As the Tax Deadline Approaches, Understand the Tax Implications of IRA Rollovers

What is an IRA rollover?

An IRA rollover is when someone takes a distribution from a retirement plan and transfers those funds into another account (such as an IRA). This rollover can be triggered when you leave a job and take the funds from an employer-sponsored retirement plan, or if you are a beneficiary who inherits a loved one’s IRA.

Taxable or non-taxable?

As the IRS explains, a distribution that is rolled over is not taxed until the account owner withdraws it from the new plan. This enables the individual to save that money for retirement as it grows tax deferred.

The distribution is taxable if you don’t roll over the payment (unless it is a qualified Roth distribution or the funds have already been taxed). You could also be subject to additional tax if you are not eligible for any of the exemptions to early withdrawals (there are now broader exemptions that came out of the SECURE Act 2.0).

Types of rollovers

These rollovers apply to self-directed retirement plans as well as their traditional counterparts. At Next Generation, we have clients who open a new self-directed IRA to accept a rollover and start investing those funds in alternative assets.

Sixty-day rollover: If a retirement plan distribution is paid directly to you, you must roll that distribution over into another plan or IRA within 60 days to avoid a taxable event. In the event of circumstances beyond your control, the IRS may waive the 60-day period.

Trustee-to-Trustee rollover: This is when the financial institution that holds your IRA makes the distribution payment directly from your IRA to another. No taxes are withheld from the transfer amount in this scenario.

Direct rollover: You can request that the plan administrator (of the original retirement plan) make the payment directly to another retirement plan or IRA. No taxes are withheld in this rollover. You must contact the plan administrator for instructions.

It is best to consult your tax advisor about the best way to handle a rollover for your financial circumstances.

Two rollover exclusions:

The IRA distribution cannot be a required minimum distribution (RMD) or a distribution of excess retirement plan contributions and related earnings. For workplace retirement plans, the same rules apply with additional exceptions. You can find the full list here.

Rollover limitations

In general, taxpayers are limited to one rollover from a) the same IRA or b) from the IRA to which the distribution was made within a 12-month period. This one-rollover-per-year rule applies to the aggregate of all of an individual’s IRAs (Traditional, Roth, SIMPLE, SEP). However, there are some exceptions to this one-per-year rule for rollovers:
• from a Traditional to Roth IRA (a Roth conversion)
• from a qualified retirement plan to an IRA (plan-to-IRA)
• between two qualified retirement plans (plan-to-plan)
• trustee-to-trustee transfers to another IRA

Tax withholding from retirement plan distributions

As noted above, there is no tax withholding when the rollover is a trustee-to-trustee transfer or a direct rollover between plans or IRAs. Taxes are only withheld when the IRA or plan distribution is paid to you directly.

• With an IRA, the direct distribution is subject to 10% withholding unless you choose to elect out of withholding or elect to have a different amount withheld.
• On retirement plan distributions paid directly to you, the tax withholding is 20%.

As always, we highly recommend you consult your trusted financial or tax advisor about these issues before executing a rollover, and to make sure you are properly reporting nontaxable and taxable income. If you have a question about making a rollover into a new self-directed IRA, you can always contact our team at NewAccounts@NextGenerationTrust.com or 888-857-8058. If you are ready to open a new self-directed IRA and fund it with a distribution rollover, you can “get rolling” with our starter kits.

Mind the Gap! Retirement Shortfalls are Ahead For All But the Most Affluent Americans

Baby boomers beware: the retirement income gap might be too big to fill in at this point. This goes for high earners as well, and Gen X and millennials may encounter retirement shortfalls as well.

A study by Vanguard used Social Security figures for workers from different age groups and income levels to compare those workers’ projected retirement income with what their approximate financial needs would be. The groups were broken down into four cohorts: low-income, middle-income, affluent, and high-income individuals, and across three generations (late baby boomers ages 62-67, Gen Xers, and early millennials ages 37-41).

