How your Self-Directed IRA May Relieve Personal Stress?

Unless you are already retired, you are currently looking forward to the time when you will be able to retire. No matter how close or how far off in the distance that time may be, you have at least one choice to make. That choice should be made sooner rather than later.  Having a Self-Directed IRA may be the right choice for your future.

Chances are that you, along with most people, have not thought about it like this. You can either plan for your eventual retirement, or you can become stressed out thinking about it. If you have the right plan in place or can develop the “right” plan for yourself, you will reduce, if not eliminate, the stress part.

And, yes, having a Self-Directed IRA in place can be an important cog in your plan. We do not have the choice of having each day bring us one more day closer to retirement.

The recent study by the American Psychological Association, based on more than 3,400 interviews, shows that more than 62% of Americans are stressed about money. What we do not know is how many of those have a plan for retirement already in the works.

Those that have a higher stress level, whether money related or not, tend to have more health issues and/or might not be able to perform to their capabilities.  This is where a Self-Directed IRA can help reduce stress levels when it comes to thinking about your retirement.

Merely having a Traditional IRA or 401K in place might not be the entire solution for you. Even with the benefit of employer matching, the majority of these plans only allow investments which are approved by the entity which manages your plan. It is likely that you have a broker or a representative designated to handle your account along with potentially hundreds of others in the same way. They help all of their clients to gradually grow their portfolio with limited choices.

You no longer have to rely on a broker assigned to you for your retirement decisions.

It is easy for a lot of us to set aside important tasks which do not have to be acted upon right away, especially one that we perceive as not being important until many years from now.

When it comes to your retirement planning, an important step you can take right away is to treat it as an immediate task.

Suppose you set aside one hour this week to devote to your retirement planning. One hour at any time of the day or night. You do not need to hire or consult with a broker or trader or go anywhere beyond your front door.

Starting or focusing on your own Self-Directed IRA is your first step. The beginning process generally takes no more than 30 days. Your funding can come from an existing IRA or 401K or can be started from contributions from your personal cash on hand.

Your personal retirement plan should be based on factors such as number of years before your anticipated retirement and your personal interests or expertise.

Having your Self-Directed IRA allows you to invest in everything from real estate to precious metals to private equity as you see fit.

Suppose you have at least 20 years before your likely planned retirement age.

The first step you take is to stop thinking that you do not have to worry about this for at least 10 years. Instead, start planning how much you plan to grow your retirement funds over the next 10 years. Think about what you need to do over the next 10 years in order to not have to work another 10 years after that.

If this is your situation, you have the ability to explore long term opportunities in an area you are knowledgeable about and/or have experience in, such as real estate.

Perhaps you could explore investing in a rental property or residential or commercial land. You can take the time to research and find one or more property deal which has long term potential.

Establishing a positive cash flow from a rental property is a path to being able to acquire more rental properties, such as one each year. If you were to accomplish this with your first rental in the next two years, it would mean that 12 years from now you would own at least 10 rental properties, each of them generating monthly cash into your Self-Directed IRA.

Suppose you only have five years before your planned retirement age. Using the same strategy, you could research to find a property to “flip” using your Self-Directed IRA. This is where you purchase at a discount and are able to sell at a much higher price. You could then take at least a portion of your profit and invest in another “flip”, potentially growing your funds more quickly than the “one rental property per year” strategy.

Either way, by utilizing this method, you are taking control of your retirement income and working toward a goal of not having to wait as long as you first thought.

This changes your perspective on “20 years from now”. At the same time, it significantly reduces your overall stress level. It begins with your Self-Directed IRA.

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

How is a Self-Directed IRA Taxed?

You might have heard someone talk about their tax-free Self-Directed IRA at some time or another. Just to set the record straight, Self-Directed IRAs are arguably one of the finest vehicles for accumulating funds for retirement that anyone has ever devised. And while there are many benefits to opening one and contributing to it, freedom from taxes is not one of them.

