to keep the assets in the original account, which will be renamed an “inherited account,” or to transfer the assets to their own Self-Directed IRA.

It’s good to communicate with your beneficiaries as you start legacy planning. That way you can let them know what their options will be so they can make informed decisions.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

How to Roll Over 401(k) Funds into a Self-Directed IRA Correctly

When you leave one employer for another, you have to decide what to do about the funds in your 401(k). Of course, you might be allowed to leave your money right where it is. That would be the most comfortable option because you would not have to do anything.

However, just because it’s the easiest option does not necessarily mean it’s the best option. And in this case, it probably is not. If you leave your money behind, you lose control of your investments, and you will be stuck with too few investment choices. It’s also unlikely that you would ever be able to make future contributions to the plan. So, the conventional wisdom states that if you leave your employer, so does your 401(k).

Another option available to you is to transfer your 401(k) to your new employer’s plan. While this is a better choice than leaving your assets with a former employer, it is not without its drawbacks. You will probably have to wait until you are eligible to join the new company’s plan, and once again, you will likely be left with few choices of investments.

Rolling over your funds into a Self-Directed IRA is almost always your best option
There are two different methods for moving your 401(k) to a self-directed or Traditional IRA. Either one will get your funds into the Self-Directed IRA, but one of them requires you to be cautious and follow a strict timetable to avoid breaking the established IRS rules, which means paying taxes and a penalty.

Here are the two ways to move your 401(k) to a Self-Directed IRA. You can decide which one makes the most sense:

The Indirect IRA Rollover
When you choose an Indirect IRA rollover, the 401(k) custodian sends you a check for the balance in your account. Sometimes the custodian will automatically deduct 20% as a tax withholding.

After receiving the funds, you have up to 60 days to deposit the entire amount into a tax-deferred retirement account. Any amount you fail to deposit within those sixty days will be treated as a withdrawal and will likely be subject to income taxes and early withdrawal penalties.

Even if you deposit on time, you will have to come up with the 20% that was deducted from another source and wait for your tax refund months later.

You may perform only one indirect rollover per year, so keep that in mind if you are planning to use this method.

Direct Rollover
A direct transfer, or trustee-to-trustee transfer, will move your 401(k) plan funds to a Self-Directed IRA without you ever taking possession of the assets. You do not have to be concerned about taxes or early withdrawal penalties. And you will not have to come up with the 20% that was automatically taken out for taxes.

As you can see, this method is easy and pain-free. You fill out some relatively simple paperwork, and your new brokerage firm will initiate the transfer from your old brokerage. Once the funds are transferred into your Self-Directed IRA, you will have the control and flexibility to decide how and where you want to invest with a much wider variety of options from which to choose.

Also, your retirement accounts can now be consolidated, which makes it simpler to maintain records and balance and diversify your assets.

Rollovers are as easy as 1-2-3
Rolling over a 401k into an IRA is simple, and is essentially a three-step process:
1. Open an IRA: If you do not already have an IRA, opening one is a simple matter. If you choose a firm that specializes in Self-Directed IRAs, you will expand your investment choices greatly.
2. Move your funds into your new IRA via a trustee-to-trustee transfer
3. Allocate your funds: Your new custodian might put your funds into a money market account, so you will need to allocate the money according to your risk tolerance and goals.

Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.

Keep an Eye out for These Possible Changes to Self-Directed IRAs

Potential tax law changes might be arriving in 2019.  This could affect individuals who have Self-Directed IRAs.  While there has not been a major overhaul to the tax code since 1986, two U.S. Representatives have introduced—or more accurately “reintroduced” — the Retirement Enhancement and Savings Act (RESA).

The bill is intended to increase access to retirement accounts among small businesses. In its most significant provision, RESA would make it easier for them to open multiple employer plans (MEPs), along with other proposed changes that could require certain sized businesses to offer a retirement plan and alterations to the way Required Minimum Distributions (RMD) and are handled.

Some of the other provisions include allowing a terminated worker with an outstanding 401(k) loan balance to roll over the loan and pay it back without it being considered a taxable distribution and establishing a “safe harbor” for the selection of lifetime income providers for retirement plans.

