Coverdell Savings Account Archives

Tips for Improving Your Required Minimum Distribution (RMD) Process – Part 2 of 2

February 24, 2014/in Articles, Blog, Coverdell Savings Account, Health Savings Account, Health Savings Account, Resources, Roth IRA, Self-Directed IRA, SEP IRA, Simple IRA, Traditional IRA /by American IRA

Welcome back. In Tips for Improving Your RMD Process – Part 1 of 2, we shared some tips to help you improve the processing of your required minimum distributions (RMD). Remember these distributions are required whether your account is a Self-Directed IRA or not. Here are few more tips to help you with the RMD process.

Tip 3: Rollover to Avoid RMD When Appropriate

The required minimum distribution (RMD) rules do not apply to Roth IRA owners. As such, if you have assets in a Traditional IRA, SEP IRA or SIMPLE IRA and you do not want to withdraw RMD amounts each year, you can convert those IRAs to a Roth IRA. Caution: For a conversion to a Roth IRA other factors must be considered; primarily, whether a Roth IRA is more suitable for you. Ideally, a Roth IRA analysis would need to be done beforehand to determine suitability. Please contact us if you have questions about Roth IRA conversions.

You can also rollover your Traditional IRA, SEP IRA and SIMPLE IRA to a qualified plan, 403(b) or governmental 457(b) so as to avoid being subject to the required minimum distribution (RMD) rules. Of course, this would work only if you are still employed by an employer that sponsors a qualified plan, 403(b) or governmental 457(b) under which you can defer beginning your RMD past age 70½ until retirement.

Caution: If you are at least age 70 ½ during the year that you plan to convert amounts to a Roth IRA or rollover amounts to a qualified plan, 403(b) or governmental 457(b) plan, you must take your RMD for that year before doing the conversion or rollover. Failure to follow this rule will result in an ineligible conversion or rollover of your RMD amount, which could result in penalties being owed to the IRS if not corrected timely.

Tip 4: Schedule RMD In advance

Generally, your RMD for the year can be calculated as early as January 1. This provides you with sufficient time to put measures in place that would help to prevent missing your required minimum distribution (RMD) deadline. Most financial institutions allow IRA owners to schedule distributions in advance. For instance, if you want your RMD to be processed on November 15, you can submit the instructions as early as January 2. If you choose to do so, follow-up to make sure sufficient cash is available to cover your requested amount.

Tip 5: Refigure Your IRA RMD Amount

Your RMD amount for the current year is determined by dividing the fair market value (FMV) of the IRA as of the previous year-end, by your distribution period for the current year. Your custodian is required to either provide you with the calculated amount of your RMD, or calculate the amount upon request. However, they are allowed to make certain assumptions that could result in the calculation being incorrect.

For example, if you converted an amount to a Roth IRA last year and recharacterized the amount this year, the recharacterized amount must be included in the FMV for the Traditional IRA. However, since that amount was not in your Traditional IRA at year-end and would therefore not be reflected in your FMV, it must be manually added when doing the calculation. Your IRA custodian will usually use the FMV on record as of year-end, instead of making the adjustments, resulting in the calculated amount being less than your true required minimum distribution (RMD) amount.

Ultimately, you are responsible for ensuring that your RMD calculation takes such adjustments into consideration. If a mistake is made, you would be responsible for paying the excess accumulation penalty. We highly recommend that you consult with a professional to help you develop the best course of action for your required minimum distributions (RMD).

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Tips for Improving Your Required Minimum Distribution (RMD) Process – Part 1 of 2

February 22, 2014/in Articles, Blog, Coverdell Savings Account, Health Savings Account, Health Savings Account, Resources, Roth IRA, Self-Directed IRA, SEP, SEP IRA, Simple IRA, Simple IRA, Solo 401K, Traditional IRA, Traditional IRA /by American IRA

If you are at least age 70½ this year, you may need to withdraw required minimum distributions (RMD) from your retirement account regardless as to whether it is a Self-Directed IRA or not. However, while you may have no control over the minimum amount that you must withdraw, you can implement strategies to help improve the efficiency with which your RMDs are handled.

Background

You must withdraw required minimum distribution (RMD) amounts from your retirement accounts (including any Self-Directed IRAs you have) every year, beginning with the year that you reach age 70½. An exception applies to qualified plans, such as pension and 401(k) plans, 403(b) plans and governmental 457(b) plans. Under this exception, your employer can allow you to defer starting your RMD past age 70½ until you retire. This exception can only be made for individuals who do not own more than five-percent of the business that sponsors the retirement plan.