It does not matter what type of Self-Directed IRA you choose; you will eventually pay taxes on it. You cannot decide if you will pay taxes, but you can decide when you will pay them. Some people prefer to pay up front, thinking that perhaps their tax rate will be higher at retirement. They choose to go with a Self-Directed Roth IRA.

Others take their tax write-off now and defer paying their taxes until the funds are distributed at retirement. Many of these folks believe their tax rate will be lower when they retire, so they are content to wait until then to pay up. They pick the Traditional IRA, and it is usually these Self-Directed IRA investors who mistakenly call them tax-free when what they mean is tax-deferred.

While no one should invest solely on tax advantages, it is a good idea to know the difference in how each type of Self-Directed IRA is taxed before you open an account. Here is the rundown on how each Self-Directed IRA—Roth and Traditional—is taxed so that you can decide which one makes the most sense for you.

You pay upfront with a Self-Directed Roth IRA

Self-Directed Roth IRA contributions are made with after-tax dollars. Unlike a Traditional IRA, you do not get to reduce your income—and your tax bill—by the amount you contribute. Your benefits come at retirement when you get to withdraw your funds without owing any taxes.

Another enticing benefit is that you can withdraw the earnings on your account without taxes. If you started contributing when you were young, those earnings could be quite sizable. Add in the money you will have saved if your tax bracket or rates increased by the time you retire, and it amounts to a big advantage for going with the Self-Directed Roth IRA.

The rules for withdrawing funds from a Roth are more liberal than for a Traditional IRA, but depending on certain factors, you might end up paying some taxes on your distribution.

Your Self-Directed Roth IRA withdrawals could be taxed

Generally, you can withdraw an amount equivalent to the contributions you made to your Self-Directed Roth IRA at any time without tax or penalty. Where it gets complicated is when your withdrawal includes some of your account’s earnings, such as dividends, interest, and capital gains.

If you withdraw funds after you turn 59 ½, your contributions are not taxed. Your earnings are also free of taxes as long as the Self-Directed Roth IRA has been established for at least five years.

If you make the withdrawal before age 59½ and it does not exceed the amount that you contributed over the years, there is no income tax due.

If you make the withdrawal before age 59½ and it includes earnings, you might have to pay both income tax and a 10% penalty on the earnings portion. There are exceptions: Funds can be distributed for higher education expenses or to buy a home. And if there is a hardship, such as permanent disability, you can withdraw your funds tax- and penalty-free.

You can defer taxes with a Traditional IRA

The rules are substantially different for a Traditional IRA. You are essentially funding it with pre-taxed earnings because you can deduct the amount of your contribution from your income, which defers the taxes you owe on it until you take a distribution at retirement. At that time the tax must be paid on both the contributions and the accumulated earnings.

Withdrawals from your Traditional IRA before age 59½ will result in a 10% federal penalty tax plus regular income tax on the entire withdrawal. If you make withdrawals between ages 59½ and 70½, you will owe taxes on the earnings and any contributions you originally deducted from your taxes, but there are no penalties.

With a Traditional IRA, you are required to take your first required minimum distribution (RMD) by April 1st of the year following the year you reach age 70½. After that, you must take your RMD by December 31. The RMD amount is based on your life expectancy and the value of your account. There is no RMD for a Self-Directed Roth IRA.

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

How Can your Self-Directed IRA Help the Environment?

You might wish to consider an eco-friendly investment for your Self-Directed IRA, especially when looking at the long term. Thinking green can make you some “green”, as in cash, if you can find the right opportunities.

Businesses which demonstrate a commitment to “environmental responsibility” are now expected to outperform those which do not over the next 20 years. The recent study published by the Harvard Business Review confirms this, citing that the “aware” businesses will be prepared well ahead of possible new regulations as well as civic pressure.

Even if you have designated your Self-Directed IRA for real estate investing, you have this opportunity. This could include raw land which could be used for solar panels, wind turbines, nuclear energy, and/or existing energy efficient properties.

Such properties, whether residential or commercial, could bring added appeal to buyers that are already environmentally conscious. Wind turbines are also an eligible investment, with or without owning the land they occupy.

