Retirement


The Self Directed IRA store has put this guide together to answer your questions on rules for your IRA and other retirement plans. Your retirement program can be a 401k pension or an IRA. We will take you through the process of how to do a rollover, allowed investments within your self directed IRA, and how and when to take distributions from your retirement account.

Why choose an IRA rollover?


If you want to be in control of your retirement savings, a rollover transfers the control from an employer plan and gives you the ability to make decisions about your retirement money. You will decide important issues like when to take the distributions and in what amount. An IRA rollover is a way to avoid taxation. When you become eligible for your benefits you have immediate access to your money. Will you pay tax penalties or will you choose an IRA rollover? Choosing the rollover option means your benefits are tax-exempt. And you will continue to grow your assets in your individual retirement account. Because it is not taxable, it grows faster and you are not required to report yearly investment income or capital gains. You can choose a tax free Roth IRA or a traditional IRA; both can be self-directed IRAs. Your rollover IRA can be put in place simply and quickly, and with careful choices will be a great asset as you save for your retirement. If you have any difficulties or questions you can seek advise from your tax advisor.

Changing Jobs?


Career transitions have become a fact of life, with the average American changing jobs 7-10 times in their working life and staying in a job an average of 2-4 years. It is important to maintain your retirement plan as you go through these job transitions, because your assets stay safe from penalties and taxation within an IRA. For example: if you have only $2000 tax deferred at an average of 8%, with no additional contribution that $2000 will grow to $20,000 in 30 years. A rollover transfers this money in your retirement account safely into your new IRA.  You can choose a self directed IRA, a Roth IRA or a traditional IRA. Once the rollover has been executed, the investments are chosen and controlled by you, not an employer. And through future job and career changes, you maintain control of your individual retirement account.

Do your homework?

Who do you choose? Transfer your IRA to a custodian that meets your needs and allows you the freedom to manage your assets and grow your retirement savings to their maximum potential. Do your research and learn about the custodian’s track record to assure that you get a level of service that you need and expect. Be mindful of small print that can add taxes or penalties. When making the transfer, proceed carefully to avoid any paperwork errors and always ask for guidance from the custodian if you have questions or concerns. You want to avoid transfer errors that can cause unnecessary penalties. A careful transfer assures you maintain the tax deferred status of your retirement plan, and a careful choice of custodian can mean a significant difference in returns on your investments. Your individual retirement account is a great and powerful tool for your financial future. Careful choices will help preserve its potential.

Divorce?


Your divorce attorney should be able to answer your questions and offer advise to safeguard  your retirement accounts, and this is a discussion you should have clarified and documented prior to your final divorce hearing. Generally IRA retirement plans are classified differently in divorce proceedings, and are part of a Qualified Domestic Relations Order (QDRO) and should be documented to specify assets will be paid to a spouse as an alternate payee. In a divorce, the IRA falls under the court-approved divorce degree. In a separation, it is under a legal separation agreement.

Death

Even in such a difficult time for your family, there are decisions that must be made soon in order to preserve financial assets and to avoid loosing tax benefits. You may benefit from the help of a qualified financial expert as you discuss options and make decisions. Are you the beneficiary of an IRA or retirement plan from someone other than a spouse? Then you need to know the rules and regulations that apply to taking distributions from the account. The simplest and safest way to preserve the account assets is to leave the funds within the IRA, taking only the required distributions and allowing the balance to continue to grow. You are allowed by the IRS to take these distributions over the course of your life expectancy. You will have less taxable income yearly as long as you take the initial distribution within one year of the death of the original IRA owner. When you take this first distribution you will owe taxes on the amount taken. If you have been willed an employer-sponsored retirement plan that is not an IRA, you will use the Pension Protection Act of 2006, that allows you to do a rollover of the inherited retirement plan assets into your own IRA. This works for all individual retirement accounts, including self-directed IRAs, traditional IRAs and Roth IRAs as the receiving home for the rollover. Your financial expert can advise you and help you follow the guidelines to avoid any taxes and penalties.

Understanding IRA Types

The Employee Retirement Income Security Act was developed by congress in 1974 and has been modified many times over the years, adding more benefits but also tightening restrictions. The act was created to help citizens save money for their retirement years, and there are several types of Individual Retirement Accounts, or IRA’s, that we will discuss.

Contributory IRA

A Contributory IRA is simple. You contribute into this IRA from your earnings. The contribution levels allowed may change from year to year, but for those 50+ or older, there is an additional amount of contribution allowed…called the “catch up” to allow the individual to catch up on retirement savings.

Rollover IRA

A Rollover IRA is a new IRA created by a transfer of assets, from another IRA or from an employer-sponsored plan. The rollover transfer must be completed within 60 days to remain tax deferred and keep the assets safe.

Roth IRA

There is a difference between a traditional IRA and a Roth Ira. Contributions to a Roth IRA are not tax deductible on deposit, but once housed in the Roth IRA the assets are tax free. The benefit of a Roth IRA become apparent when you begin taking distributions at retirement: there are no taxes withheld on the distributions. You will need to qualify for a Roth IRA based on your yearly income threshold. Assets from a traditional IRA can be transferred into a Roth IRA, but you will pay taxes on those assets transferred at the time of the conversion. If, during the conversion year, your income exceeds $100,000 transfer to a Roth IRA is not allowed.

