Invest in a Brighter Tomorrow with a Self-Directed IRA

 

         Build your financial future by maximizing your retirement assets

By Patricia Hightower, Road Home Investments LLC

Are you one of a multitude of investors who has recently experienced significant losses in your retirement account as a result of stock market decline?

In 2008 Americans were faced with the unthinkable collapse of large investment banks and corporations, combined with diabolical scandals targeting investors. The climate of fear created by scandals like the recent global Ponzi scheme masterminded by rogue Bernie Madoff, has some investors running for the proverbial hills with their nest eggs.

The Recovery Plan

Investors fed up with the shrinking of their retirement accounts and the shortcomings of financial entities entrusted with their livelihood, may want to consider taking control of their financial destiny and start building wealth with a self-directed IRA. The key advantage of the truly self-directed IRA is that the account owner is directly involved in the choosing of IRA assets. A self-directed IRA allows asset classes in both “traditional” investments such as stock, bonds and mutual funds and “non-traditional” investments like real estate (foreign and domestic), mortgages, notes, tax liens, LLCs, private placements and much more.

An increasing number of individuals are discovering the self-directed IRA, an investment vehicle that features the freedom to choose from this array of investment alternatives without being “pigeonholed” with the limitations of traditional stock market investments that brokers and bankers offer for your IRA.

The motive for Wall Street to monopolize your retirement portfolio is based on the steep “commissions” they make selling you their limited menu of financial products. Conversely, a custodian and administrator in charge of a self-directed IRA account will not (or cannot by law) sell you investment advice, financial products or charge commissions – they simply charge an annual fee of anywhere from $100 to $2000 dollars depending on the investment portfolio.

The Power of Diversification

Consider this. Most of us are familiar with the term “diversification” in regards to investing, are we not? Diversification is a concept often explained with the age old saying – “don’t put all your eggs on one basket.” Harry Markowitz, thought leader and developer of the Modern Portfolio Theory stated that diversification is the “free lunch of finance.”

Yes, it is deemed mission critical to maintain a diversified “mix” of investments in an investment portfolio. And the rather shocking fact is – the retirement portfolios of 96% of American investors currently held in inflexible traditional IRA accounts in banks and brokerage firms simply do not adhere to this traditional wisdom. (Buyer beware: the “self-directed IRA” offered by many banking institutions and brokerages is a “misnomer” – it is a term that implies that the account holder can only “choose” from the “menu” of stocks, bonds and mutual funds offered by the firm or institution.)

So why be limited only to stocks, bonds and mutual funds as an investment strategy to grow your assets? Should you settle for a 2 or 3% rate of return when you can reach for 20 or 30%, depending on your risk tolerance? A self-directed IRA allows for an endless variety of asset classes, with the IRS disallowing only 3 types of investments: Life Insurance, Collectibles and S Corporations. (reference: IRS Publication 590)

With optimum diversification and the reallocation of assets in a self-directed IRA, meeting your retirement goals can truly become a reality.

Get Advice

“Those that won’t be counseled can’t be helped.” – Benjamin Franklin. It is imperative that after opening a self-directed IRA account you consult with   experts to avoid breaking any laws or prohibited transactions pertaining to use of IRA funds. You would not want to be subject to stiff IRS penalties and losses due to lack of education and expert counsel.

In every investment portfolio, there needs to be a good mix of opportunity and risk. If you want to make money, you cannot cut out all risk, however the goal is to find an appropriate balance and every investor must decide what his or her risk tolerance is with the assistance of a trusted financial professional.

Real estate investing, for example, a historically safe and tangible investment, has created significant wealth for investors who understand the risk-return trade-off of this asset class. With real estate, a self-directed IRA investor has the security of a tangible asset, whereas the investment in a mutual fund you may not know “where” your money is actually invested. With your self-directed IRA, you can take control, choosing from a myriad of investments to round out and elevate your retirement portfolio.

The Approach

Six Steps to a building your financial future:

1)    Choose a top-tier custodian and open a self-directed IRA account

2)    Do your homework – continue to educate yourself on self-directed IRA investing

3)    Get advice on potential investments from your informed (specifically on self-directed IRA guidelines and investing) and trusted professionals (CPA, attorney, advisor)

4)    Seize higher yield investment opportunities employing investment growth strategies

5)    Capitalize on the incredible tax advantages – one key objective of a self-directed IRA is to provide a vehicle for a taxpayer to grow their wealth without being subject to income taxes on the gains

6)    Be accountable, taking a proactive approach towards improving investment returns, taking advantage of a greater breadth of investment options.