There is also what are commonly known as “Green Bonds”. These are used by municipalities and appropriate organizations to assist with the development of sites and projects with energy efficiency, protection of ecosystems, sustainability, and prevention of pollution.

However, eco-friendly investments through your Self-Directed IRA are not limited to real estate. You could also invest in “green” technology, such as hydro-technology.

Technology investments could include electric and/or fuel-efficient cars and other motor vehicles, as well as trains and other modes of transportation, including bicycles. Garbage and recycling are other areas which are faced with the challenges of serving in a cleaner environment in years to come.

Finding a unique opportunity for investment with your Self-Directed IRA could turn into a family project, especially with the variety of categories which can be explored.

You could, for example, enlist the help of your children, nieces, nephews, and/or trusted family members to research categories of interest to them.

There are several student organizations which take up environmental causes and may be able to provide information about entities which are leading the way. You could then research the companies with an eye toward investment possibilities, whether with those companies or a form of their competition.

One category is called MHK, which is marine and hydrokinetic technologies. These are used to convert the energy from tides, waves, and river and ocean currents into electricity. The U.S. Department of Energy has a partnership with International Energy Agency Ocean Energy Systems, which has created a database known as Tethys. This database contains research data about the potential impact of offshore wind and MHK on the environment around the world.

Although this information appears confusing to many of us, it is this type of research which serves to uncover opportunities for long term investors, especially when a Self-Directed IRA allows you to have such a possibility.

Another category to consider is Geothermal Energy, which is actually heat from the earth. Sources are hot water or steam reservoirs which are accessed by drilling in locations such as Alaska and Hawaii, where the shallow ground under the surface is able to maintain consistent temperatures in the 50 to 60-degree range. The steam can be used to drive generators and produce electricity, while the heat from the ground could impact heating or cooling for agricultural and industrial use.

On the automotive side, there are opportunities involving Hydrogen. When combined with oxygen in a fuel cell, Hydrogen produces heat and electricity. However, it needs to be produced from other sources of energy. A recent U.S. Government report shows that technology is needed to transport and/or store it. Development is reportedly in the early stages to be able to make Hydrogen from renewable energy sources.

The point is that there are numerous possibilities for long term eco-friendly investments through your Self-Directed IRA. You have the ability to do your own research on your own time, and not be forced to share your findings with others if you do not wish to do so. This could be your method to becoming a “private investor” by finding the right opportunity for you. Your Self-Directed IRA allows you these and many other possibilities for your long-term investments.

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

SEC Warns Self-Directed IRA Investors Against Risk of Fraud in Crypto Markets

The Securities and Exchange Commission is sounding the alarm bell about potentially fraudulent crypo-asset investment schemes targeting the Self-Directed IRA market. The SEC’s warning encompasses crypto-currencies, tokens and initial coin offering (ICO) investments. While there are certainly many legitimate investment opportunities that Self-Directed IRA investors can choose from within the cryptocurrency asset class, the track record is not very long, and the ‘wild West’ global climate has attracted a lot of unsavory and unethical promoters. Self-Directed IRA owners should be cautious when considering investments in crypto assets.

According to the SEC deceptive promoters may falsely claim that the investment has been signed off on by your IRA custodian, administrator or some other trusted third party. But Self-Directed IRAs do not work like this. Neither custodians nor third-party Self-Directed IRA administrators like American IRA, LLC routinely check out individual investments on clients’ behalf. We are neutral as to the worth of any given investment. In Self-Directed IRAs and other similarly-run retirement accounts, we do not evaluate the legitimacy or worth of any specific investment opportunity. That is entirely the purview of the individual account owner and his or her investment advisors.

To avoid falling for unsound or fraudulent crypto investments, follow these guidelines:

  1. Conduct a thorough, independent due diligence. Do not rely on the promoter’s own assurances.
  2. Do not fall for assurances of ‘guaranteed returns,’ or ‘no risk.’ No crypto promoter is in a position to guarantee the future performance of any crypto asset, and many such assets have already seen their value collapse.
  3. Be wary of unsolicited investment offers. Most successful crypto investors have been following the asset class for some time and are already familiar with the advantages and disadvantages of crypto. Generally, they find their own investment opportunities.