Here are a few of the highlights of the bill:

Multiple Employer Plans (MEPs) may become a reality

President Trump’s executive order of August 31, 2018, along with the proposed RESA legislation, means that multi-employer plans may finally come to fruition. By spreading out the costs, liabilities, and administrative responsibility among multiple employers, smaller companies could benefit by being able to offer their workers a retirement plan that would not have been available otherwise.

Right now, the law requires that any employers who band together to offer their workers retirement plans must have a connection, such as being in the same industry. RESA would eliminate this requirement and end another provision that puts the entire plan at risk if one of the members of the plan violates the law.

Make 401(k) annuities possible and improve annuity information

Traditional pension plans usually provide an annuity option that creates a lifetime income stream for employees. Most 401(k) plan participants do not have this choice. Under RESA, however, businesses would be afforded protection from lawsuits in case an annuity provider goes out of business or fails to live up to its agreement.

Another provision of RESA would require benefit statements to include lifetime income estimates at least annually. RESA also enhances the portability of these annuities for workers who switch employers. Under the present law, participants can be charged a surrender fee when they change jobs.

Repeal the maximum age for Traditional IRA contributions

This part of the legislation would repeal the prohibition on contributions to a Traditional IRA by an individual who has reached the age of 70½. As Americans continue to live longer, they also stay employed well beyond their traditional retirement age.

Expand tax credits to offset the costs of starting a retirement plan

Businesses that are starting a new retirement plan right now may receive a $500 tax credit. RESA would increase that amount to as much as $5,000 for three years. The credit would apply to new 401(k) and SIMPLE IRA plans. Companies that add automatic enrollment would be eligible for an additional $500 credit for up to three years.  Employees would still be allowed to elect not to participate in the plan.

Changes to the required minimum distributions (RMD) rules for Self-Directed IRAs

The legislation would modify the RMD rules as they pertain to defined contribution plans and Self-Directed IRA balances upon the death of the account owner. Under the proposed changes, aggregate account balances that exceed $450,000 are required to be distributed by the end of the fifth calendar year following the year of the employee or Self-Directed IRA owner’s death.  Distributions to the following beneficiaries are not included in the rule:

  • Spouse of the deceased.
  • Disabled or chronically ill individuals.
  • Individuals who are not more than ten years younger than the deceased.
  • A child of the deceased who has not reached the age of maturity.

Stay in touch with your tax or financial advisor for updates and to determine how these potential changes will affect your situation.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

Self-Directed Solo 401(k)s, Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs – Which is Right for You?

Generally, small business owners and contractors have three choices when it comes to choosing an employer-sponsored defined business retirement plan: The 401(k), which most people are familiar with, the Self-Directed SEP IRA (Simplified Employee Pension) and the Self-Directed SIMPLE IRA. Each of these account types allows you to set aside much more money on a tax-advantaged basis than you can using an IRA or Self-Directed IRA alone, and each of them, when set up properly, supports self-directed investing.

Each of them may also qualify for a tax credit worth up to $1,500 for newly-established retirement accounts. This tax credit can help you offset start-up costs over the first three years of a plan.

But there are important differences between them, as well. You should be aware of them before opening an account: The best plan for you depends on your situation and your plans for expanding the company.

Self-Directed Solo 401(k)s

The Self-Directed Solo 401(k) is a stripped-down version of the 401(k) plan specifically designed for small businesses with no full-time employees other than the owner and a spouse. It’s simpler to establish and sponsor than a full-fledged 401(k) and requires less paperwork.

The 401(k) or self-directed 401(k) allows employees – including the owner-employee of the company – to set aside up to $19,000 per year as of 2019. Note that with a Self-Directed Solo 401(k) the only employees should be the owner, or a married couple that owns the business.

Catch-up contributions: Those age 50 and older can set aside an extra $6,000 for a total of $25,000 per year.

Total employee contributions must be less than or equal to the employee’s total compensation for the year.

The real kicker comes in the allowable employer contributions. The company can also contribute money along with the employee’s up to a statutory maximum total contribution of $56,000 as of 2019 ($62,000 for participants age 50 and older.)

The 401(k) allows the plan sponsor to include a Roth option. Roth employee contributions are not pre-tax, but assets in a Roth account within a 401(k) can grow tax-free and are not subject to required minimum distributions. Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs do not allow for a Roth option.