Inheritance IRA

For a surviving spouse, an IRA can become their own and is considered a rollover. This allows the spouse to continue making contributions to the IRA. Rules and regulations are different for non-spouses who have inherited and IRA, and no additional contributions are allowed.

Job IRA

Your employer should give you details on your particular retirement plan. Determine if an IRA is included in your benefit retirement program. You may have the option for a traditional or Roth IRA within your company plan.

Getting Ready to do a Rollover

You will research companies to determine which best suits your needs. When you’ve made your choice, the new custodian will provide you with the forms you need and instructions on how to execute your new IRA rollover account. When your paperwork is complete your assets are placed in the new rollover account for you to invest. It is an IRS requirement that all IRAs be held by an authorized custodian in order for accurate collection of taxes on distributions to be made. Finding the right custodian is vital to the growth of your assets. When making your selection, ask about charges for sales, expenses and transactions, determine if the chosen custodian can give you the level of service you require, and consider the investment options that are offered by each custodian. You may prefer a custodian that allows unlimited investment options over one that offers only funds and stocks from their own family of products. Be informed on fees for processing and handling, as well as yearly service fees. Some higher service fees may be helpful initially for investors who want tutorials and have a lot of questions.

Choosing Wisely – Investments for your IRA

This is what it is all about. It’s basic wisdom to have a balanced portfolio. Good investments mean a good return and a secure retirement. You’ve completed your IRA rollover – to a traditional IRA, a Roth IRA, or a self-directed IRA. And now it’s time to make some choices and begin building wealth within your individual retirement account. Both the economy and the market have seen big changes recently, and stocks are not producing to the levels many came to expect in the past. Reallocating your assets will help you take advantage of current market trends. The simple math explains: $10,000 in an IRA rollover at a fixed 5% rate, compounded annually, will give you $45,000 for your retirement in 30 years. But the same $10,000 at an 8% rate would give you $109,000 in the same 30 years. Higher returns make a huge difference to growth of your assets. Tactical allocation is vital. For example, an investment in a CM Yates real estate fund lets you benefit from a fixed return plus additional dividend, diversification over many types of properties, and the peace of mind knowing your funds are secured by insured assets.

Non-allowable Investments

The IRS has created a “prohibited” list for non-allowable investments. These are considered by the IRS to be luxuries, are not allowed and will be considered as distributions. There are taxes and penalties applied to anyone using their IRA to invest in collectible and prohibited items that include:

  • Artwork
  • Rugs
  • Coins
  • Stamps
  • Antiques
  • Gems, jewelry and metals
  • Wine, alcoholic beverages
  • Other tangible personal property

The exception to this rule may be US Treasury Minted Coins. Also allowable for IRA investing are gold and silver coins, and some gold, silver and platinum bullion. If you have any interest in these types of investments, contact your custodian to see if they offer this investment option.

You must be aware that you cannot borrow money from your IRA, sell property to it, nor are you allowed to receive unreasonable compensation for managing it. You cannot buy property for personal use with it or use your IRA as security for a loan. Even with the rules, regulations and restrictions, there are many investment options available to you within your IRA, and careful investments will make your retirement safe and secure.

Your IRA Distributions…How? When?

Get the advise you need in order to avoid extra taxes and penalties a mistake could cause when taking distributions from your IRA, because there are stringent governing rules. Penalties apply to early withdrawals and premature distributions, and taking the distributions incorrectly can impact Required Minimum Distributions (RMD’s.) When you reach age 70 ½ you are required to begin taking minimum required distributions, and failure to comply can cost you as much as 50% in penalties. The Internal Revenue Service has been waiting to collect the long-deferred taxes on these assets. Here are some basic guidelines:

Before age 59 ½

There will be a 10% penalty and appropriate tax on the distribution amount.

Age 59 ½ to Age 70 ½

No penalty on distribution, but appropriate taxes levied on distribution amount.

Age 70 ½

Required Minimum Distribution must begin now. No penalty unless you under-withdraw. Under-withdrawals are subject to a 50% penalty. Taxes still apply to distributions.

Inheritance IRA

Required minimum distributions must begin the year after the original IRA holder dies, but age does not apply here. The distributions are subject to income tax.

Special Note:

2010 offers a unique opportunity for some to avoid taxes being due when real estate is taken as a distribution. In 2010, the requirements to convert an IRA to a Roth IRA are waived. That allows investors to pay tax on the value of the IRA account now (at their 2010 income tax rate). Once that tax is paid and the asset is held by a Roth IRA, when the property is distributed at retirement NO tax is due on the asset at all. This is true no matter how much the value increases between now and when the investor retires. In the past, the investor needed to make less than $100,000 to take advantage of this option, but again in 2010 that requirement is waived and anyone can convert to a Roth IRA. It is a good thing for real estate investors to be aware of for 2010.

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