It is true that crypto assets are frequently traded over “exchanges.” But these exchanges are not regulated by the SEC or any other U.S. regulatory body. Self-Directed IRAs can acquire crypto assets, but in the event, you get stung by a fraudulent investment within your Self-Directed IRA, the SEC has little or no means of pressuring or penalizing either the exchange or the crypto asset promoters themselves to get them to make good on their promises.

Also, the SEC has noted that because the typical time horizon on IRAs can go for years, and even decades, many investors do not pay close attention to the day-to-day news for their specific crypto investments. Because these assets are generally highly volatile, investors can take big losses in just days and even hours. Do not be too passive when investing in crypto assets. This is one of those asset classes where it pays to be vigilant and take a proactive role.

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

Two Self-Directed Roth IRA Funding Options for High-Income Earners

Retirement savers with high incomes have options for saving but putting them into a Self-Directed Roth IRA is not one of them. One of the critical differences between Traditional IRAs and Self-Directed Roth IRAs is income limits on contributions. It is a shame because a Roth could provide tax-free growth and tax-free withdrawals in retirement.

For the 2018 tax year, here are the income eligibility limits:

  • Single filer – $135,000
  • Married filing a joint return – $199,000
  • Married filing a separate return – $10,000

If you are part of any of these categories, you are probably not eligible to contribute to a Self-Directed Roth IRA. But that does not mean you have to rule it out completely. Your income does not have to be a total obstacle. Here are two suggestions to consider:

Think about a Roth conversion

Converting some or all of the funds in a Traditional IRA into a Self-Directed Roth IRA is a viable option. Of course, the conversion would trigger a tax bill on the converted funds up front, but your money would be growing tax-free from that point on. And since you pay the tax today, your distributions will be tax-free when you retire. This option makes particularly good sense if you think you will be in a higher tax bracket when you withdraw the funds and retirement is down the road a few years.

You can roll it over

While your Self-Directed 401(K) plan might not have a Roth option, you may still roll over to a Self-Directed Roth IRA if a triggering event occurs. Some of the most common events include:

  • Reaching retirement age
  • Termination of employment
  • Disability
  • Death

Talk to your employer to ensure that you meet one of your plan’s triggering events. Then, make sure that the amount you are taking is eligible for a rollover. Most distributions from retirement plans may be rolled over, but there are some that are ineligible. For instance, you may not roll over any required distributions you must take after reaching the age of 70 ½, and you will not be allowed to roll over any excess contributions you made.

Remember that when you roll over pretax funds, they will be subject to income tax for the year in which you did the rollover. You could be paying a significant tax bill if you roll over a large balance all at once. You might want to think about moving the funds over multiple years.

If your qualified plan has a Roth option, the tax consequences change. If there is a triggering event, you can roll these Roth assets into a Self-Directed Roth IRA. And because this transaction involves after-tax contributions, they are no income taxes due.

What about a Backdoor Roth?

In 2010, Congress passed rules that allowed retirement savers to convert funds in a Traditional IRA to a Self-Directed Roth IRA, paying the taxes on the distributions as they made the conversion. Higher-income earners were able to use this approach to gain access to a Self-Directed Roth IRA. Nicknamed a Backdoor Roth, it involves a two-step process:

Open a non-deductible Traditional IRA and make after-tax contributions. For 2018, you may contribute up to $5,500 ($6,500 if you’re age 50 or older).

Then, transfer the assets from the Traditional IRA to a Self-Directed Roth IRA. You can make this transfer and conversion at any time in the future. Some advisors are warning that the Backdoor Roth might not last forever. Restrictions on them might come at some point, requiring converters to pay a penalty, or they could include a grandfather clause. But for now, it’s an option to consider.