Retirement readiness did not score high marks for most people in the millennial, Gen X, and late baby boomer groups except for high earners. The study’s authors reported that “low-, middle-, and upper-middle-income workers, who have annual earnings in the 25th, 50th, and 70th percentiles* of the national income distribution, may fail to accumulate enough to meet the spending levels typical of today’s retirees.”
 

This is because high earners rely less on Social Security benefits to fund their retirement income needs. The study revealed that Social Security funds:

• only 18% of a wealthy 95th percentile earner’s needs
• 46% of the needs for a 50th percentile earner
• 62% of the needs for someone in the 25th percentile.

*Median take-home incomes of $22,000, $42,000, and $61,000 respectively; the wealthiest 95^th percentile took home $173,000.

 

All but the wealthiest late boomers who are entering their retirement years now should be worried. The implication is that income level also determines the ability of people to save for their retirement as opposed to relying on Social Security to fill the income gap.

The Vanguard study goes into great detail about the different income cohorts and the percentage of retirement income they will have to self-fund vs. having the savings to support them after they stop working. The bottom line is that with Social Security benefits always in peril of being cut (which would have the biggest impact on the lower-income population), and the challenges of workers across income levels to save enough, the retirement shortfall is of concern.

Especially as we see so many Americans living longer.

 

The longevity factor in retirement readiness

It is no longer unusual for Americans to live into their 90s and even to become centenarians. That is certainly something to celebrate—but puts an affordable retirement at risk for many seniors. Although the CDC places U.S. life expectancy at 73.5 years for men and 79.3 years for women, a survey from Corebridge Financial and The Longevity Project reveals more ambitious lifespan goals: 54% of respondents said their goal is to live to 100.

However, those individuals may not plan to work longer to fund that longer retirement timeline.

• Forty percent of respondents said they still plan to retire between ages 65 and 69.
• Twenty-two percent want to retire a bit earlier, between ages 62 and 64.
• Twelve percent want to retire early, when they are between 50 and 61 (the percentage is higher—17%–among Gen Z respondents).

 
That means three to five decades of retirement years to fund.

While the retirement age goals are ambitious, three-quarters (76%) of the survey’s participants also said their retirement savings and investments fall short of what they’ll need for income during those decades. This may be why more than 25% said they will have to work past age 70 to afford retirement. Other participants are either extremely confident they won’t outlive their savings (27%) and just over one-third (36%) feel they can make their savings last for as long as they need.

 

Save for a long-haul retirement with a self-directed IRA

At Next Generation, we’re all for long, happy lives for our clients. We are also advocates for taking control of your future (as in your retirement income). After all, aiming to live a long life with the income you need in retirement takes planning. And for many investors, that means funding and investing through a self-directed IRA.

A self-directed IRA enables workers of all ages to invest their funds in a broad array of alternative assets, which helps them build a more diverse retirement portfolio and build a hedge against stock market volatility. Many readers of retirement age have lived through severe economic downturns in the past 25 years—from the dot com bubble burst to the 9/11 tragedy to the 2008 crash and Great Recession—and the cyclical market swings that can make investors dizzy.

By investing in alternative assets you already know and understand, you can build retirement wealth with greater flexibility—and for the long term. Think real estate, precious metals, private equity funding, royalties, private placements…the list goes on when you move outside of the typical stocks, bonds, and mutual funds offered by most banks and brokerage houses.

When you open a self-directed IRA with Next Generation, you receive superior customer service from a long-time administrator and custodian with expertise in self-directed retirement plans. Our team reviews all self-directed transactions to ensure our clients are investing within IRS guidelines. We manage all required filing and paperwork and hold the assets on behalf of our clients.

 

Plus, we love client education—it’s like lifelong learning for self-directed investors. Our team is available to answer your questions about the many nontraditional investments allowed through self-direction. You can reach us at NewAccounts@NextGenerationTrust.com or 888.857.8058. You can also register for a complimentary educational session before you get started or at any time throughout your self-directed investing journey.

Make Sure Your Retirement Plan Beneficiaries Are Designated and Updated

You established and funded your retirement plan and have your investment strategy set. But did you remember to designate your beneficiaries?
Beneficiary designations are important since they are the people noted on your retirement account who will inherit it when you pass away. In short, those designations make sure your retirement plan goes to the people you want to inherit your nest egg.
If something in your family structure or circumstances has changed, it is equally important to check your plan paperwork to make the appropriate beneficiary updates as well.
  