401(k) plans can also be set up to allow for employee loans. Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs do not allow loans.

The Self-Directed Solo 401(k) can be a great option for independent contractors and small businesses with no full-time employees other than owners. However, if business expands and you want to hire a full-time employee, you may have to change your plan. If you are planning on hiring anytime soon, you may want to go with a Self-Directed SIMPLE IRA or a Self-Directed SEP IRA.

Self-Directed SEP IRA (Simplified Employee Pension)

A Self-Directed SEP IRA is funded entirely the employer. Unlike 401(k) plans and Self-Directed SIMPLE IRA plans, SEPs do not allow employee contributions.

Employer contributions are a deductible business expense. The 2019 overall cap on contributions per employee, including owner-employees, is $56,000, or 25% of compensation, whichever is less. There are no catch-up contribution provisions.

Contributions are generally capped at 25% of total compensation for each employee, though for self-employed contractors will have to account for the effects of self-employment tax, which may effectively cap contributions at 20% of compensation for these individuals.

If you have employees, you must treat all qualifying employees the same under the plan. You cannot set up the plan and then contribute to owner accounts without contributing to those of non-owner employees. Generally, this means you have to contribute the same percentage of salary/compensation to each eligible employee. The dollar amounts may be different, but the percentage must be the same for owners, managers and rank-and-file employees.

Contributions are not mandatory, but if the company does make contributions, they have to contribute to the plans of all eligible employees.

Self-Directed SIMPLE IRAs

SIMPLE stands for Savings Incentive Match Plan for Employees. It’s a type of defined contribution plan designed for smaller companies with 100 employees or less. To start a SIMPLE, the company cannot have any other retirement plan in place.

Establishing a Self-Directed SIMPLE IRA is much simpler than establishing a full-fledged 401(k). Employees contribute money pre-tax via payroll deduction, similar to a 401(k) plan. Employee contributions are capped at $13,000 in 2019 ($16,000 for employees age 50 and older), and the employer must provide a matching contribution as follows:

  • A matching contribution equal to 3% of compensation, (not limited by the annual compensation limit), or;
  • 2% nonelective contribution for each eligible employee
    • Under the “nonelective” contribution formula, even if an eligible employee doesn’t contribute to his or her Self-Directed SIMPLE IRA, that employee must still receive an employer contribution to his or her SIMPLE IRA equal to 2% of his or her compensation up to the annual limit of $280,000 for 2019(subject to cost-of-living adjustments in later years).

Employee contributions are voluntary. Matching contributions are vested to the employee immediately. However, there is a steep 25% penalty on amounts withdrawn by employees within the first two years of participation (10% on early withdrawals thereafter).

There are no provisions for Roth accounts at present within Self-Directed SIMPLE IRA plans, and they don’t allow loans to plan participants.

Self-Directed Retirement Investing

Each of these plans supports self-directed investing, provided you set the account up with an administrator such as American IRA, LLC or a custodian that is set up to do so. This allows you to look beyond run-of-the-mill broker-sold investments like stocks, bonds and mutual funds, and allows you to invest directly into things like real estate, apartments, precious metals, private lending and mortgages, LLCs, partnerships and many other types of investing.

This may help you achieve higher returns, greater diversification among asset classes, or both, as you work to fund a secure retirement for yourself and your family.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

Take Advantage of Raised Contribution Limits in Self-Directed IRAs in 2019

If you are saving for retirement, there is good news for you in 2019. The IRS has raised the contribution limits on some of the most popular qualified retirement plans.  This is good news for individuals who have a Self-Directed IRA. Why is that such good news? Well, the obvious reason is that you get to save more tax-advantaged money toward a comfortable retirement. Also, all those extra funds you contribute to your plan are now subjected to the magic of compound interest—interest on the interest that your account is earning.

While taxpayers are typically conditioned to view notices from the IRS with fear and trepidation, this is not the case with this announcement. Thanks in part to a rise in the inflation rate, this increase on the limits can have a dramatic effect on the size of your portfolio, especially if you are a few decades away from retirement.

