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21 Apr 2014
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Can You Trade Stocks Using a Self Directed IRA?

Combining the potential for profitability from trading stocks with the financial benefits of a self directed IRA is not only possible; it can be very advantageous.

Using a self directed IRA to trade stocks allows you to simultaneously accomplish 3 major goals:

1. The freedom to make your own purchase decisions
2. The ability to compound growth
3. Paying the least amount of taxes or no taxes at all!

In order to be able to trade stocks inside of your self directed IRA, you have to follow a process. There are a lot of details surrounding each step, but for the purposes of this post we will generalize the process. First, you need a self directed IRA. Then, you create a brokerage account with a broker of your choosing (i.e. eTrade, TD Ameritrade, etc.). Finally, you tell your self directed IRA to invest in the brokerage account which is where you buy and sell shares.

The brokerage account is an investment choice just like a piece of real estate. You, as the SDIRA owner, have to fill out a form called a “direction of investment form” that instructs your custodian to transfer funds to a specific investment. In this case, that investment would be the brokerage account. Then you use the brokerage account to handle your trades. Any profits earned on the brokerage account are deposited back into the self directed IRA. It is also important to note that before deciding to set up a brokerage account inside of your self directed IRA, you should definitely read and understand the rules for prohibited transactions with a SDIRA. We would suggest that you speak with a professional as well. You want to make sure that you have all your ducks in a row as to avoid unnecessary fess from the IRS.

Depending on how you structure your self directed IRA, the money deposited back into the account can be tax exempt. This is true because a SDIRA can be set up as a ROTH account. Think about that, money made by trading sticks can be tax exempt.

Not everyone is a trading wizard but for those people who are stock savvy it could be very advantageous to trade stocks using the self directed IRA.

For more information, Contact Us.

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7 Apr 2014
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3 Tips for smarter and more profitable retirement planning

Whether you just graduated college or are looking forward to retirement, it is important to have a solid plan for your finances. We believe in a “self directed philosophy” when it comes to retirement planning and that each individual should be in control of his or her financial future. Each person is a little different and will need to structure their own plan differently, but there are a few general insights into retirement planning that we want to share.

 

3 Tips for a smarter and more profitable retirement planning

 

1. Don’t just set goals, understand your goals

It is easy to set goals for yourself. “I want to lose 100 lbs by summer.” “I want to make a million dollars next year.” Anybody can set any goal they want, but if those goals are not obtainable then really they are just wishes. Setting obtainable goals for yourself requires you to understand where you are now and what it will take for you to get to where you want to be. Ask yourself, “If I want to have a million dollars set aside for retirement, what will it take from me to get there?”

 

2. Know your resources and how to use them to the fullest potential

Resources come in all shapes and sizes. They can be people, online tools, or even your own personal knowledge. In order to have great retirement planning skills, you have to be able to know what resources you available to yourself and how to use them. For example: If you have been working in the real estate industry for years and know how to analyze markets then why not utilize your knowledge as an investment resource? You could invest your IRA into trust deeds, rental homes, apartment complexes, and more.

 

3. Understand the time value of money

The most powerful financial mechanism in the world is compounding interest. This happens when you use the interest earned on an investment to earn more interest, literally interest on top of your interest. The reason that money has “time value” is because the longer you are able to build interest on top of your interest, the more exponential growth your portfolio will see.

 

 

Narrowing down retirement planning into 3 general tips is helpful, but it definitely won’t cover everything you should know. USelfDirect.com is jam packed with all kinds of tools and resources that can help you better plan for retirement.

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28 Mar 2014
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Funding a business with an individual 401k

If you have been thinking about starting your own business or investing in a business start up, then chances are that you have considered business funding. Many people think that the only way to get money to start a business is to walk into the bank and request a business start up loan. Getting a loan from the bank is an option, but is it really the route you want to go down? You would have to pay back the loan on a timeline determined by the bank, pay an interest rate determined by the bank, and may have to structure your business differently due to the bank’s requirements. The deeper you dive into getting traditional startup financing, the less control you actually have over the business. This is enough to make many individuals hesitate before quitting their day job, but before throwing your arms up in the air let’s discuss another option; one that gives you much more control over your business and how to fund it.