Generally, your RMD for each year must be withdrawn by December 31. An exception applies for the year you reach age 70½ (or retire in the case of an employer sponsored retirement plan that allows you to defer your required minimum distribution (RMD) past age 70½ if you are still employed), which allows you to take your RMD as late as April 1 of the following year.

If you fail to withdraw your RMD by the deadline, you will owe the IRS an excess accumulation penalty of 50 percent of your RMD shortfall.

Note: The RMD rule does not apply to Roth IRA owners.

Tip 1: Aggregate When Suitable

If you have multiple Traditional IRAs, SEP IRAs and SIMPLE IRAs, you can take the calculated required minimum distribution (RMD) from each IRA, or you can aggregate the RMD for all of your IRAs and take the total from one or more IRAs. Aggregation of your RMDs can be useful if you have IRAs from which you do not want to make withdrawals. For instance, you may have an IRA with a specific amount that you want to leave to a certain beneficiary. In such cases, you would calculate the RMD amount for that IRA, but withdraw it from another Traditional IRA, SEP IRA or SIMPLE IRA.

This RMD aggregation rule can be done for 403(b) accounts as well. However, it cannot be done for qualified plans.

Caution: Regardless of whether you decide to aggregate your RMDs, you must calculate the amount for each IRA separately.

Tip 2: Defer RMD for Employer Plans

If you have assets in a qualified plan, and you are still employed by the plan sponsor at age 70½, check with them to determine if they will allow you to defer beginning your required minimum distribution (RMD) until you retire. If so, that would allow you the flexibility to choose whether or not you want to defer making withdrawals until you retire.

If you have assets in a 403(b) account or governmental 457(b) plan, you can defer your RMD past age 70½ until retirement.

Watch for our next blog: Tips for Improving Your RMD Process – Part 2 of 2 for more tips to help you improve your RMD process.

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Small Accounts Can be Self-Directed IRAs Too!

October 29, 2013/in Articles, Coverdell Savings Account, Health Savings Account, Resources, Self-Directed IRA /by American IRA

The news about self-directed IRAs is out and more accounts are being opened now than ever still there seems to be two accounts that people are forgetting about. Coverdell Education Savings Accounts and Health Savings Accounts can be self-directed also. This gives the owners of these accounts the ability to invest in non-traditional assets and the ability to enjoy the benefits of tax-deferral on the profits.

Coverdell Education Savings Accounts

Contributions to a Coverdell Education Savings Account are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.

As of 2013, you can contribute up to $2,000 per year.

Here are some things to remember about Distributions from Coverdell Accounts:

Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution.
The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell Education Savings Account, as long as the same expenses are not used for both benefits.
If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

Health Savings Accounts

A health savings account (HSA) is a tax-exempt account that you set up and use to pay or reimburse certain medical expenses you incur.

Benefits of an HSA include:

Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
The contributions remain in your account from year to year until you use them.
The interest or other earnings on the assets in the account are tax free.
Distributions may be tax free if you pay qualified medical expenses.
An HSA stays with you if you change employers or leave the work force.

As of 2013, you can contribute $3,250 each year. Those age 55+ can contribute an additional $1,000 on a tax-deductible basis.

Getting Started

For more information on this or any type of self-directed IRA account, please feel free to contact American IRA, LLC via e-mail [info@americanira.com] or via phone [1-866-7500-IRA(472)], or visit our website [www.americanira.com].

Is a Self-directed IRA Safe?

July 25, 2013/in Coverdell Education Savings Account, Coverdell Savings Account, Health Savings Account, Health Savings Account, Real Estate IRA Investing, Resources, Roth IRA, Roth IRA, Roth IRA, Self-Directed IRA, Self-directed IRA Account, SEP, SEP IRA, Solo 401K, Traditional IRA, Traditional IRA /by American IRA

FDIC Insured

All un-invested cash in your self-directed IRA is FDIC insured.

As a note, FDIC insurance only covers cash balances, not assets. All credit card transactions are safe — American IRA is certified by SecurityMetrics. All accounting is processed through a top-rated trust accounting system. We maintain professional insurance coverage, including a crime shield policy and an errors and omissions policy.

Asset Vesting with Your Self-directed IRA

All assets are vested in the client’s name at the time of purchase. American IRA, LLC for the Benefit of Client’s Name IRA.

Investing with Your Self-directed IRA

Investing within a self-directed IRA is completely within the investor’s control. Is it safe? Yes, to the extent that the investor controls it. Here’s something that’s overlooked many times when we’re talking about safety between the securities industry, and let’s say in this case we’re talking about the real estate industry. Each investment has its own characteristics as to safety.