Depending on the type of plan you use, there are also some immediate benefits. If you are saving into a Traditional IRA, for instance, your contributions are tax-deductible, which could mean you will have a smaller tax liability at the end of the year.

Here are the details on the plans that are affected and their revised limits:

Which plans are included in the raised limits in 2019?

  • Contributions into Traditional and Roth IRAs increased from $5,500 to $6,000 for those younger than 50
  • The catch-up contribution for 50 years and older remains at $1,000
  • Maximum workplace retirement contribution amounts—401(k), 403(b), most 457 plans, and federal Thrift Savings Plans—increased from $18,500 to $19,000 with a $6,000 catch-up for workers who are 50 and older
  • Annual employer limit for 401(k)-type plans, SEP IRAs and Solo 401(k)s increased from $55,000 to $56,000 in 2019
  • Income limits and phase-outs have changed on some plans. Visit the IRS’s Highlights of Changes for 2019 for additional information

Don’t miss out on this opportunity

If you are a young worker, do not be fooled into thinking that you have plenty of time to worry about retirement. Starting early allows you to accumulate an impressive amount of retirement funds, and once you have amassed them, you can use them to diversify into assets that give you a chance for lucrative returns.

That’s why it’s critical, no matter what age you are, to contribute the maximum to your retirement account each year and take advantage of the power of compounding.

Compound interest is your greatest ally

As mentioned earlier, compound interest is an important player in the game of investing and saving. In essence, compound interest refers to “interest on the interest,” and it can make a tremendous difference when you have been investing for several years.

Here is just one example:

Michelle is a 35-year-old software engineer who has managed to save $25,000 in her Self-Directed IRA account. She uses her funds to invest in a commercial property that returns 8% annually, and she continues to add $500 each month to her account. By the time she reaches the age of 65, she will have a portfolio that is worth $1,018,572 with monthly compounding.

Of course, these returns are not guaranteed and any changes in the variables will affect the outcome. Be aware, however, that the 8% return is not an unreasonable figure. The S&P 500, which evaluates the performance of the stocks of the 500 largest companies in the New York Stock Exchange, has grown at a 12.25% rate since its inception in 1923. In a shorter window, its average return has been 10.72% since 1992.

Add diversity and growth with alternative assets

When you choose American IRA as your Self-Directed IRA Administrator, you will not be restricted to the investment options offered by most banks and brokerage firms. With a Self-Directed IRA, you can diversify your portfolio with real estate, a partnership, tax liens, and precious metals.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.


Women and Retirement: Are You Saving Enough in your Self-Directed IRA?

A 2018 report from the retirement consulting firm, Aon, indicates that nearly three-quarters of women who expect to retire at age 67 will end up with about two-thirds the income they will need to live comfortably. In other words, retirement experts have calculated that they should have saved an amount equivalent to 11.6 times their last annual salary when, in fact, they are on track to end up with a much lower figure of 7.6 times their salary. This savings shortfall will leave women with two options: start saving more money immediately or delay retirement and continue working. This is where a Self-Directed IRA can help.

Women face different challenges than men

Women are typically at a disadvantage during their working years. First of all, they are still earning approximately 80 percent of what their male counterparts are bringing in. Add to that the breaks from working that many women take to raise children or care for elderly family members.  And with a longer life expectancy than men, women must make their savings last longer.

While working past their full retirement age–either full-time or part-time–might appeal to many women who enjoy their jobs, it still makes sense for you to save as much as possible in case working after your retirement age is not an option because of unforeseen circumstances, such as poor health.

A financial plan can be your GPS

Even though saving for retirement is critical for both men and women, the factors mentioned above add an extra element of difficulty for female workers to set aside adequate funds for their later years. These factors make it even more important that women meet with a trusted advisor to create a financial plan that will give them a road map towards a comfortable retirement. And once that plan is in place, it’s imperative to pursue those goals aggressively with a Self-Directed IRA.

Make sure your retirement funds are working as hard as you do

After your financial plan is completed, you will need an investment strategy to reach your savings goals. Workplace retirement plans are a good start, but they are typically limited in the investment choices they offer. Women who want more control of their investments are turning to Self-Directed IRAs to give them that control and to add diversity into their portfolios.