The individual 401k – customized business funding

 

The individual 401k is structured in a way that gives you complete control over your business, your own salary, and how you choose to fund your business. This is because the individual 401k is really made up of 3 parts:

  • The business owner
  • The actual individual 401k account
  • The corporation

The business owner is you, and you can decide to take a salary from the business or to just have the profits feed right into your retirement account.

The individual 401k account is your retirement. It is also the source of funding for your business. You can choose to invest directly into the business or to take out a loan to fund your company. Profits from the business will go back into your account and/or pay off the loan with interest to yourself.

The corporation is your actual company. Its structure is somewhat dependent on how you decide to pay yourself (or not) and whether or not you want to take a loan out from your retirement.

It is also fairly simple to roll over existing accounts into a new individual 401k. Therefore is it very possible for you to start your business or invest in a new business with money that you already have. You don’t have to pay a bank. You don’t have to forfeit control. You don’t have to wait!

We recommend viewing our pages on the individual 401k for more information. If you are considering opening a new indi-k then we do also recommend talking to a licensed custodian with legal staff on hand. You definitely want to make sure that your corporation and account are set up properly. We can help you find a custodian that is right for you!

Contact us!

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7 Mar 2014
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Benefits of a Roth IRA

What are the key benefits of a Roth IRA?

 

The Roth IRA is quickly becoming one of the most popular investment vehicle choices made by Americans and it is no surprise why.  A Roth account can save you from shelling out a ton of money in taxes when it comes time to retire. If you set up a self directed Roth IRA then you can double down on the benefits of less taxes and a wide range of high earning investment choices. We put together this article to help shed light on some of the key benefits of a Roth IRA.

 

The most profound benefit delivered by a Roth IRA is the ability to take tax-free contributions. A person can contribute after-tax income into the account up to a specified amount each year. Then, the earnings inside that account are grown tax-free. For example, if you started a Roth IRA with $50,000 and it grew to $100,000 then you would not pay taxes on the $100,000 when you took withdrawals. This is a huge advantage because the money you start the account with is usually less than what the account grows to and therefore you pay significantly less in taxes.

 

With a Roth IRA, time is on your side. The earnings inside of a Roth account are tax free and that means that it benefits you the most to start the IRA as early as possible. Ever heard of the power of compounding interest? Well, imagine compounding interest inside of an account for 20 years and never paying taxes on those earnings.

 

Now, it is also possible to set up a self directed Roth IRA. Self directing the account opens up a whole new world of investment options like rental homes, trust deeds, tax liens, and much more. These investment options can result in high earnings in many cases. Combine that with the tax advantage of a Roth IRA and now you have one powerhouse of an investment vehicle.

 

Want to learn more about other benefits of a Roth IRA or different account types? Please head over to our Knowledge Base section of USelfDirect.com for more insight.

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11 Feb 2014
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What are the Best Retirement Investments?

What are the Best Retirement Investments?

The best answer to that question is  that there is no such thing as the best retirement investments. The reason for that is because everybody’s financial situration is a little different. What might be the best retirement investments for a 30 year old just starting their IRA are going to be totally different than what is good for someone who is only 10 years away from retirement. However, we can shed some light on some different self directed investment strategies that we think are worth taking a look at.

 

Single Family Rental homes

 

Single family homes are amongst the most popular real estate investments in all of the United States. Today’s low prices and surplus of available properties make purchasing single family rentals a great place to seek out investment opportunities. This investment vehicle also has the ability to allow investors the opportunity to bring in a monthly income.  This can turn out to be a grat investment if you can handle managing the property (or hiring a property management firm) and are prepared to have a vacant property every once in a while. Not for everyone, but definitely one of the best retirement investments out there.

