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Here’s a Great Article from Carl Fischer on Cama Plan Self Directed ROTH IRA

What is a Self Directed IRA?

Definition: An IRA in which the IRA owner directs all investments in the account. There is no legal distinction between a self-directed IRA and any other IRA except with a truly self-directed IRA the account agreement allows the broadest possible spectrum of investments.

The account owner can choose any investment except a few that the IRS prohibits (i.e. Artwork, Life Insurance, Rugs, Antiques, Metals, Gems, Stamps, Coins, Beverages and Certain other tangible personal property).

Don’t be confused with brokerage firms “in house” self directed accounts which simply means the IRA owner can invest in anything they sell not necessarily what the owner wants. The account owner is not limited to a menu of specified securities, stocks, bonds, mutual funds, or CDs. A truly self directed account provides for true diversification using both traditional and non-traditional investment types determined by the owner and his professional advisors.

Fact: Americas Traditional investments such as bonds started in the 1770s and stocks established a foot hold during the Industrial Revolution where as non-traditional investments such as real estate, gold, and lending were documented in the pre-biblical period!

The following is an example of the types of investments that truly self directed clients choose because they can use their expertise, knowledge and can exercise some control. This list is by no means all inclusive:

  • Single family, condominiums and Apartments buildings
  • Raw land, Leveraged and un-leveraged property
  • Commercial Property-retail, warehouse, office, etc.
  • Precious metals- Gold, Silver, etc. – certain coins and bullion
Account receivables
Foreign property investments
Private placements-LLCs, LPs, Trusts, corporations, JVs, etc.

There are no penalties or taxes due when transferring an account to a truly self-directed account. There is no distinction in the Internal Revenue Code for a truly self directed IRA.

Self direction is not new but has been available since the 1970s. The contribution limits, distribution, transfer, rollover rules and requirements are all the same. The one difference you will notice is on your statement in the investment classes chosen.

Which Accounts Can Be Self-Directed?

Self-Direction is open to the following types of Retirement and Tax-Advantaged Savings Plans:

  • Traditional IRA,
  • ROTH IRA,
  • SEP,
  • Simple,
  • 401K,
  • Owners 401K,
  • Defined Benefit and
  • Defined Contribution Plans
  • Educational Savings Account (ESA)
  • Health Savings Account (HSA)
  • 403B plans may be rolled over after separation from service.

529 plans cannot be self-directed.

Mortgages, notes, Trust deeds, leases, etc.

The “Truly” self directed IRA, 401K or Other Qualified plan allows you to:

1.Truly diversify your investment portfolio with investments you really know and understand,
 
2.Make any investment tax-free or tax deferred, and
 
3.Be in control of your financial future

Diversify your portfolio is the number one rule of all financial advisors. It adds a whole new meaning to diversification when you can add investments you know, understand, and work with everyday to your portfolio..

A “truly” self directed account allows a realtor to invest in real estate, a farmer to invest in livestock, a doctor to invest in medical equipment, a mortgage broker to invest in loans, a car salesman to invest in cars, a librarian to invest in books, a software programmer to invest in software royalties, a business person in a company—on and on and on—you get the point.

These individuals know risks the rewards they can get from these investments and it is almost second nature to them.  Their investment becomes less stressful, more rewarding, and easily understood.  The self-directed account facilitates diversification while utilizing your expertise and knowledge.

A “truly” self-directed IRA, 401K, or other qualified plan allows you to make any investment tax-free or tax deferred that otherwise may be taxable. Tax free/tax deferred investments grow much quicker (exponentially) than taxed accounts considering the same rate of return on an investment.

Of course, the growth rate is dependent on each individual’s tax rate and the investment return rate.  Very few Americans know that they can make a self directed IRA investment in real estate or other alternative assets. 

Most IRA custodians allow you to self direct in anything “they sell”, which restricts your options for self directed IRA investing to standard assets such as stocks, bonds, mutual funds, commodities, futures and CDs. It is important to understand the effect of taxes on your money. See the example below:

Assumptions: A 14 year old child contributes $11.00 per day or $ 330.00 per month or $ 3960.00 per year to an account for only four years, with no further contributions. A 10% rate of return and a 30% tax bracket is assumed for the taxable account. 

Compare the difference at 65 years old.

You control your financial future and make all the investment decisions.  Americans. historically, depend on themselves and their neighbors. They want to be in control of their own destiny as much as possible.   Isn’t it just common sense to invest in what, where, and who you know?