While a traditional brokerage account usually offers mutual funds and money market accounts only, Self-Directed IRAs expand those choices with alternative investments that include:

  • Real estate: both commercial and residential
  • Private lending
  • Precious metals: gold, silver, and platinum
  • Private stocks
  • Tax liens
  • Joint ventures and partnerships

Of course, you may still include investments such as common stocks, bonds, and mutual funds in your portfolio, but the alternative investments available through a Self-Directed IRA put you in the driver’s seat, allowing you to make your own investment decisions.

What difference can a higher return make?

Let’s assume you are a forty-year-old woman, and you are contributing the maximum, which is $6,000 for 2019, into an IRA. Let’s also say that you have accumulated $75,000 in your retirement account up to now. If you continue to save $6,000 each year until you retire at the age of 67, you will have accumulated approximately $630,000 if you average a conservative 5% on your savings.

Now, imagine that same woman earning 7% on her portfolio. Her account would have grown to over $970,000. And what if she could have averaged 10%? She would have retired with almost $2,000,000!

No one can guarantee that any investor will average 10% on her retirement portfolio. But keep this in mind: The S&P 500 stock index, which comprises about 500 of America’s largest publicly traded companies, has historically returned an average of 10% annually.

So, with a combination of financial assets such as stocks and real assets like commercial properties, you are allowing yourself to close or eliminate the gap between the amount you will need at retirement and what you will be able to accumulate.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

Why Self-Directed Real Estate IRA Investors Should Focus on Cities with Growing Populations

Population growth is one of the big drivers of residential real estate investment returns. Self-Directed IRA investors would do well to focus their efforts on cities that are experiencing strong population growth. This the primary long-term driver of housing demand, and ultimately supports increasing home values and rental prices.

Look for solid price gains that are supported by actual new people moving to the area, and not just speculative price gains. Returns generated as a result of the actual need to house more people are much more solid than returns generated by speculative bidding. Speculators can vanish as quickly as they arrived. It’s a lot harder to move a family that’s been living in a neighborhood for years than it is for a real estate investor to move capital. So, build your Self-Directed Real Estate IRAs fortunes on actual families living in homes and apartments, not on phantom price increases.

So what cities are experiencing the greatest population growth?  According to the editors of National Mortgage News, here are the top 12.

  1. Houston, Texas.
  2. Dallas, Texas
  3. Phoenix, Arizona
  4. Atlanta, Georgia
  5. Miami, Florida
  6. Seattle, Washington
  7. Riverside, California
  8. Washington, D.C.
  9. San Francisco, California
  10. Orlando, Florida
  11. Tampa, Florida
  12. Denver, Colorado

The vast majority of these markets are in the southern United States – a testament to the power of the invention of air conditioning, which makes even Miami and Phoenix great places to live, even in the summer.

Dallas, Texas has enjoyed one of the hottest housing markets in the country over the past several years – largely by poaching employers and workers from California. One example: Toyota recently switched its entire headquarters from the Los Angeles suburb of Torrance California to the north Dallas suburb of Plano – bringing more than 3,000 high-paying jobs with it – possibly as many as 6,500 — and pushing housing within commuting distance of Plano up fast.

“It was really about affordable housing,” Albert Niemi, dean of the Southern Methodist University Cox School of Business said recently, according to the Dallas Business Journal.

Indeed, the migration to more affordable housing seems to be the primary driver of the decision to move to a new city: National Mortgage News estimates about 18% of all inter-city moves are driven by affordability concerns. People want more affordable places to raise their families.

Plano’s pretty pricy. But while California slaps an income tax of at least 9.3 percent on income over $53,980 for single filers and $107,960 for married couples, Texas has no state income tax. And real estate in the better Los Angeles school districts got so high that Toyota’s executives had had enough.

Now, the flight to more affordable cities is relative – Riverside is pricey compared to Meridian, Mississippi. But it’s within commuting distance of Los Angeles and is much cheaper – and so LA families are migrating there.

There are employment and lifestyle considerations, too: San Francisco and Seattle are both beautiful and are centers of employment for the technology industry and continue to attract young people looking to make a name for themselves in the technology industry.

But San Francisco famously imposes rent control, and Seattle may soon impose rent control, which make those two markets less-than-friendly for long-term Self-Directed Real Estate IRA investors going forward.

