10 Reasons to Put Off Saving for Retirement

You hear it everywhere. “Plan to retire? Choose to save!” “Pay yourself first; write check #1 each month to savings.” It’s in the media, your friends and family remind you that saving for retirement is important and that nagging little voice keeps telling you to get busy, too. What’s a person to do? You need a list of solid reasons to put off setting up a retirement savings program. Here it is!

1. There are so many important things I need that money for NOW . An extra dinner out this week with the family. That new driver to revolutionize my golf game. The fancy pair of sneakers that make the whiz bang noise with each step.
2. There’ll always be time to save later . Let’s just focus on the here and now. Never do today what you can put off until tomorrow.
3. Maybe I won’t live long enough to retire . Life is so uncertain . Why should I miss out on the high life now when I might not even need to have money put aside for my old age? (If married, change pronouns in this reason to the plural.)
4. I love a challenge. Working into my 70′s or 80′s or 90′s can’t be that hard.
5. Social Security payments alone will take care of my needs. I know the average Social Security payment is $838 a month. And I’ll only need money for things like food and housing.. and medical care.. and clothing and..
6. I don’t know how to begin . There are so many ways to go about saving for retirement that I need more time to think about it. After all there’s the retirement savings plan at work and IRA’s and even investing in things like real estate. I just don’t know where to start.
7. I don’t know how much I need for retirement . But I bet it’s a huge number and I don’t think I can do it. So I won’t do anything.
8. Planning for retirement is such a big, complicated undertaking . There’s no one I can talk to about it. They’d know that I haven’t really started saving yet. That would be embarrassing. And how should I invest the money I save? Who can you really trust in this day and age?
9. I might get lucky. You never know, I may win the lottery. Or I may be remembered in the will of a long lost relative. Or I might find that my house is right in the middle of a diamond field.
10. Taking care of me financially will provide wonderful character-building opportunities for my children. And so many chances for me to feel warm gratitude toward them. 10-reasons-to-put-off-saving-for-retirement

Payroll Deduction IRA

What Is A Payroll Deduction IRA?

A payroll deduction IRA is a “no fuss” arrangement that any business can easily set up and operate to help employees save for retirement.  The arrangement is not subject to employer reporting and fiduciary requirements, as long as the employer keeps its involvement to a minimum.  Even if an employer is not in a position to adopt a traditional retirement plan for its employees, it may choose a payroll deduction IRA as a way to facilitate employee saving.

Here are some Payroll Deduction IRA facts:

• There are no employer filing requirements.
• There are no employer contributions.  The employee makes all contributions.  By making regular payroll deductions, employees can to contribute smaller amounts each pay period to their IRAs, rather than having to come up with a larger amount all at once.
• There is no requirement that an employer have a certain number of employees to set up a payroll deduction IRA.
• There is little administration cost.  The employer and IRA sponsor may absorb the costs of the payroll deduction program but not the regular costs of setting up and maintaining IRAs.
• Generally, if this arrangement is offered to any employee, the employer should offer it to all employees.

The payroll deduction IRA is a simple and direct way for employees to save for their retirement.  Some employees may find it helpful to save more retirement money through an automatic payroll deduction.

Providing a payroll deduction IRA for employees may assist an employer to attract and retain quality employees.

Like its more complicated counterparts, a payroll deduction IRA has four stages in its life cycle:  choosing, establishing, operating, and terminating.

CHOOSING

Since all retirement plans have important tax, business, and other considerations for an employer and its employees, the employer may wish to discuss any proposed retirement savings arrangements with a financial advisor.  Publication 3998 “Choosing a Retirement Solution for Your Small Business” can also assist the employer with this decision.

The payroll deduction IRA is one of the most simple retirement arrangements an employer can provide.  The employer merely withholds from pay the amounts requested by employees and promptly deposits these amounts into the employees’ IRAs.  Employee participation is completely voluntary, and the employer may limit the number of IRA sponsors it will work with.

Basically, by establishing a payroll deduction IRA, the employer has chosen a program that makes each employee responsible for funding their own IRA.  The employee has also assumed some responsibility for saving for their own retirement.

ESTABLISHING

Since the payroll deduction IRA is one of the most simple retirement savings arrangements that a business can have, it is easy to set up and operate.