Seek professional help before rolling over or converting

If you are a high-income earner, you should consider everything before using retirement plan rollovers and conversions to fund your Self-Directed Roth IRA. Discuss these strategies with your team of professionals. Give us a call when you’re ready to make a move.

At American IRA, we believe that Self-Directed IRAs are the best vehicles for growing your retirement account. And we have the experience to help you with your transactions.

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

Hurricane Florence Insurance Claims Tips for Self-Directed IRA Owners

If your Self-Directed IRA property has been damaged by Hurricane Florence, you will probably be filing an insurance claim shortly. Here’s what you need to know.

 Safety first!

  • Do not enter damaged buildings until they are cleared. Buildings with structural damage or standing water and live electricity can be dangerous. If there is any doubt, have a qualified architect or engineer inspect your Self-Directed IRA investment property before entering or letting others enter the building.
  • Stay away from downed powerlines. They are potentially deadly. It is not unusual in the aftermath of any storm for individuals to electrocute themselves trying to pick up downed powerlines and move them out of the way.
  • Keep generators outdoors. Spread the word to your Self-Directed IRA tenants: Operating generators indoors leads to potentially lethal carbon monoxide buildup. Use generators outdoors.
  • Keep personal and Self-Directed IRA funds separate. Avoid the temptation to purchase repair supplies or pay contractors with your personal funds. Doing so may result in you committing a prohibited transaction and endangering the tax-advantages of the Self-Directed IRA

Please contact us at 866-7500-IRA (472) if we can assist you in any way.

Insurance tips:

  • Keep all receipts. Keep receipts for lodging, food and gas expenses you incur because of Hurricane Florence. Have tenants keep receipts for lodging, food and gas. These may be reimbursable expenses, depending on your insurance.
  • Keep track of lost rent. If you lose rental income from your Self-Directed IRA property, keep track of that, too. Your lost rental income may be reimbursable on your landlord’s insurance policy.
  • Protect your Self-Directed IRA property from further damage. You and your tenants have a duty to take reasonable steps to protect your Self-Directed IRA property from further damage from rain, mildew, mold, thieves, looters and vandals. Keep receipts for tarps, slipcovers, storage and other expenses toward this end, as they may be reimbursable under your Hurricane insurance policy.
  • Gather all damaged and destroyed belongings together in one place. This facilitates inspection by adjusters and helps them pay quick and timely claims. Do not throw anything away until the adjuster inspects it, or if emergency officials direct you to.
  • Inventory and photograph damaged or destroyed belongings. If your adjuster gives you a lowball settlement, you will need this documentation in order to contest it. Here’s a home inventory checklist from the South Carolina Department of Insurance. You can also use mobile apps like Sortly, Memento Database, and Magic Home Inventory, which allow you to take photographs, attach notes and receipts, etc., and upload the information to the cloud where it is safe from hurricane floodwaters.
  • Do not begin permanent repairs. Wait until the damage has been verified by an adjuster and the repair cleared by your insurance company.

For more information on hurricane, flood and homeowners’ insurance specific to North Carolina, Call the N.C. Department of Insurance consumer hotline at 855-408-1212 (toll free). You can also download the NCHurriclaims Toolkit here.

South Carolina residents: Your state has consolidated a list of claims office phone numbers here. North Carolina residents, you can look up your carrier’s contact information by clicking “Company Contact Information” on the left margin of the North Carolina Department of Insurance website.

Georgia residents, if you are having trouble contacting your insurance carrier, your state insurance commissioner Ralph Hudgens has established an insurance customer service hotline at 800‐656‐2298.

From all of us at American IRA, we wish you and your tenants the best of luck. Stay safe.

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

Self-Directed Real Estate IRA Basics: Investing in Raw Land and Timber

Most Self-Directed Real Estate IRA investing is done using basic residential properties as the investment vehicle: Single family 2- and 3-bedroom homes, condominiums, small apartment buildings, duplexes and quads. But there is nothing limiting you to these straight-ahead investments. Self-Directed Real Estate IRAs come in all kinds of varieties. If you find a compelling value in farmland, ranch properties, timber and other kinds of real estate investing, you can absolutely pursue it while still combining the advantages of real estate investing with the power of a Self-Directed IRA.

