Today, it’s no secret that most baby boomers are now playing “catch up” with their retirement funding. In just two generations, the career world has completely changed. Lifelong employment with a single employer with a gold watch and a guaranteed pension at the end is now a thing of the past. Moreover, the once “untouchable” Social Security Trust Funds have been regularly flooded with heavy Congressional borrowing for decades. It is not uncommon today for people to change jobs, homes, or locations every few years. Most now realize that they are primarily responsible for the size of their retirement income. But at the same time, with longer life expectancies, better health care, and better life choices, most adults know that inflation will reduce the purchasing power of Social Security benefits. However, many have relied solely on Social Security as the only way to save for retirement. They now know that this will mean living in poverty during their retirement years.
SELF-DIRECTED RETIREMENT ACCOUNTS.
If you’re a part-time or full-time investor or business owner, you have the best chance of controlling the size and timing of your retirement. The best options are available to you if you first set up a joint-stock company, a limited liability company or a limited partnership that you manage. Under improved legislation, monetary limits for contributions have increased and the range of investment choices has widened. So why pay someone to manage your retirement and “hope for the best” in the stock market when you can directly control your own destiny in retirement? Investing in assets that you know and understand is one way to limit your risk of loss and can give you greater control over results. Plus, IRA earnings are exempt from capital gains taxes, so the total dollar value of your IRA can grow much faster over the years.
MORE CHOICES AVAILABLE TODAY.
With a self-directed IRA or a self-directed 401(k), you act as your own investment manager. Along with the usual choices of stocks, bonds, mutual funds, options, and more, you can now invest in a wider range of non-traditional assets, including:
o Real estate investment property
o Mortgages and trust deeds
o Tax lien certificates
o Promissory notes / commercial paper
o Private Equity Offerings
o Property Rental / Options
o Limited Liability Companies
o Limited partnerships
o Commercial equipment rental
o Structured settlements
o Mobile home rentals
o Exchange offices
o Factoring of customer accounts
o Secured and unsecured notes
MAXIMIZE YOUR CONTRIBUTIONS.
Today, real estate investors can take full advantage of small business pension plans. These are just as easy to set up as traditional or Roth IRAs, but allow individuals to contribute considerably more than the allowances from these plans. Small business retirement plans include the SEP (Simplified Employee Pension Plan) IRA, SIMPLE (Savings Incentive Match Plan for Employees), and Solo 401(k) Plans. For example, there are two elements to maximizing the Solo 401(k) plan: (1) An employee salary deferral contribution of up to $15,000 (not to exceed 100% of salary); and (2) An employer contribution to profit-sharing capped at 25% of salary (20% for the self-employed). The total contribution from both sources is $44,000, but with a “catch-up” provision for those aged 50 and over who can contribute an additional $5,000 for an annual contribution of $49,000.
HOW TO STAY COMPLIANT.
To retain the tax benefits of your self-directed retirement account, you must avoid what the IRS calls “prohibited transactions” (which are essentially self-dealing type transactions). These include selling personal assets to your IRA; use your IRA as collateral for a loan; borrow money from your own IRA; purchase property for personal use with IRA funds (must be for investment purposes only); using IRA funds buy collectables such as art, antiques, etc. (although some coins minted in the United States may be exceptions); purchasing assets belonging to you or your spouse with IRA funds; and having your business located in property owned by your IRA.
ENSURING ASSET PROTECTION.
Self-directed IRAs and Solo 401(k) plans can (for liability protection) become “members” of a limited liability company (“LLC”). Although not required, it is the “smartest way to go” to preserve value and reduce liability risks – no matter what state you are in. In fact, your self-directed IRA or self-directed Solo 401(k) can become a Member LLC alongside the accounts of other co-investors and combine your IRAs together for better investment results. The LLC Operating Agreement for Self-Directed Retirement Accounts is different from other LLCs and provides a specific framework in which to operate the investment LLC as a self-directed retirement account so that everything is ready to invest at about the same moment.
SETTING UP YOUR SELF-MANAGED PLAN.
After months of reviewing different vendors, I found that for simplicity, ease of use, and 24/7 online access with downloadable forms and instructions, Equity Trust Company (in Ohio) was one of the most useful self-directed or self-directed IRAs. – Directed Solo 401(k) plan custodians. They are the starters and they will hold your hand while you learn the ropes. There are certainly others who are capable, but I have found Equity Trust Company to be among the most “user friendly”. My contact there is Mr. Tim Debronsky, whose email address is [email protected]. Tim’s direct phone number is (440) 323-5491 (ext. 329). At the beginning of the conversation, ask Tim to send you the “real estate investor package”.