The employee establishes either a traditional or a Roth IRA with a financial institution.  Then they authorize the payroll deductions.  All the employer needs to do is to withhold the payroll deduction amounts that the employee has authorized and promptly transmit the funds to the financial institution.  After doing so, the employer has no further responsibility for the amounts contributed.  Since the employer has no filing requirements for the program, the administrative costs are kept to a minimum.

OPERATING

Participation in this arrangement is voluntary.  Generally, any employee who performs services for the business (or “employer”) is eligible to participate in the payroll deduction IRA arrangement.  The employees should understand that they have the same opportunity to contribute to an IRA outside the payroll deduction program.  An employee’s participation in the payroll deduction IRA just may be their only source of retirement savings.  Each employee determines the amount.  Participants are always 100% vested in (they own) all the funds in their IRAs.

There are no employer filing requirements.

There are no participant loans permitted.  Withdrawals are permitted anytime and they will be subject to income taxes (except for certain distributions from nondeductible IRAs and ROTH IRAs) and, in some cases, also to a 10% additional tax if the employee is under age 59 �.

Contribution limits are:

• $ 3,000 in 2004
• $4,000 in 2005-2007
• $5,000 in 2008

Additional “catch-up” contributions are permitted for an employee who is age 50 or over.  This special catch-up amount is $500 per year for the years 2004 and 2005 and $1,000 for 2006 and beyond.

Employees control where their money is invested.  The financial institution the employee has selected to hold their IRA will manage the funds.  However, an employee may move their IRA assets from one IRA to another.  Depending on the offerings of the financial institution, IRA contributions may be invested in several types of investments – e.g., stocks or mutual funds.  Again, the employee is always 100% vested in their funds. IRA Information for Individuals has information to get you started on learning about investing your IRA funds.

Watch Managing Your IRA for more ideas about investing your IRA (Text version)

The employer must be a neutral party with respect to an IRA sponsor and investment choices.  The employee should also be made aware that the employer does not guarantee or promise any rate of return.  The employer is merely acting as a conduit.

TERMINATING

If the employer decides that a payroll deduction IRA no longer suits its business needs, the employer simply notifies the payroll department that the program is being terminated.  The employer may need to notify the IRA sponsor(s) that the employer will no longer be making such deposits.

The payroll deduction IRA can be terminated at any time provided the employees have been notified.  No notice of the termination is sent to the IRS.

RESOURCES

Additional information on payroll deduction IRAs is available on the IRS’s and U.S. Department of Labor’s (DOL’s) Employee Benefits Security Administration Web sites, http://www.irs.gov/ep and www.dol.gov/ebsa. For the IRS, go to the IRS Web address and click on “More Topics” in the “Topics” section and then click on “Types of Retirement Plans”.  For DOL, go to the DOL Web address and click on “Compliance Assistance for Small Employers.”

Related materials available from the IRS:

Publications

• Publication 3998 Choosing a Retirement Solution for Your Small Business provides an overview of retirement plans available to small businesses.
• Publication 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans),
• Publication 590 Individual Retirement Arrangements (IRAs)
• Publication 4118 Lots of Benefits, discusses the stages involved in the Retirement Plan Life Cycle.

Asset Exchange Group In The News!

Asset Exchange Group, LLC is the leading Self Directed IRA advisory firm in the nation. This web page contains just a small number of the articles and press releases that have been written about our organization. This page is also a great resource to learn about our company, to increase your knowledge concerning self directed IRAs and to discover what our clients are doing with their self directed retirement portfolios.

Operating Your SIMPLE IRA Plan

Contributions to a SIMPLE IRA Plan

Employer Contributions

Contributions to a SIMPLE IRA are made up of salary reduction contributions and employer contributions.  You, as the employer, must make either matching contributions or nonelective contributions.  The employer may choose either method of making employer contributions on a yearly basis.  Eligible employees must be told during the election period what method will be used for that year.

The SIMPLE IRA plan employer contribution is dependent upon which contribution formula chosen by the employer on a year by year basis:

• If you decide to make a 2% non-elective contribution, then each eligible employee must receive a contribution equal to 2% of their compensation regardless of whether the employee makes elective deferrals.
• However, if you decide to do the dollar-for-dollar match up to 3% of pay, then only the eligible employees who have elected to make contributions will receive an employer contribution, i.e., the matching contribution.