Instead, look to the strong organic population traffic and more modest house prices in family-friendly cities like Phoenix, Denver, Tampa, Orlando and Houston, where house prices are still affordable for middle and upper-middle class families with normal jobs!

That’s your market, and markets that become wholly unaffordable for truckers, skilled tradesmen and young professionals have limited upside potential – and a lot more risk.

Interested in learning more about Self-Directed Real Estate IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

Nearly Half of 55-Year-Olds Have No Private Retirement Savings in Self-Directed IRAs

When it comes to retirement savings, there really are two Americas: In one America, the average 401(k) balance is bouncing around $100,000, according to research from Fidelity Investments.

In the other America, taxpayers are heading into their retirement years with nothing in savings. Of those aged 55 years and older, nearly half – 48% – had nothing saved in any retirement account to help secure an income for them in retirement. That includes employer-sponsored retirement accounts like 401(k)s as well as individual accounts like IRAs and Roth IRAs, including Self-Directed IRAs.

That’s a modest improvement from 2013, when the figure was 52 percent – but still indicates that younger baby-boomers are woefully unprepared for their retirement years, when many of them will not be able to earn an income through work.

Part of the problem is access: 2 out of 5 workers in this age cohort who do not have savings of their own do not have access to a traditional defined benefit pension plan – in which an employer guarantees them a certain predictable monthly payment based on what they earned in their years of service with the employer – most frequently a government agency, in this day and age, as few private sector employers continue to maintain traditional defined benefit pensions.

This indicates that some of these workers will have at least some pension income to fall back on in retirement. But 29 percent of Americans age 55 and older does not have access to either an employer-sponsored defined benefit plan nor to savings of their own in a 401(k), IRA, Self-Directed IRA or other retirement account.

According to the federal General Accounting Office, the median household retirement savings of those age 65 to 74 had $148,000 saved in 2015 – the last year of data upon which the report was based. This would translate to a conservative annuity income of about $649 per month.

Meanwhile, the Average Social Security benefit in 2019 is about $1,422 per month. Which means the average senior without retirement savings or access to an employer-sponsored pension is looking at retirement income of around $2,000 per month, or $24,000 per year.

If you are behind the 8-ball, what can you do about it?

First, if you have access to an employer 401(k) with a match, contribute at least enough to maximize your employer match. If your employer is matching 25 cents of each dollar you contribute, up to 3 percent of your pay, then contribute 3 percent of your pay. The immediate return of 25% per dollar of contribution up to that threshold is solid in any investment endeavor, and is a worthy use for your next dollar of savings at any time

Second ruthlessly attack credit card debt. With average interest rates of 14.14% for existing accounts and 19.24% for new offers, and average credit card debt per household of $8,292. At the 19.24 rate, that frees up $133 per month in interest charges alone.

The same goes for high-interest, non-deductible consumer debt such as car loans, appliance loans, loans for your bass boat, department store and gas cards, and the like. Zeroing it out will save interest and free up cash flow from debt service to saving and investing. It’s like moving from defense to offense!

Next, try to maximize contributions to Self-Directed IRAs or Roth IRAs. If you want to explore holding IRA assets in non-traditional or alternative asset classes, such as real estate, gold and precious metals, tax liens and certificates, private lending, LLCs or partnerships, call American IRA, LLC at 866-7500-IRA (472).

As of 2019, if you meet certain income requirements, you can contribute up to $6,000 in any combination of traditional and Roth IRAs. If you are age 50 or older, you can contribute an additional $1,000, for a total of $7,000 per year. And if you are married, you can double up, using a Spousal IRA.

Once that’s done, go back and maximize your 401(k) or SIMPLE IRA contributions within your employer’s plan, or open up your own SEP (Simplified employee pension) or Solo 401(k) plan to handle self-employed income or income from your own owner-operated corporation.

Whatever you do, do it with a sense of urgency. You may think you will be working well past age 65, which helps. But many people simply don’t have that option. Business-cycle-related layoffs, restructuring, an increasingly out-of-date skill set and medical problems mean most people are forced out of the work force involuntarily.  

So, if you are among those with little or nothing put away for retirement – at any age, it’s time to take decisive action.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.