Advantages of Self-Directed Real Estate IRAs

Land is a unique investment with a number of key advantages:

  • Even in down markets, Self-Directed Real Estate IRA investments almost never go to zero.
  • Usually generates regular income.
  • Land produces food, timber, coal and oil – all of which have economic utility that is likely to last as long as civilization lasts.
  • You can build rental real estate on a piece of farm or timberland or rent space to advertisers and cell phone tower developers to further boost income. Other potential sources of revenue streams include renting barn and other storage space, natural gas rights, solar panel space rental, wind power generation, grain storage/siloing, summer and October hay rides for the community and special events.
  • Rental income and crop/livestock yields from a Self-Directed Roth IRA are tax-free.
  • Land/real estate is a historic hedge against stock market volatility.
  • Potentially increasing rents and yields amount to significant inflation protection.
  • With good tenants, farmland and timber land requires less maintenance and intervention from the landlord than residential and even commercial real estate. You do not have to worry about leaky roofs and faucets and 3 AM calls because of a stopped toilet.
  • Farmers generally pay rent twice per year – once in the spring and once in the fall. Which means fewer collection headaches for you.
  • Property management expenses are lower. This means your Self-Directed IRA can keep more of the rental income that might otherwise go to a property manager.
  • Farmland and timber land is a proven source of passive income – especially when any mortgages are paid off.

Successful land investors are aware of the risks: To do well in Self-Directed Real Estate IRA investing in farm, ranch and timberland, you should have a solid understanding of the industry and the communities in which you are investing.

Be careful to do a thorough title search to ensure you are not buying a property still encumbered with liens.

You should also be in a position to tie up money in the land for a long time. Transaction costs on land can be high, and land is notoriously illiquid. However, this illiquidity is part of the reason it is so potentially profitable – you will not normally need to pay a liquidity premium in the form of lower ROI for the privilege of quick access to your money. This is why Self-Directed Real Estate IRAs and other similar tax advantaged retirement accounts are ideal vehicles for this kind of investing: Time horizons for many Self-Directed Real Estate IRA investors is measured in decades, not months.

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

Potential Reforms Could Affect Self-Directed IRAs, 401(K)s

Some in Congress are looking at some retirement reforms that, if enacted, could affect Self-Directed IRA and 401(K) investors.

First, there is a proposal to increase the maximum contribution age for IRAs beyond 70½. Naturally, this would affect Self-Directed IRAs, too, since they are governed by the same rules.

This means that, if enacted, you would no longer have to cease Self-Directed IRA contributions once you turn age 70½. You would still be able to contribute up to $6,500 per year up until the new cap, which is still being worked out.

If contributions are still tax deductible, this would essentially render RMDs moot up until the new cutoff age. What is more likely is that the age cap will not be lifted altogether but just increased by a few years, and the age at which IRA and Self-Directed IRA investors have to begin taking required minimum distributions would be raised to match them.

If Congress makes this law, then chances are good they will do the same for other retirements as well, including 401(K)s, Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs.

On the whole, this would significantly benefit self-directed retirement investors, though if the ages are lifted across the board, it could mean a little less flexibility for people who are using health savings accounts as a retirement plus-up strategy, since, if the age change is applied to Self-Directed HSAs, they may have to wait longer before they can make penalty-free withdrawals for non-health-related expenses.

The other potential reform would require 401(K) plan sponsors to inform beneficiaries what income their current balance would generate if converted into an annuity.

There are a lot of details to be worked out about how precisely this would work. For example, any meaningful projection would require a lot of assumptions about inflation, as well as applicable interest rates at retirement time, which nobody can forecast with any reliability.

Unless there is some sort of exception carved out for Self-Directed Solo 401(K)s, this could get tricky. It is a simple matter for large investment companies to reprogram their computers to include an annuity income projection on monthly statements, using whatever set of assumptions Congress tells them they can use.