You may reduce this 3% limit to a lower percentage, but in any event, not lower than 1%.   You may not lower the 3% limit for more than 2 calendar years out of the 5-year period ending with the calendar year the reduction is effective.

No other employer contributions can be made to a SIMPLE IRA plan.

The definition of compensation stated in the document must be followed in the operation of the plan.  Compensation generally includes the pay a participant received from you for personal services for a year.

Employee contributions

Employees can make salary reduction contributions in any amount to a SIMPLE IRA plan up to the legal limits.  The maximum amount that an employee can contribute is $10,000 (starting in 2005).  This amount may be subject to adjustments for years after 2005.

Each year employees can change their contribution levels during the plan’s election period.  This election period must be at least 60 days long, and employees must receive prior notice about an upcoming election opportunity.  SIMPLE IRA plans that have already been established must have an annual election period that extends from November 2 to December 31.  A plan can have more election periods each year in addition to this 60-day election period.

Employee Catch-up Contributions

Additional employee contributions (known as catch-up contributions) are allowed for employees age 50 or over.   An employee who will turn 50 at any time during the year may make catch-up contributions for that whole year.  The additional contribution limit is $2,000 in 2005 and $2,500 in 2006. This amount may be subject to adjustments for years after 2006.

Catch-up contributions also may not exceed the lesser of the following amounts:

• The catch-up contribution limit.
• The excess of the participant’s compensation over the elective deferrals that are not catch-up contributions.

When Employees Want to Stop Contributions

Employees may elect to terminate their salary reduction contributions to a SIMPLE IRA plan at any time.  If they do so, the SIMPLE IRA plan may preclude them from resuming salary reduction contributions until the beginning of the next calendar year.  Employers that are making nonelective employer contributions must continue to make them on behalf of these employees.

When and where to Make Contributions

Salary reduction contributions must be made within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. Matching contributions or non-elective contributions must be made by the due date (including extensions) for filing your federal income tax return for the year.

After you send the SIMPLE IRA plan contributions to the financial institution you selected, that institution will manage the funds.  It’s worth noting that employees can move their SIMPLE IRA assets from one SIMPLE IRA to another. SIMPLE IRA plan contributions can be put into stocks, mutual funds, and other similar types of investments.  The IRA owner decides how the assets in the account will be invested.

You will need to give each participating employee an annual statement indicating the amount contributed to their account for the year.

Communicating with Employees

There are two key disclosure documents that keep participants informed about the basics of how the plan operates, inform them of changes in the plan’s structure and operation, and provide them a chance to make decisions and take timely action with respect to their accounts.

• The summary description is a plain-language explanation of the plan and is comprehensive enough to inform participants of their rights and responsibilities under the plan.  It also informs participants about the features of the plan.  This document is usually provided by the financial institution and is given to participants at the plan’s inception, when employees first join the plan, and annually thereafter.

Employers can satisfy the summary description requirement by providing employees with the most recent copy of IRS Form 5304-SIMPLE or 5305-SIMPLE provided by the Financial Institution (if one of these model forms is used to establish the SIMPLE IRA plan), along with the financial institution’s procedures for withdrawals and transfers.

• Each year, in addition to the information above, employees must receive an annual election notice describing their right to make salary reduction contributions and the employer’s decision to make either matching or nonelective contributions for the following year.  For employers that use one of the model forms, page 3 of Form 5304-SIMPLE and page 3 of Form 5305-SIMPLE contain a Model Notification to Eligible Employees that can be used to provide this information to employees.

Every year, during the 60-day election period at the end of the year, employees must be given the opportunity to enter into a salary reduction agreement or to modify an existing agreement.

How Does a SIMPLE IRA Plan Work?

Example 1:

Elizabeth works for the Rockland Quarry Company, a small business with 50 employees.  Rockland has decided to establish a SIMPLE IRA Plan for its employees and will match its employees’ contributions dollar-for-dollar up to 3% of each employee’s salary.  Under this option, if a Rockland employee does not contribute to his or her SIMPLE IRA then that employee does not receive any matching employer contribution from Rockland.