 

Apartment Buildings

 

Like a monopoly game, at some point it may be beneficial to trade in the little houses and upgrade to a big apartment building. One apartment building may provide as much cash flow as 20 little houses. Some additional advantages to these types of investments is that the more units you have, the less impact a single vacancy will affect your monthly cash flow. That said, apartments require much more due diligence and it is important that you have a professional assist you in this process.

 

Vacant Land or Land Banking

 

Land Banking involves the purchase of land at or below current market rates. This property is held until the value matures, and it can be sold at a profit. Now, have there been occasions where land increased in value more rapidly than expected because of a growth spurt along the path of progress happening faster than expected? Absolutely. However, for the most part, you want to consider this type of investment a long term one. Keep in mind that raw land is NOT income producing, meaning your IRA must be able to carry the payments, interest, taxes and (if you choose) development costs.

 

Buying Foreclosures

 

A foreclosure home is one that is currently being foreclosed upon by a bank. Foreclosure is a legal process through which the homeowner’s property rights are terminated, usually due to a failure to make the mortgage payments. Typically, the bank who owns the mortgage will try to sell the home as quickly as possible, sometimes through a public auction. To secure a quick sale of the foreclosure property the bank will often sell at a low starting price as well. Foreclosure properties can be a good source to find cash-flowing rental properties

to invest in.

 

Mortgage Notes

 

A mortgage note can be bought or sold by a private individual. When you, as a private party, buy mortgage notes, you essentially become the lender on the mortgage. You literally become the bank. Whether you buy or sell mortgage notes, the mortgage note is a type of investment that allows you to earn a known rate of return on your investment for a specified duration of time.

 

Trust Deeds

 

Trust deeds are short term loans meant to help Real Estate investors buy a property quickly. They are willing to pay higher interest rates for the short term loans (6-24 months on average) in exchange for obtaining purchase monies rapidly. The RE Investor will offers the Trust Deed investment will typically either: sell the property right away and repay the loan and interest; or, repay the trust deed loan when they refinance the loan with long term traditional financing. Trust deeds are used in the short-term; therefore they earn you a higher interest rate. When you invest in a trust deed the loan that you give out is completely secured with real property. Your trust deed is recorded with the county recorder’s office and you show up in the first lien position. If the investor who borrowed money from you fails to pay, the property itself can now be acquired through foreclosure. With trust deeds, you have collateral on your money. Having a secured investment is a big deal, and so are the returns you can earn from investing in trust deeds. You can expect a fixed rate of return between 5 to 15 percent. This rate is much higher than the rates of CDs, money markets, or bonds. The rates never change in trust deeds.

 

 

Invest in what you know

 

Our point here not to sway an investor one way or the other.  What the “best retirement investments” are will be up to you. The goal is to help you determine which path is right for you. If we were ever to give any piece of advice it would be to “Invest in what you know and understand.”

 

“If you are pepared to invest, then you ought to be able to explain why in a simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” – Peter Lynch

 

To learn more about different investment options or to get resources on how to take part in any of the investments we have discussed in this article, Contact Us today.

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11 Feb 2014
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401k Rollover to IRA

401k Rollover to IRA – What to know before making the transfer

Imagine that you had been working for a company for over 10 years. You had a good benefit program and each year your employer matched your contributions to your 401k plan. Now, for whatever reason, you have had to change jobs. Maybe there were layoffs, you moved to a different state, or maybe you just wanted a change of pace. You take a look at your old 401k and are thinking about what options that you have with it. Sure you could transfer it to a new 401k with your new employer, but perhaps there are more 401k rollover options that could be better for you. One of those options is to do a 401k rollover to IRA transfer. This article aims to provide some clarity as to the benefits of doing a 401k rollover to IRA transfer and what you can expect during the process.

The first major difference between rolling over your 401k into an IRA as opposed to rolling it into another 401k is that you will be transferring your account into a personal account.