Which plans should have designated beneficiaries?

In short, all retirement plans (IRAs, 401k plans, etc.), health savings accounts and education savings accounts, and bank accounts. If for any reason you are unable to make decisions for yourself regarding your finances or you are unable to complete the forms on your own, another legal document (and designation) to have on file is a power of attorney (POA). The POA must be executed at a time when both you as the principal and the person who will be your “attorney-in-fact” are competent and of sound mind, and, like a will or medical directive, must be notarized.
  

Reasons for noting retirement plan beneficiaries

• First, you want to make sure your wishes regarding the inheritance of your plan are met. The beneficiary designation supersedes stipulations in your will (so it’s also a good idea to review that legal document periodically as well). Without a designated beneficiary, your plan’s default provisions might be implemented, which might not align with your intentions about the distribution of your estate. You can choose primary and secondary beneficiaries (the latter serving as the contingent should the primary beneficiary pass away).
• Having designated beneficiaries helps your loved ones avoid probate and delays in settling your estate. When you designate beneficiaries, your retirement plan assets bypass the lengthy and potentially expensive legal process of probate, so your loved ones receive the funds without unnecessary complications.
• There may be certain tax advantages for your spouse or other heirs when they inherit your retirement account—so you want to make sure the right people inherit the retirement savings you worked hard to put away.

  

How to designate or update a retirement plan beneficiary

Look through your retirement plan documents for the beneficiary designation forms. Choose who you want to inherit your accounts—spouse, children, another family member, a friend, or charities (yes, you can leave a legacy by denoting a nonprofit charitable organization as the beneficiary).

Once you’ve established the beneficiaries, complete and submit the designation form to your retirement plan provider or administrator (in the case of a self-directed IRA, the administrator receives all these forms).

Periodically review and update the beneficiary designation form, especially after major life events. Things change, life happens … and your beneficiary designations may need to be revised.
  

Are you the beneficiary of an inherited IRA? If so, take note!

A long-time popular estate planning tool used to be the “stretch IRA,” which enables beneficiaries to use the IRA funds over the course of their lifetime. It was a way to pass on generational wealth while the assets grew tax deferred.

The SECURE Act of 2019 changed that by eliminating stretch IRAs for non-spouse heirs and making other changes.

Now, for IRAs inherited after December 31, 2019, non-spouse heirs have 10 years after the death of the original account owner in which to spend down the IRA’s assets. Alternately, non-spouse beneficiaries can also transfer the inherited IRA into a new IRA based on satisfying certain requirements. Failing to follow the rules may result in the IRA being treated as a taxable distribution; therefore, beneficiaries are well-advised to consult a financial planner or other trusted adviser about this matter.

Spouses who inherit an IRA are excluded from this provision and have two options.

• Start taking required minimum distributions from the inherited IRA by the end of the year after the owner’s death or the year in which the owner would have reached the age for RMDs, which as of 2023 is 73 years old.
• Roll over the inherited IRA into a traditional IRA they already own, and treat the assets as their own.

Other excluded beneficiaries from the 10-year rule are minor children, disabled or chronically ill individuals, or individuals who are less than 10 years younger or older than the original account holder (such as a sibling, cousin, or friend).

If you’ve opened a self-directed IRA with Next Generation Trust Company, our team can walk you through this important step if you need assistance. We make sure all your plan paperwork is in order so you can start growing your retirement savings through investments in alternate assets without undue delay. Contact us at NewAccounts@NextGenerationTrust.com or 888.857.8058 if you’re setting up a new account and need some guidance.

Retirement Plan Contribution Limits for 2024

All retirement and certain savings plans have annual contribution limits, whether they are employer-sponsored or owned by the individual. The type of retirement plan you have will determine how much you may contribute to it every year. These limits are set by the IRS. In 2024, those annual contribution limits increase slightly over last year’s amounts, for workplace retirement plans, regular and self-directed IRAs, health savings accounts (HSAs), and education savings accounts (ESAs).