Elizabeth has a yearly salary of $50,000 and decides to contribute 5% of her salary to her SIMPLE IRA.  Elizabeth’s yearly contribution is $2,500 (5% of $50,000).  The Rockland matching contribution is $1,500 (3% of $50,000).  Therefore, the total contribution to Elizabeth’s SIMPLE IRA that year was $4,000 (her $2,500 contribution plus the $1,500 contribution from Rockland).  The financial institution partnering with Rockland on the SIMPLE IRA Plan has several investment choices and Elizabeth is free to pick and choose which ones suit her best.

Example 2:

Austin has worked five years for the Skidmore Tire Company, a small business with 75 employees.  Skidmore has decided to establish a SIMPLE IRA Plan for its employees and will make a 2% non-elective contribution for each of its eligible employees.  Under this option, even if an eligible Skidmore employee does not contribute to his or her SIMPLE IRA then that employee would still receive an employer contribution to his or her SIMPLE IRA equal to 2% of salary.

Austin has a yearly salary of $40,000 and has decided that this year, he simply cannot make a contribution to his SIMPLE IRA.  Even though Austin does not make a contribution this year, Skidmore must make a contribution of $800 (2% of $40,000). The financial institution partnering with Skidmore on the SIMPLE IRA Plan has several investment choices and Austin has the same investment options as the other plan participants.

Tax Treatment of Contributions

You can deduct your contributions and your employees can exclude these contributions from their gross income. For example, sole proprietors may deduct them on Schedule C (Form 1040), Profit or Loss From Business, or Schedule F (Form 1040), Profit or Loss From Farming, partnerships deduct them on Form1065, U.S. Return of Partnership Income, and corporations may deduct them on Form 1120, U.S. Corporation Income Tax Return, Form 1120-A, U.S. Corporation Short-Form Income Tax Return, or Form 1120S, U.S. Income Tax Return for an S Corporation.

Sole proprietors and partners may deduct contributions for themselves on Form 1040, U.S. Individual Income Tax Return. (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner’s Share of Income, Credits, Deductions, etc., you get from the partnership.)

SIMPLE IRA contributions are not subject to federal income tax withholding.  However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes.  Matching and nonelective contributions are not subject to these taxes.

Additional Operating Resources

The latest information on SIMPLE IRAs and other retirement plan topics is available on the IRS Retirement Plans web page at http://www.irs.gov/ep:

• Notice 1998-4
• Publication 560
• Publication 590

Just like our established clientele, we know you want the following that is provided through the-

CheckBook Control IRA, LLC:

* Absolute Checkbook Control of your IRA assets: You can write checks from your IRA with custodial-free ease.
* Investment Decision Control of Your IRA funds: You can be CEO of your financial portfolio. Get approval for your investment through a requirement-free process!
* Asset Protection through the IRA, LLC: Your retirement is safeguarded from Creditors and Litigators with Comprehensive Asset Protection.
* Most Minimal Custodial Costs Offered: A once a year custodial fee will keep your wallet full and will insure you are not spending your retirement years counting pennies, but counting memories.
* The Most Overall Value Across the Board: You get all of the above, plus investment strategies and products that are all included.

Contact Asset Exchange Group, LLC and learn how to set up a checkbook IRA LLC in order to purchase real estate or alternative non-traditional assets.

Is your Custodian making you count the shingles on the roof, while investors with checkbook control are writing checks for your great real estate deals?
“…management
of a Self-Directed IRA is a skill you can easily learn, and checkbook control isn’t something to be feared, but instead a measure of control that the investor should relish.

The Self-Directed IRA is a great choice for most people for retirement savings, and provides many options not available in other IRA’s. Among the benefits of the Self-Directed IRA are checkbook control, and the ability to have real estate in IRA holdings.

Checkbook control means that you can actually write checks against the funds in your IRA, and draw against IRA real estate assets. This can be a double-edged sword, and means that you should do your homework regarding what is, and is not allowed. Preferably when setting up an IRA LLC or any other Self -Directed IRA, you’ll find a company that provides good advice and guidance to help you stay within the rules, and help you avoid possible penalties.