Take Responsibility for your Financial Future

It’s up to you.

Fewer than 4% of investors self direct their investments, are you ready to take an active role?

Taking personal responsibility in planning your financial future is more important than ever. Think about it. The amount of retirement savings you accumulate will have a direct and dramatic impact on whether you will be able to maintain your standard of living when you retire.

To maintain their standard of living, most people will need more than social security and their company retirement plan. With a self-directed IRA you have both the privilege and responsibility to make sound financial decisions for your IRA money. However, you must be prepared to educate yourself, enlisting the assistance of qualified informed professionals to achieve greater diversification and investment potential.

A self-directed IRA is an extremely valuable tool to create wealth when guidelines are followed and used efficiently with the proper allocation of assets.

If we remain proactive in educating ourselves about the various options and flexibility we have to grow our retirement dollars, we will indeed reap the benefits and prosper.

Why not take control of your financial destiny?

Invest in a brighter tomorrow with a self-directed IRA.

Patricia Reynard Hightower is a Managing Partner of Road Home Investments (www.roadhomeinvestments.com) in New Orleans, Louisiana, and a speaker and educator on Self-Directed IRAs. Contact: 504-586-3655 or patricia@roadhomeinvestments.com

Building Your Retirement Nest Egg While You Are Young

You can no longer follow the age-old traditional advice of putting all your assets into bonds, CDs and cash, which are more conservative. You have to keep investing actively and you have to diversify, or you’ll be forced to work beyond retirement. You must take retirement planning seriously and build some wealth while you are still young.

If you start early and are consistent about contributing, you can develop a tremendous amount of wealth.  Young people in particular have the opportunity to invest in things that simply didn’t exist years ago.  If someone in their twenties puts just $5000 per year into an IRA for seven consecutive years, and achieves an 8% growth until they retire at age 65, they will have over $1.2 million dollars.

Of course, larger contributions, continuing contributions, or a higher rate of return would yield even more money.  Getting started early optimizes the full benefit of tax deferred compound growth.

Don’t limit yourself to 401Ks and other instruments that give you limited investment choices.  Consider moving into more self-directed investments.   Self-directed investing allows for opportunities like private equity, real estate, foreign investments, foreign stock, and a variety of other investments.   Of course, self-directed IRA accounts are an excellent way to do that.

If you are young and make less than $100,000 per year, get started with a Roth Ira.  Effective January 1, 2010 there is an opportunity to convert a traditional IRA to a ROTH IRA with tax free growth for life, regardless of income.  You can even split up the tax impact over a two year period.  You can make non-deductible contributions in the next 2 years into IRAS, and then convert to a ROTH, and you won’t be paying tax on the non-deductible contribution amounts.  You’ll only have to pay tax on the growth of those amounts over the first two years.  Additionally, the first $10-12,000 will go into your ROTH tax-free.  Assuming 3 % earnings, overtime a ROTH IRA will pay off during your lifetime and will have additional benefits to your beneficiaries.  You’ll never pay tax on those earnings. 

Maximizing Retirement Savings While Minimizing Taxes

No matter what your age, you should always make your annual contribution to your IRA by the deadline of April 15^th of the following year. If you have available funds, you should also make your current yearly contribution early to get maximum growth before the end of the year. 

 

If you haven’t already, you should also consider converting to a Roth IRA to get started on tax-free growth. Unlike a regular IRA, with a ROTH you don’t have to take the money out when you reach 70 ½, there’s no required minimum distribution, and your money will continue to grow tax-free. In addition, if you continue to have earnings after retirement, you can continue to put more money into the Roth that will also grow tax-free. When you pass away and leave it to your children, it will continue to grow tax-free. It’s a great vehicle. 

 

There’s some risk involved because you’re paying the tax upfront, but the upside is that you will never pay taxes on any return on investment inside of a ROTH.