IRAs: Traditional, Roth

Traditional and Roth IRAs: In 2024, individuals can contribute up to $7000 to their Traditional IRA or Roth IRA and those age 50 and older can add an additional $1000 catch-up contribution ($8000 total). If the taxpayer owns both types of IRAs, that total amount is aggregated across both. So, if you are younger than 50 and plan to contribute $5000 to your Traditional IRA, that leaves $2000 to put into your Roth.

Traditional IRA notes:
• The ability to deduct your contributions to your Traditional IRA depends on your income and whether you or your spouse also participate in workplace retirement plans.
• Funds in a Traditional IRA grow tax-free and the distributions are taxed as ordinary income.

Roth contribution notes:
• Contributions are made on a pre-tax basis and distributions are tax-free, as long as the account has been open and funded for at least five (5) years and you are over 59 ½ years old.
• The ability to contribute to a Roth IRA is based on the household’s modified adjusted gross income (singles or married filing jointly or separately). The good news is, the phaseout range has increased for 2024, enabling more people to qualify for Roth contributions.
• If you have a Roth IRA or plan to open one, consult your tax advisor about what you may or may not be able to contribute based on that income figure.

Workplace IRAs: SEP and SIMPLE

These plans for small-business owners or the self-employed have much more generous annual contribution limits.

SEP IRAs: In 2024, the limit for Simplified Employer Plans is no more than 25% of annual compensation, up to $69,000. If other employees at the business participate in the SEP, the contributions (made by the employer) must be equal for all eligible employees (including the owner).

SIMPLE IRAs: The Savings Incentive Match Plan For Employees combines features of a Traditional IRA and a 401(k) plan (with elective salary deferrals and mandatory employer contributions). In 2024, employees can contribute up to $16,000 to a SIMPLE IRA and those 50 or older get the catch-up contribution feature—which in a SIMPLE IRA is $3500.

Qualified retirement plans: 401(k), 403(b), profit sharing plans
These are employer-sponsored retirement plans, either defined contribution or defined benefit.
The increased contribution limit (what employees may defer) for 2024 is up only $500 from last year, to $23,000. The catch-up contribution amount for participants ages 50+ remains the same as last year at $7500. These figures apply to many 457 plans as well.

Solo(k) plans
Self-employed individuals/solopreneurs (without any common law employees) who have an EIN may open and fund a solo(k) plan. You may include partners and spouses in the plan. In 2024, the total contribution limit is $69,000 with a $7500 catch-up contribution for those 50 or older. Since the business owner is both employer and employee in a solo(k), that limit (before the catch-up contribution if relevant) can be arrived at with contributions from both sides of that equation:

• As the employee, up to $23,000 or 100% of your compensation, whichever is less
• As the employer, an additional profit-sharing contribution of up to 25% of your compensation or net self-employment income

Be sure to consult with your trusted advisor to make sure, if you have a solo(k) plan, that you are contributing amounts within IRS guidelines and that makes sense for your retirement savings goals and the business’s financials.

HSAs and ESAs

Health savings accounts have slightly higher contribution limits in 2024 (about 7% higher than last year). For individuals, the limit is $4,150 and for families it is $8,300. These accounts have an older age threshold for the catch-up contribution at 55+ and the contribution limit remains at $1000.

Education savings accounts (Coverdell ESAs) remain at $2000 per beneficiary, regardless of how many ESAs are open for the individual.

Self-direct your plans … and build retirement savings beyond contribution limits
All IRAs, solo(k) plans, and HSAs and ESAs can be self-directed. That means taxpayers can open and fund a self-directed account and invest the funds in a broad array of alternative assets to build diversity into their retirement savings goals. The tax advantages and contribution limits for each of these plans are the same as their “regular” counterparts. However, savvy investors have the potential for growing those retirement or other savings through nontraditional investments rather than relying solely on the stock market.