You direct the purchase and sale of any legal investment (except art, rugs, antiques as described in IRS Code section 4975) no one will recommend or advise you to purchase or sell anything, so there is no conflict of interest and no commissions.

Truly self-directed IRA’s, 401K’s or other qualified plans are one of the wealth building tools that defies the old adage “that if it seems to good to be true –it is”.

The longer your plans are put off for retirement, the more money it will take to fulfill those plans.

No matter what your age, it is never too early (or too late) to begin planning for the future.

It may not be beneficial for you to open a “truly” self directed IRA, 401K, or other qualified plan if you are in one of the following categories:

üYou don’t want to diversify and you don’t know or understand anything, or
üYou don’t feel you pay enough taxes and don’t need tax free/tax deferred investments, or
üYou want someone else to control your financial future.

If you don’t fall in one of these categories, open a truly self-directed account today.  It is easy, fast (5 minutes), and inexpensive ($50.00).  Go to www.CAMAPlan.com to open an account today. 

Retirement planning is more important than ever before in American history.

Studies have shown that only one third of affluent families have been able to transfer and grow the family fortune into the next generation. Life expectancy has dramatically increased.  At age 65, a man has a 50% chance of living to 85, and a woman to 88.  In addition you have a 1 in 4 chance of being around well into your nineties.  Most previous planners would consider only

20 years, leaving individuals under funded. They ran out money before their time was up.

Adult children are helping the elderly to their own demise and leaving a legacy of the same problems for their own children.

The simple answer is education and communication among the intergenerational members of a family. The internet has plethora of retirement calculators and information on retirement. 

You owe it to your family to have a plan—no matter what stage of life you are in. It is not as hard as you may think. However you must understand how the rules change and what you must do to keep documents and plans current. 

For example: $1 million is exempt from inheritance tax in 2011.  The families that are able to preserve wealth and grow it in future generations are those that pass on the tools and techniques used to build and manage wealth.

It is no longer sufficient to build only your wealth, you must teach and help family members to build wealth for themselves.  “Give a person a fish– feed him for a day, teach a person to fish– feed him for a lifetime.”

There are four major vehicles to consider in retirement spending:

1.Tax free Assets (Roth IRA’s, Roth like 401K’s, and Health Savings Accounts),
2.Tax Deferred Assets (Money in 401K’s, traditional IRA’s, qualified company savings/pension plans),
3.Taxable Savings accounts,
4.Social Security—not counting working a part time job.

Health insurance and coverage is not considered in this article although it is another factor that must be accounted for to assure not burdening the family finances—managing health care costs is mandatory in preserving wealth.

It is obvious that tax free assets are the top priority because that money is all yours and may be passed to your heirs tax free. Tax deferred assets are important because of the savings you obtain by deferring the taxes.

Both these categories take advantage of the compounding of tax-sheltered investments.  In essence, you are making interest on your taxes versus paying taxes on your interest. 

Taxable savings accounts are “ready money” if you have to have it for a rainy day.  I suggest this stay at a minimum because in the tax deferred and tax free accounts the money can be used for emergencies in many cases without penalty, but even with the potential 10% penalty you may still net more money. 

Social security is simply what the government will give back to you, if they have it, and is fairly easy to estimate.

You must become educated with these tools, especially the tax free and tax deferred type of accounts.  You must use them now.  Help yourself and your family-if you are the teenager just starting out, the adult in the prime earning years of your life, or the grandparent either enjoying or worrying about your retirement, develop a family plan. 

Your plan should also consider using truly self-directed IRA’s or 401K’s so that you can take advantage of your knowledge and expertise.

Don’t feel alone.  A New York Life Retirement Income survey suggested that more than half the men and women in the US are clueless on several issues such as:

What amount of savings is needed to retire comfortably?

What percentage could be safely withdrawn each year?

What is inflation’s impact on spending power?

There are many strategies that financial advisors and planners endorse but it is most important that you choose one that you are comfortable with and understand. 

In conclusion, I leave you with the following wisdom from one of my clients.

“You need more to retire than when you are working even if your house is paid off—my house taxes and insurance are more now, than my principle interest taxes and insurance together was when I retired. In addition, medical costs, gas, cars, vacations, golfing fees, fishing costs are all more —the best thing I did for myself and family was to convert to a Roth IRA in 1998 and use the truly self-directed IRA account. Every member of my family has a Roth IRA.”

 

Open Your ROTH IRA now at www.CamaPlan.com

 

 

 

 

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