To find out what the rules are and avoid breaking them an investor can read IRS publication 590, and the laws and amendments added by the Retirement Income Security Act of 1974 and the Taxpayer Relief Act of 1997 – the latter being the piece of legislation that created the Roth IRA. Most people would rather not take the time and do not have the legal training to comprehend the dense language Congress uses when writing laws. They simply want a self-directed IRA that allows checkbook control and having real estate in IRA holdings. A good IRA management assistance company

can assist you in the management of your IRA real estate holdings and the Self-Directed IRA itself. They can provide a wealth of information to keep you in compliance with IRA rules and regulations, while still allowing you to have checkbook control.

Self Directed IRA Rules for Checkbook Control

* Keep in mind that if you have IRA real estate assets, they cannot include property which you are gaining financial advantage from now. IRA’s enjoy a tax-advantaged status, and for that reason follow rules that are different from other forms of investment. These rules have at times discouraged investors. Some investors have feared that a Self-Directed IRA would be too time consuming and that the possibility of messing up and breaking a rule, thereby incurring a penalty, was too great. Keep in mind though that an IRA, even a Self-Directed IRA, really isn’t rocket science. The management of a Self-Directed IRA is a skill you can easily learn, and checkbook control isn’t something to be feared, but instead a measure of control that the investor should relish.

“…checkbook control
allows you flexibility in spending the funds, as long as you follow the rules the IRS has laid out. This allows you greater control over your own assets, and more control over your own destiny.

* Concerning your IRA real estate, keep in mind that it cannot include the house you live in. It also cannot include a house that an immediate family member lives in, nor can the IRA real estate participate in a time share arrangement. The IRA real estate, as part of your IRA portfolio must collect funds that go towards retirement. So a piece of rental property can be purchased with Self-Directed IRA funds, and be part of the Self-Directed IRA with the rents that it collects remaining a part of the Self-Directed IRA. This will, over time, allow your investment to gain value through rents collected, through paying off the real estate itself, and through increased value of the real estate, through improvements you may make to the property and naturally rising real estate values. Yet because this is real estate in IRA holdings the financial gains are tax deferred. If within a Roth IRA taxes are never paid on the earnings because a Roth IRA holds no tax liability after the initial taxes are paid on it prior to investment in a Self-Directed IRA.

Having checkbook control allows you flexibility in spending the funds, as long as you follow the rules the IRS has laid out. This allows you greater control over your own assets, and more control over your own destiny. The beautiful thing about Self-Directed IRA’s is that you can have as much or as little control over the account as you wish.

Getting checkbook control of your Self-Directed IRA is easy to accomplish with the right partner. Consider Asset Exchange Group LLC for that partnership. This quality company can provide six months of individualized “hand holding” after your checkbook control IRA LLC has been set up for you, and after the initial six month period is over they are still available by phone. The integrity of your Self-Directed IRA is as important to them as it is to you.

We can help you today. Feel free to pick up the phone and call us at (866)-683-5228 (Toll Free!) or visit our contact page and request IRA Real Estate information to be delivered to your e-mail Inbox.

Roth IRAs

A Roth IRA is an individual retirement plan that, except as explained below, is subject to the rules that apply to a traditional IRA.  It can be either an account or an annuity.  Individual retirement accounts and annuities are described in traditional IRAs.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up.  A deemed IRA can be a Roth IRA, but neither a SEP-IRA or SIMPLE-IRA can be designated as a Roth IRA.  Details about Roth IRAs are contained in Publication 590 Individual Retirement Arrangements (IRAs) and include:

• Setting up your Roth IRA
• Contributions to your Roth IRA
• Distributions (withdrawals) from your Roth IRA.

Investing basics and lots of other tips are included at A Beginner’s Guide to Investing, information provided by the Securities and Exchange Commission.

Watch Managing Your IRA (Text version) for more ideas about investing your IRA

Taxation of pension income – including distributions from Roth IRAs – is covered at  Link and Learn Taxes, a self study course on the IRS web site..