At Next Generation, we serve as the administrator and custodian for all these types of retirement and specialized savings plans. You can open and fund a self-directed IRA (Traditional, Roth, SEP, SIMPLE), a solo(k) plan, a health savings account or an education savings account with our convenient starter kits. If you have questions about opening or funding any of these accounts, or about the types of alternative assets allowed through self-direction, contact Next Generation at NewAccounts@NextGenerationTrust.com or 888.857.8058.

 

 

The Corporate Transparency Act: What it is and Who it Affects

Are you aware of the Corporate Transparency Act? This was enacted in 2021 and became effective on January 1, 2024, under the aegis of FinCEN—the Financial Crimes Enforcement Network of the United States Department of the Treasury.

 

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) was passed to curb illegal finance operations among companies doing business in the U.S. or accessing the U.S. market. The activities in the Treasury Department’s sights are tax fraud and tax evasion, money laundering, and financing of terrorism. The legislation requires that business owners /companies that meet the criteria report certain information about the individuals who own or control the companies.

• Existing companies that were formed prior to January 1 of this year have one year to file a Beneficial Ownership Information (BOI) report (therefore, the deadline is January 1, 2025).
• New companies established this year must file a BOI within 90 days of creation or registration.
  • This will change next year for an LLC, corporation, or other entity created or registered created or registered on or after January 1, 2025; after receiving notice of the company’s registration, those entities will have 30 calendar days to file at BOI report.

Reporting companies that are created on or after January 1, 2024 must provide personal details about the individual who is the company applicant; that is the person who files the relevant document to create a domestic company or register a foreign company. The company applicant may also be someone mainly responsible for overseeing or controlling that business filing.

The BOI reporting guidelines are on the FinCEN website.

What types of companies qualify?

Domestic companies that must submit BOI reports are corporations, limited liability partnerships (LLPs), limited liability companies (LLCs), or certain other entities (such as a business trust) that were created by filing a document with a secretary of state or similar office under the law of a state or Indian tribe. This filing stipulation is what qualifies an entity as a reporting company.

Similarly, foreign reporting companies are corporations, limited liability corporations, and other entities formed under a foreign country’s law and are registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

According to FinCEN, there are exemptions from BOI reporting.

1. Sole proprietorships that do not use a single-member LLC
2. Sole proprietorships that file a document with a government agency to obtain an IRS employer ID number, a fictitious business name, or a professional or occupational license. These are circumstances that do not create a new entity and therefore, the sole proprietorship filing these documents is not a reporting company.
3. Publicly traded companies, large operating companies, other regulated entities, and businesses that meet other specific criteria such as those already filing reports with the federal government that name beneficial owners, entities registered with the SEC, or companies in heavily regulated industries (public utilities, public accounting firms, insurance companies, and financial institutions are good examples).

 

Who is a beneficial owner?

Under the Corporate Transparency Act, beneficial owners are individuals who have a significant ownership stake (direct or indirect) in a company. As such, this person exercises a major influence on the company’s decisions or operations and owns or controls at least 25% of the company shares or company interests. Those ownership interests are represented by capital and profit interests in the reporting company.   There can be multiple beneficial owners in one company.

 

What information is collected on the BOI report?

The beneficial owner’s name, birth date, address, and unique identifier number, which is from a recognized issuing jurisdiction; the beneficial owner must also submit a photo of that document. The information reported is not made public. It is only available to the U.S. Department of the Treasury and select government agencies (for purposes of national security, law enforcement, and intelligence), financial institutions that must fulfill certain reporting obligations, and regulatory agencies that oversee financial institutions.

For now, there is no requirement for reporting companies to file a report annually. However, after the initial filing, the reporting company must submit an updated BOI report with any changes in the company, including a change in beneficial ownership, within 30 days of the change.

 

Where and how to file a BOI

The Corporate Transparency Act requires that companies submit all BOI reports to FinCEN directly or through a third-party provider to FinCEN. Entities may not submit BOI information to the Secretary of State or other state corporate filing office.

At Next Generation, we recommend that business owners consult their trusted advisor (CPA or attorney) before filing the initial report or to make sure an updated BOI is done correctly and that it complies with FinCEN requirements. Note that failing to file timely may trigger fines and failure to file intentionally can cause serious penalties.