 

If you are 70 and have traditional IRAs, it’s time to take your mandatory distribution. You have until April 1^st of the year following the year you turn 70 ½. If you fail to do this, you will pay a penalty of 50% of the amount you should have taken. The mandatory distribution applies to all IRAs and must take into account the ending market value of all assets before calculation takes place.

 

You can also put up to $2,000 per child per year into an educational savings account. The child does not have to be related to you, and it has no effect on the child’s earned income. 

 

Now is a good time to consolidate retirement accounts into one and get the economy of fees and have the opportunity to be more proactive.

 

If you made too much of a contribution last year for any reason, you can undo it by April 15^th without penalty.

 

Make all your contributions to the maximum, particularly those that are eligible for a tax deduction.   Check your limits, speak too your financial planner or CPA and review your income levels to determine what deductions and contributions your eligible for, and max them out.

Maximizing Your Retirement Dollars

The good news is: we are all going to live a long life. The bad news is: we are going to live too long.  How will you have enough money saved to afford to live? Current life expectancy is 86, and continues to climb. The reality is if you retire at age 65, how can you be sure you’ll have enough to continue your lifestyle for the rest of your life?

 

The fact is, in 20 years, your dollar will be worth 45 cents. In January of this year inflation was 1%.  If that continues, it will destroy a lot of people’s savings over the years. You can no longer follow the age-old traditional advice of putting all your assets into bonds, CD’s and cash, which are more conservative. You have to keep investing actively and you have to diversify, or you’ll be forced to work beyond retirement.

 

The boomers that are now retiring are moving away from 401Ks and other instruments that give them limited choice investment, and are moving into more self-directed investments.   Self-directed investing allows for opportunities like private equity, real estate, foreign investments, foreign stock, and a variety of other investments.

 

The new concept of “life planning” is beginning to look at retirement as just another life stage, which may involve work, travel, research, whatever you choose to do when you are not dependent on your current occupation. It requires active planning and management by professionals. It’s only been in the last 10 years that the common perception is that we are going to live longer, and can start planning later in life.

 

In the past, retirement investing has been limited to stocks, mutual funds, CD, bonds, etc. Yet, a recent study of high net worth clients found that 55% of the highest performing, largest balance portfolios are heavily invested in alternative assets (about 80% of the portfolio). Alternative can be a good thing, a way to balance out and diversify your holdings.

 

Many financial planners suggest that you shouldn’t get a high yield in your IRA account, because if you do you’re going to have to pay more tax. Anybody that advises people not to grow their IRA may as well suggest not having an IRA. What’s the point of putting money in unless you will get a return?  You’re not intending to try to lose money by having an IRA; you’re trying to maximize the yield on all your assets through diversification and careful selection. You certainly don’t want to slow or limit your growth by picking investments that are not going to grow. That doesn’t make any sense. Sure, you’re going to have to pay ordinary income taxes, but isn’t it better to pay tax on something, than no tax on nothing? These common misconceptions occur because there is such a lack of knowledge on self-directed IRAs, because the topic is so new to many people and not yet in the mainstream (self-directed IRAs currently represent only 3% of total IRA assets).

 

The bottom-line is not what the tax impact is on investment, but whether that tax impact still results in a higher yield on the investment. Overall net after tax income is more important.

Retirement Accounts For the Self-Employed

How do you triple your retirement contributions? If you are self-employed, you can open a Solo K and contribute three times more per year than you can in an IRA.  A Solo K also has no income cap. 

 

Anyone who is self-employed or a sole proprietor is eligible for a Solo-K. It’s much better than a SEP IRA in that it allows you to put up to $15,500 away ($20,500 if you’re over 50) each year that will grow tax free for life.  It’s an incredible opportunity that only became available in January 2006. If you are self-employed and have a SEP IRA, you should consider rolling into a SOLO-K to take advantage of the after tax contribution limits.

 

If you are self-employed and have an IRA, but not a pension plan, open one and get started. With a pension plan, you actually get a larger deduction than you would if you were working for a company and contributing to their 401K.