More Roth IRA Resources

• Publication 590 Individual Retirement Arrangements (IRAs)
• Publication 560 Retirement Plans for Small Business (SEP,SIMPLE, and Qualified Plans)
• Frequently Asked Questions about Roth IRAs
• IRS Forms and Publications for your Roth IRA

Web Site Resources

• FirstGov.gov is a one stop portal to access all federal government public websites.
• The latest retirement plan information can be found at www.irs.gov/ep.
• General tax information for individuals and businesses is located at http://www.irs.gov/.
• Other retirement plan information can be found on the Department of Labor’s Employee Benefits Security Administration (EBSA) site.
• The Social Security Administration site has information on your Social Security retirement benefit to help you plan your retirement savings strategy.
• The Securities and Exchange Commission (SEC) has many publications on investing and more.
• The Federal Deposit Insurance Corporation (FDIC) site explains how to determine whether your IRA account is covered by deposit insurance.

Is this the time to start a retirement savings program?  The answer, no matter how old you are, is probably yes!

Still not convinced?  See if you recognize the thinking in 10 Reasons to Put Off Saving for Retirement.

Taking Stock

• Where am I, financially?  The Securities and Exchange Commission has a plan to help you evaluate your financial situation.
• What will my Social Security retirement benefit be? Calculate what you can expect as your Social Security retirement  benefit and more.
• How much do I need when I retire?  Use this calculator from the American Savings Education Council (ASEC) to get an estimate of what you’ll need to have available at retirement to live as you’d like.

The American Savings Education Council (ASEC) is a nonprofit national coalition of public- and private-sector institutions undertaking initiatives to raise public awareness about what is needed to ensure long-term personal financial independence.

• Learn about retirement plans and the rules governing them on the IRS web site.
• The U. S. Department of Labor also has retirement plan information on its web site.

Getting Started

• Managing Your IRA video (Text version)

• What kind of IRA best suits my needs? Traditional IRA or Roth IRA ?
• Where and how should I invest my IRA?  We can’t give you advice about specific investments but this Securities and Exchange Commission information about investing will help you get started on making sound investment decisions and answer questions that may come up through the years you are managing your IRA.
• Is my IRA account covered by Federal Deposit Insurance Corporation (FDIC) insurance?

Nuts and Bolts: Operating my IRA

See Publication 590 Individual Retirement Arrangements (IRAs) for information on how your IRA works.

• Setting up your Roth IRA
• Contributions to your Roth IRA
• Transferring money or property to and from an IRA
• Handling an inherited IRA
• Distributions (withdrawals) from your Roth IRA
• Taking a credit for contributions to an IRA.

Publication 575, Pension and Annuity Income has information about the tax treatment of rollovers, hardship distributions and retirement income.

IRA related Forms and Publications are found here.

My IRA-funded Retirement Plan at Work

Learn how retirement plans funded with IRAs work.

• SEP
• SIMPLE IRA
• SARSEP
• Payroll Deduction IRA

Your IRA question may be answered at Frequently Asked IRA Questions.

The latest retirement plan information can be found at www.irs.gov/ep.  More information on retirement plans is found on the web site of the U.S. Department of Labor’s Employee Benefits Security Administration.

Many people mistakenly believe that if they have an account with a self-directed IRA custodian they are receiving the following benefits:

1. Structure analysis for potential prohibited transaction
2. Structure advise for maximum benefit
3. A reliable source of information
4. Tax advice
5. IRS resolution advice or representation
6. Investment autonomy
7. Low fees

The reality and reasons are as follows:

1. Custodians cannot and will not provide advisory services to clients.  They only act as a depository and reporting agency to the IRS.
2. As above the custodian is prohibited from providing information on investment structure or how to maximize return on investment.
3. Because custodians cannot and will not provide advice they sometimes relay information onto investors that reflect their policies rather than IRS regulation.  Unfortunately the statements are never preceded with “this is our policy” their statements always sounds like IRS code.
4. Custodians cannot offer any advice for tax issues such as UBTI
5. If you are audited you are on your own or with your current tax advisor unfortunately that can be very expensive and there are very few professionals that understand this portion of the code.
6. As in explanation number 3 the custodian may not allow certain investments and once again there may be no IRS issue it is just policy.
7. With most custodians your are charged in several different ways and each of the following may bring the total cost to 2% or more of the account value.  These fees may include but not limited to:
   Asset value fee
   Transactions fees (per check cost)
   Investment evaluation fee

What is the solution?  The IRA LLC which provides advisory services plus a one-time set-up fees and truly a low cost annual custodial fee.  To learn more click here.