 

What are Self-Directed Retirement Plan Administrators and Custodians? Both professional roles are involved in retirement plans in different ways.

Anyone with a retirement plan—whether through their workplace, a brokerage or other financial institution, or as the owner of a self-directed IRA—has important professionals working behind the scenes. These are the retirement plan administrator and the asset custodian.

 

In this article, we outline the responsibilities of these roles and the differences between retirement plan administrators and custodians.

 

Self-Directed IRA Administrators

The self-directed IRA administrator (such as Next Generation Services) focuses on the administrative tasks associated with clients’ accounts and manages the day-to-day needs of the plans. If you are planning to open a new self-directed IRA in 2024 as part of your retirement savings goals, be sure you work with an experienced administrator with specialized knowledge of the unique regulations related to self-directed investments—as well as the nontraditional investments allowed in these plans.

 

As a neutral third-party administrator, this entity:

• opens new accounts
• receives funds and ensures they are properly coded
• maintains financial records
• executes transactions and disburses funds based on the account owner’s instructions
• responds to account-related inquiries
• performs basic compliance checks to ensure the transactions comply with IRS investing guidelines and that the tax-advantaged status of the IRA is maintained (for example, no prohibited transactions or transactions involving disqualified persons) 

In the case of Next Generation Services, we also offer client education on an ongoing basis to keep self-directed investors informed about and up to date on the various types of alternative assets that self-direction allows.

 

The administrator does not hold title to the assets within clients’ accounts. Therefore, to complete client transactions, the self-directed IRA administrator must establish a relationship with a self-directed IRA custodian or trust that holds the funds and investments. At Next Generation Trust Company, our clients benefit from having both these critical functions within one company ownership.

 

Custodians for self-directed IRAs

“Custodian” is a legally defined entity that is recognized by the IRS. The custodian holds (safeguards) the assets of the self-directed IRA on behalf of the investor. When we say the custodian “holds the assets,” this means the entity (custodian) holds a “nominal” title within the self-directed IRA on behalf of the investor.

 

All IRAs (whether self-directed or not) must be held by a custodial entity such as a bank, credit union, trust company, or other entity that is licensed and regulated by the IRS as a “non-bank custodian.” Next Generation Trust Company is our company’s IRS-approved custodial entity, chartered and regulated as a public trust company by the South Dakota Division of Banking.

 

There is some crossover of responsibilities in that in general, the IRA custodian also manages recordkeeping, reporting, and compliance with IRS regulations. As an entity with broader capabilities, custodians can handle all aspects of a self-directed IRA.  These include:

• holding and transferring assets
• providing detailed annual statements, required minimum distribution (RMD) notices, and other information
• reporting tax information to the client and the IRS on Form 1099 and Form 5498 

An important point to keep in mind is that neither the self-directed retirement plan administrator nor the custodian gives investment advice. Self-directed investors are those who are comfortable doing their own investment research and due diligence about the alternative assets they wish to include in their plans. At Next Generation, we always recommend that clients consult their trusted advisors for investment guidance.

 

That said, many on our team are SDIP certified, having completed advanced training and certification about the many alternative assets allowed in self-directed retirement plans. We are here to answer many questions related to these plans. You can schedule a complimentary educational session to find out more, or contact us at NewAccounts@NextGenerationTrust.com or (888) 857-8058.

How to Make a Loan From Your Self-Directed IRA

Among the many ways investors can diversify their retirement portfolios is through investments in alternative assets in a self-directed IRA. But did you know that individuals can also earn tax-advantaged retirement income by making a loan from a self-directed IRA?

As our CEO, Jaime Raskulinecz wrote in her Forbes Council article on this subject, investors may use their retirement accounts for various forms of private lending from their self-directed IRA—to other individuals or businesses—as we detail below.