Self-Directed Solo 401(K) plans with self-directed investments do not have teams of computer programmers and analysts on the payroll to do this kind of work – which are a big part of why mutual fund expense ratios and annuity administration fees are such murder and can consume up to 25-30 percent of a retirement nest egg over a career!

(This is why we are big believers in our own flat fee-based pricing – it saves many investors thousands of dollars over time, and often thousands of dollars each year on larger accounts!)

The other difficulty is that the system would not apply very well to real estate 401(K)s. Rent yields, mortgages and leverage and the effect of eventually paying off those mortgages and leverage would be very difficult or impossible to account for in designing an algorithm suitable for all 401(K) beneficiaries.

So, we will have to see how this part of it plays out. We will keep you posted!

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

Excess Personal Debt Can Hamstring Self-Directed IRA Investors’ Retirement Plans

Making all your allowable contributions to your Self-Directed IRA or other retirement plan is a good start. The more you can put in, the more you may be able to take out of your Self-Directed IRA in the future.

But too many seniors are learning a painful lesson about retirement: If they carry too much personal debt, retiring can feel like swimming against the tide.

According to a recent survey from the American Economic Association, over 7 out of 10 Americans between the ages of 56 and 61 reported being in debt. That is an increase from 56 percent in 1994.

To make matters worse, the average debt balance carried by seniors in this age range has increased substantially: Using constant 2015 dollars, the median debt balance of seniors who carried personal, non-retirement fund debt was $32,700 – up from $6,760 in 1992.

The study’s authors pointed out that these increased debt levels can lead to several severe financial problems among those affected:

  • A steady drain on cash flow as those borrower’s struggle to make interest and principal payments.
  • The need to extend one’s working life.
  • Substantial interest rate risk: Debt service payments increase with each uptick in interest rates, resulting in more pressure on cash flow, or longer repayment periods or both.
  • Less ability to help family members in financial need.
  • Increased vulnerability to job loss and other economic shocks.
  • Pressure to take more in income from retirement funds than may be prudent.

With some 40 percent of single retirees receiving most or all of their retirement income from a Social Security check, excess debt is a particularly acute problem, says study co-author Annamaria Lusardi, the Denit Trust Chair of Economics and Accountancy at the George Washington University School of Business. “More and more, the current generation will have to deal with debt close, and into, retirement,” warns Lusardi. These debt levels contribute to what Lusardi calls “financial fragility.” The more debt you have relative to your asset levels, the more vulnerable you are to economic shocks and setbacks, she says.

Furthermore, the lower your consumer debt level, the more likely it is you will be able to make the maximum contribution to your Self-Directed IRAs and other retirement accounts.

Are you financially fragile?

The study’s authors developed a quick test, so readers can quickly tell if they meet the standard for financial fragility:

  • Your total debt to total asset ratio is greater then 0.5 percent.
  • You have less than 50 percent equity in your primary residence.
  • Your total net worth is under $25,000, or half the median annual income, which represents about six month’s worth of earnings for most people.

If any or all of these conditions apply to you, it is time to get busy. Your chances of a successful and secure retirement may depend on you getting a handle on and reducing or eliminating this debt.

  • Get aggressive about paying down credit card balances. Interest rates on credit cards are relatively high, even in today’s low-interest rate environment.
  • Call creditors and ask if they would be willing to accept a lump sum at a discount in exchange for ‘settled in full’ status on credit reports. This gets some debt off your balance sheet and may help boost your credit score as your debt utilization ratio falls. This in turn, may help you pay off debt that much faster. Keep in mind that forgiven debt is generally taxable as ordinary income.
  • Get a free copy of your credit report from com. You can do this at each major credit bureau once per year, and whenever you are declined for a new credit offer. Check your report, and challenge inaccuracies.
  • Sell assets to pay off debt. For example, selling assets in money markets and CDs may not be returning anywhere close to the interest rate you are paying on credit cards or other high-interest debts.
  • Be mindful of tax consequences. You may want to balance assets sold at a loss against assets sold at a gain to minimize capital gains taxes.

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