Lucky are those who have 401(k) plans provided by their employers. They probably don’t realize how lucky they are until they get the golden handshake or are offered a severance package that’s too difficult to say no to. If their 401(k) funds were managed intelligently, then departing employees can take their 401(k) and convert it into a self-directed retirement fund to either purchase a business or invest in real estate.

The employee-sponsored 401(k) plan can actually be rolled over into a self-directed 401k or any other type of retirement fund (e.g. ROTH). It is the “self-directed” component of the plan that enables individuals to invest their money either in certain allowable investments or in US-based or foreign real estate.

The IRS has a list of allowable investments that investors should pay heed to. Investors can use their retirement money to buy into a franchise business, for instance, or else invest in thoroughbreds.

Because of intricate tax issues that govern retirement or 401(k) plans, individuals who are seriously considering buying a business with their IRAs should consult not only a competent lawyer or firm with attorneys that have years of experience in the self directed retirement arena, but also a self directed 401k advisor as well. That is why the arrangement between NAFEP and Asset Exchange Strategies

Real Estate: A Clear Favorite

Owing to the impressive ROI generated by real estate investments, IRA advisors are urging their clients whose 401(k) plans are tied to traditional investments like term deposits and mutual funds to convert their plans to self-directed IRAs for an enhanced degree of flexibility in managing their investments. It is unfortunate that a significant number of people nearing retirement age are still unaware of the potential opportunities open to them and their retirement portfolio.

For as long as we take the driver’s seat with our funds – only possible when we roll over our 401(k) into self-directed plans – we need not wait until the magic age to begin investing funds into more profitable channels. If an individual’s dream has always been to operate a bed and breakfast, for instance, that individual can buy property to serve as a B&B entity without being penalized. Those who think big can also monitor Donald Trump’s construction activity overseas and invest in his real estate developments. Word has it that Trump is currently building the Trump Plaza in Panama.

Self Directed IRA versus a Self Directed 401k

A self directed 401k plan might be more advantageous than a self directed IRA when purchasing real estate if you

(1) want to put sweat equity into your investment
(2) earn a salary for managing your property
(3) loan yourself money as a short term bridge loan
(3) if you want to use the funds in your retirement plan as the down payment for your investment
(4) or use recourse financing or financing that is in your personal name.
(5) if you want to occupy part of the property and rent out the rest of the space.

A self directed IRA has many more restrictions and than a self directed 401k plan. In a self directed IRA, you cannot put any personal work into your investment property even if you have checkbook writing privileges. In other words, you can’t do the landscaping on your investment property or much less pay yourself a salary to do the work even if you could save a buck or two. You cannot extend credit or loan money to your IRA plan.

Buying a Business with 401(k)

While this is a perfectly legitimate move on the part of retiring individuals, it is important to seek the guidance of an experienced IRA Advisor who knows the legal provisions 100%. There are some instances where there no tax penalties are imposed provided the rules are respected. There’s also the age factor. If you withdraw your retirement funds before 59-1/2, you could be subject to tax (which the IRS will consider as taking distributions out). This is why it is essential for your advisor/Advisor to stay on top of IRS rulings which, we all know, have a tendency to change with the seasons.

Buying a business entails risks. You should assess the feasibility of the business using certain parameters: do you have sufficient financial resources to sustain the business on a long term basis? Is the business something you are familiar with? Is it a business that fits in with your temperament and lifestyle? Do you have a marketing plan in place that includes promoting your business, especially online?

The idea that should be paramount in all investors’ minds is that if the business or real estate property will yield profits so that the retirement fund does not get eroded and can finance a lifestyle that the investor is comfortable with, then investing the 401(k) plan shall have been worth the exercise.

Give us a call today to get started investing with your own Self Directed IRA:
888-683-5228

SIMPLE IRA plans are NOT required to file annual Form 5500 reports with the government.

Distributions from the plan are reported by the financial institution making the distribution to both the IRS and the recipients of the distributions on Form 1099-R.

The financial institution/trustee handling the SIMPLE IRAs provides the IRS and the participants with an annual statement containing contribution and fair market value information on Form 5498.

SIMPLE IRA contributions are not included in the “Wages, tips, other compensation” box of Form W-2, Wage and Tax Statement.  However, salary reduction contributions must be included in the boxes for Social Security and Medicare wages.