Retirement Archives -

March 10, 2013

Buy Real Estate with an IRA / 401k

When it comes to retirement accounts, most people invest in the standard menu of mutual funds and stocks. However with recent volatility and uncertainty in the markets, some bold investors are now looking at alternative options to get ahead.

It’s called a self-directed IRA. While most custodians are banks and broker-dealers that limit your holdings to “firm-approved” stocks, bonds, mutual funds, and CDs — Custodians of self-directed IRAs allow you to invest your retirement assets in other areas: real estate, businesses, private placements, foreign currency, and more.

An attractive element of a self-directed plan is that it allows you to create wealth by investing in areas where you might already have interest, knowledge, or even expertise. Some feel more comfortable having this discretion and control. While still a small fraction, self-directed IRAs may be a growing trend for investors. Of the roughly $4.7 trillion U.S. investors held in IRAs last year, an estimated 2 percent – or $94 billion were in self-directed accounts according to the Investment Company Institue.

Rules and Risks

While the flexibility can be attractive, there are substantial taxes and penalties if you don’t follow IRS guidelines properly. For example, in real estate transactions there are specific rules against self-dealing or renting property to your spouse or child. Make sure you understand all the rules before setting up a self-directed IRA.

Custodial firms that specialize in setting up self-directed accounts, such as Equity Trust, provide some guidelines. While they do not advise on legitimacy or suitability of a specific investment, their administrative guides may be helpful. As always, be sure to consult with an attorney or financial professional before making investment decisions.
Get Started:

[one_third last=”no”]Download the FREE GUIDE –
How to Invest in Real Estate Using your IRA.[/one_third]

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Understand IRA rules and regulations
Earn tax-free profits on real estate deals
Invest in real estate while reducing your tax burden[/checklist]

Equity Trust is the nation’s leading custodian of self-directed IRAs and 401ks – with over 38 years of experience, 130,000 clients, and $12 billion of retirement plan assets under administration. Equity Trust , a regulated financial institution, is made up of a staff of experienced professionals. As a passive custodian, Equity Trust does not offer investments or investment advice.

February 8, 2013

Ready to Buy that Annuity? Not so fast.

Annuities have become a popular investment tool in a retiree’s arsenal. Annuities have great appeal for the investor looking to mitigate the risk of losing a large portion of their principal when they need it most. But many people considering annuities don’t fully understand how they work. An annuity is a contract between you and an insurance company, designed to meet retirement and other long-range goals. You make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.

Below are some important considerations that should be noted before purchasing an annuity contract:

1. Early Withdrawal Penalties
If you withdraw your money early from an annuity, you may pay substantial surrender charges to the insurance company, as well as tax penalties.

2. Type of Annuity
There are generally three types of annuities — fixed, indexed, and variable. Variable annuities are securities regulated by the SEC. An indexed annuity may or may not be a security; however, most indexed annuities are not registered with the SEC. Fixed annuities are not securities and are not regulated by the SEC.

3. Death And Taxes
Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a specified minimum amount, such as your total purchase payments. While tax is deferred on earnings growth, when withdrawals are taken from the annuity, gains are taxed at ordinary income rates, and not capital gains rates.

Remember, if you withdraw your money early from an annuity, you may pay substantial surrender charges to the insurance company, as well as tax penalties. Annuities aren’t suitable for everyone. As always, be sure to consult with an attorney or financial advisor before making investment decisions.

photo credit: Steve Snodgrass

February 6, 2013

Understanding Variable Annuities

A variable annuity is a contract between you and an insurance company. The insurer agrees to make periodic payments to you, beginning either immediately or at a future date. You purchase a variable annuity contract by making either a single purchase payment or a series of payments.

The underlying investment options for a variable annuity are typically mutual funds which invest in stocks, bonds, money market instruments, or some combination of the three. The value of your investment will vary depending on the performance of the investment options you choose.

Variable Annuities have a few defining characteristics that make them different from other investment vehicles.

1. You receive periodic payments, in most cases, for the rest of your life.

2. They have a death benefit. If you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount.

3. They are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. When you take your money out of a variable annuity you will be taxed on the earnings at ordinary income tax rates.

Generally speaking, variable annuities are designed to be long-term investments, to meet retirement and other long-range goals. They are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early. Variable annuities also involve investment risks, just like mutual funds and other investments do.

Before buying any variable annuity, always request the prospectus from the insurance company or your financial advisor. Read the prospectus carefully – it contains important information about the contract, fees and charges, investment options, death benefits, and payout options. You should compare the benefits and costs to other variable annuities and to other types of investments.

source: U.S. Securities and Exchange Commission (www.sec.gov) photo credit: Iman Mosaad

February 4, 2013

59% of Retirees Make this Mistake

The Society of Actuaries found that roughly 59% of Americans surveyed underestimate their life expectancy after retirement. As a retiree or an individual approaching retirement, this miscalculation could put your future quality of life at risk when you need it most.

The report begins by explaining a trend that many know but fail to fully understand. Americans are living longer. In the past 50 years we have seen the life expectancy of men increase from 66.6 years in 1960 to 75.7 years in 2010. For women, life expectancy is also up from 73.1 years in 1960 to 80.8 in 2010.

It is important to understand that these are averages and that the people that die decades before their retirement actually bring these averages down. This means that the older you are, the higher the probability of you having a higher than average life expectancy. As the report notes, “By age 65, U.S. males in average health have a 40 percent chance of living to age 85 and females more than a 50 percent chance. The survivor of a 65-year-old couple is more than 70 percent likely to reach 85”.

The results from the Society of Actuaries survey shine a light on a number of issues that should raise concerns about the risks in a financial retirement plan. The main concern is the short planning horizon of many of the survey respondents. This is a very serious issue, especially for people that fail to recognize how just a couple of unplanned years at the end of our lives can put tremendous stress on our financial security and that of our loved ones.

In many cases, working with a financial advisor that understands the risks associated with outliving your money can help mitigate some of the concerns raised by the survey results.

You should consult with a financial advisor if you have any questions or concerns about your life expectancy assumptions and/or retirement strategy.

For a copy of the report, please visit the Society of Actuaries website www.SOA.org.

source: Society of Actuaries (www.soa.org) photo credit: Guerrilla Futures | Jason Tester