An IRA is typically an account that is held by an individual alone, not by an employer. Now, we say typically because there are some cases where an employer will include an IRA as part of their benefit package. If that is the case, then the transfer process will be very similar to how we outline it in this article, except you will probably have a plan administrator to assist you. For the purposes of this article, we will assume that when doing a 401k rollover to IRA transfer that the account will be transferred to a personally held IRA.

Having a personal IRA means that you will have to find an IRA custodian or broker to actually hold your account.

There are many commercial entities out there that offer these services and they all have different benefits. When doing your research it is important to work with someone you can communicate well with and who listens to your goals. One of the cautions of working with a standard IRA broker is that you will most likely have to work with an advisor and will have to pay higher fees as a result. You were probably paying fees with your previous 401k too, so you might not see too much of a difference when transferring over to an IRA. Finding the right custodian or broker is important because this is going to be a company that you will probably work with for several years, you want to be able to trust them.

You can also do a 401k rollover to IRA transfer to a self directed IRA.

Self directed IRAs offer many more investment choices than a traditional IRA and can give you more control of your account. Another difference is that self directed IRA custodians do not employ advisors, so you will typically see fewer fees taken out of your account.
Whether you choose a traditional IRA or self directed IRA it is important to do plenty of research. USelfDirect belives in the power of knowledge and we think that you should too! That is why we have loaded our site with tools and resources to help you during your investment journey. We have also employed an excellent staff of IRA experts that can help answer your questions.

More Info on IRA Types

Contact Us

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23 Jan 2014
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Case Study: Translating a Few Hundred Dollars into a Hundred Thousand Dollars

Case Study: How To Take $560 and Turn it Into $100,000

The difference between using an IRA to invest in stocks, bonds, ETFs, real estate, or any other investment could save you HUNDREDS of dollars. If used correctly, those savings could translate into tens of THOUSANDS of dollars. We had a client send us a testimonial recently. She was so happy that we were able to show her how to save a few hundred dollars every month and increase her portfolio returns. Let’s use Beverly as an example to demonstrate how much of a difference only a few hundred dollars can make. Here is the actual testimonial:

“USelfDirect helped me change my self-direct IRA from making $0.00 in bonds to safely investing it in commercial real estate with a return at a much higher interest rate than I could have made from any bank, and certainly from my stagnant IRA… I was able to pay off my car faster and now I have $560.71 more freed up every month! I would recommend USelfDirect and their competent associates to anyone in the whole wide world who wants to put his or her money to work for them and realize a profit.” -Beverly U.

Beverly was able to save over $560 a month by simply reworking her investment strategy; that is over $6,000 a year! Here is how that translates into a huge difference:

Let’s be modest and say that Beverly is able to put half of her savings into her Self-Direct IRA every year, so about $3,300 in contributions. Using strategies that she learned from USelfDirect, let’s say that she was able to get an average 7% annual rate of return over a 10 year period.

If Beverly could continue saving at that same rate, then she would have $94,773 within 10 years!

Now, using her Self-Directed IRA, she would then be able to purchase an actual piece of property. That could be a rental home, a house to rehab and flip, or another investment option. Now not only is she earning money from her original investment strategy, she just folded in another huge source of income.

We used Beverly as an example but these types of results are very realistic. At USelfDirect, we don’t want to fill people up with false promises. We aim to provide real solutions for individuals just like Beverly.

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8 Jan 2014
0

Multiply the power of your Self-Directed IRA.

 

 

Partner with other Self-Directed IRA investors and become an investment powerhouse!

 

Imagine looking for the perfect real estate deal or perhaps a really great business to invest in. Let’s say that you found it, the returns look great, and the risk is minimal. You take a look at the investment amount and realize that it is 10 times the amount that you actually have in your IRA. Most investors would be let down and think to themselves “How am I ever supposed to make the kind of returns I want to, if I don’t have hundreds of thousands of dollars ready to invest now?” On the other hand, the Self-Directed investor would rest assured knowing that he or she could invest without any problems.