In the real estate investment arena, take a look at this example – $100,000 investment in 2000 inside a self-directed IRA in a single-family home. In 2013, the value doesn’t matter. The investor’s not selling the property. It may have gone up and it may have gone down.

Here’s an absolute certainty. It had 12 years’ worth of rental income so far and it’s still free and clear, versus investing in securities, which are absolutely out of your control, out of the investor’s control completely or anybody else’s control for that matter.

With $100,000 invested in 2000 in Washington Mutual Bank, the 2013 value is zero. Washington Mutual Bank was the biggest bank in the country when it failed in the early 2000’s. There is no guarantee in the securities industry any more than there is in the self-directed industry, but at least in the self-directed industry you have a way of controlling your risk by investing in what you know and understand, and you can do your own due diligence.

Types of Investment Accounts within a Self-directed IRA

Here are the types of investment accounts that you can utilize. It’s not just an IRA.

The Self-DirectedTraditional IRA, which is the one you’d be familiar with, which allows for you to make a tax deductible contribution.
The Self-Directed ROTH IRA on the far right is the one that you hear a lot about, which is the account that is absolutely tax free when the profits come out at the end. However, you do not get a deduction when you make the contribution.
A Spousal IRA can be either a traditional or a ROTH. The way that works is that if you’re under 50, you’re only allowed to put away $5,000 a year. If you have a nonworking spouse, they’re also eligible for an IRA, either a traditional or a ROTH, and they too can put away the same $5,000.
Another type of account is an employer based plan, which is a SEP IRA. If you’re self-employed, we provide servicing for SEP IRA Plans – Simplified Employee Pension plans – which is an employer funded plan. We also provide services for the simple, which is an employee funded plan with a contribution from the employer.
The Self-Directed 401(k), which is a plan that’s for people who are self-employed – a sole proprietor, LLC or corporation – and for people who don’t have any common law employees, meaning that they don’t have anybody that’s on W-2 for greater than 1,000 hours a year. It can be a husband and wife that are in a business. It could be a couple of partners. The Solo 401k, provided you qualify for it, basically is a self-directed account on steroids. It gives you so many features and opportunities that are absolutely incredible.
A Coverdell Education Savings Account is an account that you can put away for anybody. Typically it’s grandchildren or children. That too can be self-directed.
You can put money away in a Health Savings Account, and that works in many ways like a ROTH. You put the money in there, except you get a deduction. You can pay your medical expenses out of it, and it comes out absolutely tax free and you pay the medical expenses. It’s a great tool.

The Sky’s the Limit!

With the multitude of investment accounts available and the wealth of investment types allowed within those accounts, the sky really is the limit when it comes to what you can do with your self-directed retirement account.

For more information, or to explore your options, call American IRA today at 866-7500-IRA (472). We look forward to working with you.

The Coverdell Education Savings Account – Invest in our Future

March 29, 2013/in Coverdell Education Savings Account, Coverdell Savings Account, Resources /by American IRA

As you may have already discovered, self-directed IRAs are a very flexible investment method, but did you know that you can also self-direct education savings accounts with American IRA? It’s true! Many non-traditional assets can be easily incorporated into your IRA, and today we’ll reveal one of the most powerful ways you can sow a seed into your family’s future.

The destiny of our nation is directly connected to upcoming generations. Even so, extended education is quickly becoming more and more expensive and it has never been more essential for up and coming youth who aim to succeed in life. If you want to invest in your child’s future and thus invest in the nation at large, a Coverdell Education Savings Account is one of the most effective paths to their success.

So what is a Coverdell account? Let’s begin with something that may be a bit more familiar; namely 529 plans. A 529 plan allows money to grow tax-deferred, and the proceeds can also be withdrawn tax-free for qualified education expenses at a qualified institution. Take note of the last sentence’s emphases – government regulations are very specific on these points.

Here’s what makes a Coverdell Education Savings Account different: like a 529 plan, these accounts cover colleges and universities, but unlike a 529 they also cover qualified expenses at primary and secondary schools!

According to an article on Good Financial Cents, some of the other key differences include three things:

1) Total contributions for a beneficiary can be no more than $2,000 per year

2) The account has an income limit – your adjusted gross income cannot increase above $110,000 if you’re single or $220,000 if married and filing jointly

3) A beneficiary must be younger than 18 when the account is opened and they must be spend the money before reaching 30

Keeping those points in mind, it’s never been easier to invest in the future! So, does a Coverdell Education Savings Account sound right for you?

If you have any questions about opening a new account, contact us at 1-866-7500-IRA(472) or info@americanira.com. If you’d like to transfer a Coverdell Education Savings Account, contact us at 1-866-7500-IRA(472) or transactions@americanira.com or click here for more information.

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