 

If you are self-employed and maximize your retirement contributions using all the plans that are available to you, you can actually deduct up to $51,000 per year on your tax return.  So you get immediate deduction on your taxes for contributions to your Solo K. You’ll also get a deduction for a SEP IRA. Those are significant deductions that will not only save you money on taxes now, but will allow you to start growing those savings on a tax-deferred basis

Self-Directed IRAs

A self-directed IRA is no different than any other IRA, except that you as the owner direct the custodian to make the investments on your behalf. You select the investment.  You can work with advisors, planners, anybody you choose to make the selection, but YOU must decide what to invest in.

 

You can move your retirement plan from any IRA, Roth IRA, SEP IRA or Educational Savings Account into a self-directed IRA.  Those accounts are all eligible to move to a custodian that will allow you to self-direct. When you do move to a custodian, it does not mean that you have to liquidate all of your assets or take all of the money out of your existing IRA, you can leave some behind. You can liquidate to the extent that you want to. You don’t have to move all of it.

 

There are only two assets that you can’t invest in through a self-directed IRA: collectibles and life insurance. The other main aspect of self-directing is that you have to be making the purchase for investment purposes. You can’t, for example, invest in a house that your child will live in, as that would directly benefit him/her.  You and your family members are disqualified persons whom you cannot buy investments from or on behalf of.

 

Don’t keep all your assets in one “basket”.  It’s very important to diversify. The stock market is not presently doing well, but real estate is “on sale” and it’s a good time to buy.  Real estate should be included in almost every retirement account to diversify and minimize risk. You need to diversify your retirement account as much as you diversify other portfolios.

So what exactly is a Self-Directed IRA?

Simply put: a Self-Directed IRA puts the “I” back in IRA. That means YOU decide in what, when and where you want to invest your retirement money. The Self-Directed IRA is not limited just to the “traditional” investments of stocks, bonds and mutual funds. A Self-Directed IRA allows for investment by an IRA in ALL asset classes, including direct ownership of real estate assets. According to IRS Publication 590 guidelines, there are only three exceptions to this rule: Life Insurance, S Corporations and Collectibles (unless you have a Solo K IRA). 

 Investing in real estate for your retirement may serve as a means to diversify, allowing you to hedge against cyclical changes in the stock market. The market is always changing – your Self –Directed IRA will give you more latitude to diversify your holdings. Don’t let Wall Street monopolize your retirement account!

“Sixty-six percent of wealth creation in the U.S. has been through real estate and private equity, so why wouldn’t you invest your IRA in what you know?” says Tom Anderson, CEO and founder of Pensco Trust Company, one of the only U.S. firms dedicated to the administration and custody of Self-Directed IRA’s.

Are you currently looking for “alternative solutions” to diversify and build your portfolio? Road Home Investments, in partnership with Road Home Builders, facilitates real estate investing in the “new and improved” version of the city of New Orleans on the investment horizon. Real estate investments hold the potential to protect against the loss of principle while generating better than market rate returns through income production and capital gains. For “qualified” investors (accredited), we can clearly demonstrate the potential for return on investment so that will get you the “benefits” you deserve. Please request an investor form and we will email it to you. Liberate your retirement portfolio and DIVERSIFY.

In the last seven years the Self-Directed IRA industry has exploded – join those in the know and MAXIMIZE your retirement plan. Statistics show that only 2% of IRA investors have tapped into this emerging market, which leaves a huge opportunity for greater growth of wealth by diversifying into other IRA investment options.  Come and expand your knowledge — learn more about using a Self-Directed IRA to invest in a brighter tomorrow!

Invest in a brighter tomorrow with a Self-Directed IRA

Are you ON TRACK to meet your future retirement needs?

Today only four in every 100 working Americans will be able to retire comfortably and do the things they have always dreamed of — that means over 150 million Americans will never feel the benefits of their lifelong work…

Discover the POWER of a Self-Directed IRA and learn more about the wealth building strategies you can employ for YOUR future!

Road Home Investments was founded after the devastation of Hurricane Katrina to help rebuild the splendid, historic city of New Orleans. Our mission is two-fold in that we are both educators and hard money lenders providing short-term financing for investors in New Orleans. As educators we endeavor to share our knowledge, providing FREE seminars on alternative investing so that you, too, can take advantage of the tremendous growth potential that using a Self-Directed IRA can provide for your retirement portfolio. This emerging $4.2 trillion dollar market is growing at $200 billion per year, mostly from pension plan rollovers and (401K)s into IRAs as “baby boomers” retire.