The secret that the self-directed investor knows about is that you can actually partner with other self-directed IRAs on certain types of investments in a completely legal and IRS approved fashion. The simplest way to explain how this works is with a real estate transaction. Let’s say that there is a piece of property for sale that cost $200,000 and that you wanted to purchase that property in order to use it as a rental home. The only problem is that you only have $50,000 in your IRA. If you had a self-directed IRA then you could legally partner with other self-directed IRA owners and all go in on that property. The next step either finding other self-directed IRA owners or getting access to an investment network that finds multiple investors for you. (These types of investment networks do exist and USelfDirect can help you find one.)  Now, let’s say that you found 3 other investors all with $50,000. Together you could purchase the property. Once the property was rented out then the rental income would be split proportionately amongst the investors, in this case, four 25% portions. That income would go right into your Self-Directed IRA.

The above example illustrates the basic formula to partnering with other Self-Directed IRAs. If you or someone you know is seriously considering this option, then we suggest you speak with a licensed professional in order to make sure that you are investing under legal and tax-healthy circumstances.

Ultimately, this is just one of the many powerful ways a Self-Directed IRA allows you to invest SMARTER. Using these types of investment methods will have you earning more money and eventually retiring the way that YOU want to. If you would like to learn more about how to partner with other IRAs or about other Self-Directed IRA benefits then please reach out to us today.

You can also find more information on our SD-IRA Basics page. 

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19 Dec 2013
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A Different Strategy to Borrow Against 401k Plans

Borrowing money out of your 401k can prove to be a beneficial strategy to eliminate debt, fund a business, or even to get money to expand the kitchen. In this article I want to explain the general rules, some of the benefits, and how using a loan against a Self-Directed 401k could be a much more beneficial way to borrow against 401k plans.

Borrow Against 401k Plans: The Basics

In general you can borrow the lesser of $50,000 or half of your portfolio.

The general loan length is 5 years.

  • Some variations can occur, like if you use the funds to purchase residence

No credit check required.

Pay off the interest, to YOURSELF.

  • That is right, Most of the interest you pay back is deposited right back into your account. Imagine having $25,000 in credit card debt and paying 10%, 15%, or even 25% interest on it. Borrowing against your 401k could help you pay off that debt NOW, and pay it off for less than 5% interest. The best part is that the interest is paid to you, not the credit card company!

Here are another couple things to note:

The amount that you take out of the 401k will not take part in the investment growth of your portfolio.

Depending on the type, there could be different tax implications when you borrow against 401k plans.

  • A traditional 401k that is set up with your employer will have you pay taxes on the money you loan to yourself (it is income) and then when you repay yourself you are subtracting your income by the repayment amount. Talk about a double whammy! This is the case UNLESS you have a Roth 401k, and yes there is such a thing. This is probably the best time to transition to the best part of this article.

The Individual Self-Directed 401k

Just like a self-directed IRA, and Individual Self-Directed 401k allows more flexibility in investment options. You can use your “Indi-k” to invest in real estate, raw land, corporations, and of course stocks and mutual funds. The difference is that with an Indi-k you can take a loan against.

The loan rules are similar to what we discussed above: you can take a maximum of $50,000 out of the account (or half your portfolio, whichever is lesser) and you get to pay yourself back the interest. A HUGE difference is that since it is an INDIVIDUAL 401k, you can set it up as a Roth account. Now, if you know anything about Roth accounts it is that they operate differently when it comes to taxes. With an Individual Roth 401k, you pay taxes on the contributions. That means that when you take the loan out of your Indi-401k, you won’t pay taxes on it because you already paid taxes when you contributed those funds. You pay yourself back PLUS interest.

Now, the Individual Self-Directed 401k has many benefits, rules, and regulations; too much to get out in just this article. However, Horizon Trust has put together a very impressive portion of their site dedicated to this concept. It is complete with videos and FREE downloadable content. Head over to their site to take a look.

More info and the Individual 401K

If you are new to the self-directing concept, then please check out some of our other content.

More info about Self-Directed Accounts

Before anyone takes out a loan to borrow against 401k plans, it is important to discuss all the rules and regulations with a professional. Although this option has many benefits, it may not be the best route to take for some people. With that said, USelfDirect has a team of people that would be happy to answer any questions that you might have before you make any kind of decision. Feel free to give us a call today!

20 Nov 2013
0

401k vs IRA: Here are the basics

401k vs IRA 

If you are someone who is looking to start a new investment account, roll over an existing account to something new, or if you are just looking to understand more about different investment accounts then you should definitely understand the main differences between 401k vs IRA accounts.  Each of these accounts has different benefits and different rules to govern how you use them to invest.  Here are the basics:

 

401(k) Plans

A 401(k) is a type of retirement savings plan named after a section of tax code; can you guess which section? This type of account arose in the 1980s as an alternative to pension programs. A 401(k) is a plan sponsored by an employer. Employees have the option to select a portion of their income to be deposited into the account before taxes are taken out. Sometimes, depending on your employer, a portion or that entire amount deposited can be matched by the employer. Taxes on the money deposited are not paid until the money is withdrawn from the account. 401(k)s and IRAs do have limits, administered by the IRS, on how much you can contribute each year. For more information on contribution limits, check out our blog post on 401K Limits for 2013.

Many 401(k) providers offer an array of Mutual funds to select from as investment choices. The mutual funds may be comprised of stocks and/or bonds and they are usually labeled as aggressive or conservative.  Although a 401(k) allows you some flexibility of investment choice, it doesn’t necessarily allow you to invest in what you want since you are limited to the investment options provided by the 401(k) custodian.

401(k)s can be very advantages, especially if your employer is willing to match your deposits.  However, the money you earn will be taxed once you decide to withdraw the funds. An IRA offers similar investing options but different tax benefits that can help you save money.

 

IRAs

IRA literally stands for Individual Retirement Account, and like a 401(k), is a type of account that houses your investments. Unlike 401(k)s, which is sponsored by your employer, an IRA account is something you usually open on your own. You can still invest in different types of stocks, bonds, and mutual funds too.

The biggest differences between an IRA and a 401(k) are the tax benefits an IRA can offer. Depending on which type of IRA you use, and there are multiple types, you can avoid paying taxes a lot of taxes.  A Roth IRA, for example, is an IRA in which you pay taxes when you first deposit money into the account, but you are not taxed on the gains later on. Imagine starting an account for your grandson with only $5,000 dollars today and watching it grow to $50,000 over time. If you would of opened a Roth IRA then you would only be taxed on the $5,000, talk about a HUGE savings. Now each person is different and depending on your specific situation a Rith IRA might not be the best option for you. To understand more about which type of account would be best for you, we have a tool to help you determine “What Account is Right for Me?

 

401k vs IRA vs Self-Directed IRA

I wanted to briefly mention a special type of IRA called a “Self-Directed IRA.” Just like the other types of IRAs we just discussed, a Self-Directed IRA can offer many different tax benefits. However, the main difference is the types of things you can choose to invest in. A Self-Directed IRA allows you the most control over your portfolio by allowing you to invest in more than just mutual funds. You can invest in businesses, real estate, and much more. A Self-Directed IRA definitely gives you much more control over what you want to invest in. For more information on Self-Directed IRAs, head over to our “About Self-Directed IRAs”page. At the end of the day whether you choose to have an 401k vs IRA or vs a Self-Directed IRA, you should definitely do lots of research. The more knowledge you have, the smarter you will invest.

 

 

 

 

 

 

 

Sources:

www.uselfdirect.com

http://guides.wsj.com/personal-finance/retirement/what-is-a-401k/

http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/

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