 

Different types of loans from self-directed IRAs

Owners of self-directed IRAs can make unsecured loans (no collateral), secured loans (with collateral—an asset of value), and private mortgage notes (promissory notes secured by real estate assets). Here are some important points to keep in mind before your IRA lends money:

• If you arrange a secured loan, be sure that the collateral is something the IRA can accept should the borrower default.
  • Securing the loan often involves real estate—one of the most popular asset classes in self-directed IRAs; but other assets (such as a vehicle, savings account, and future paychecks) can also be used as collateral with secured notes. 
  • However, artwork and collectibles are among the few assets that are not allowed in self-directed plans.
• Be aware of your state’s rules for private lending in a self-directed IRA. The usury laws for your state and the borrower’s should be checked. At Next Generation, we always recommend that clients consult appropriate counsel when making these investments.
• With a secured real estate note you will also create a mortgage or deed of trust. After you draft the promissory note, the borrower will sign it, along with any related loan documents. 
• All IRA loan documents must be in the name of the self-directed IRA (a Traditional or Roth IRA or other type of account that can be self-directed), not the account owner’s personal name. The payments are made to the IRA and tax-advantaged income is earned as the loan is repaid.
• As with all investments made through self-directed retirement plans, self-dealing is prohibited and a loan may not be made to disqualified persons (the account owner, spouse, lineal antecedents or descendants, and any entity in which the account owner owns more than 50% interest).

As “self-directed” implies, the loan terms are determined between the two parties (lender and borrower)—amount, length of time, payment schedule, and interest rate. And as with any self-directed investment (and lending money is indeed an investment in the borrower and future account growth), the account owner should do full due diligence on the borrower’s ability to repay the money. Plan ahead and plan well for what may happen if the borrower defaults on the loan!

 

Lending options with a self-directed IRA

Whether long-term or short-term, loans from a self-directed IRA may be made for many reasons and financial needs. Loans can be used for residential and commercial mortgages, personal loans to pay off debt, business financing, and more. For example:

• A small business needs to purchase an expensive piece of equipment.
• A business owner wants to buy the building that houses the company.
• A friend wants to invest in a small multifamily property and lacks the full down payment.
• Individuals may need funds to cover student debt or medical debt.
• Someone you know needs a new car to get to work.
• A company seeks a bridge loan for debt financing or to meet payroll during a downturn.

As a full-service administrator and asset custodian of self-directed retirement plans, the team at Next Generation is here to answer your questions about the many types of investments allowed through self-directed, including unsecured and secured loans. You can schedule a complimentary educational session to find out more, or contact us at NewAccounts@NextGenerationTrust.com or (888) 857-8058.

Jaime Raskulinecz is Named to Investment News Hot List of 2023 of Wealth Professional All-Stars

At Next Generation, we have a lot to celebrate this month, making this a very happy holiday season for our company.

• Our founder and CEO, Jaime Raskulinecz, has been named to the Hot List of 2023 by Investment News. The December issue of the publication lists its top 100 wealth professionals, citing them as individuals who are redefining the financial services industry and their community. These are changemakers who, according to the Investment News, have helped shape the wealth industry over the past 12 months. The Hot List Special Report begins on page 16.

Of her inclusion on the 2023 Hot List, Jaime said, “I am honored to be recognized as someone working to innovate the financial services field in the area of wealth building and retirement. I am proud of the work we’ve done for nearly 20 years on behalf of investors who prefer to self-direct their retirement investments and build more diversified portfolios through alternative assets.”

•  This recognition is on the heels of Next Generation being named a finalist for the prestigious NJBiz 2023 Best Business of the Year by New Jersey’s leading statewide business journal. CFO Karen Jung represented our firm at the awards ceremony in Somerset, NJ.
• In other news, Jaime is quoted in an article in GOBankingRates (a Nasdaq publication) titled, “I’m a Female Self-Made Millionaire: 3 Best Investments For Women To Build Wealth Fast.” In it, she shares how she built her wealth through real estate investments and as a business owner, which ultimately led to her starting her firm that specializes in administration and asset custody for self-directed retirement plans. Real estate is the most popular asset class in these plans.

Congratulations to Jaime. And from all of us at Next Generation, best wishes for a prosperous 2024!

Self-directed Retirement Plans For Business Owners and the Self-Employed

Business owners and self-employed taxpayers have several options in terms of retirement plans. And best of all, they can self-direct these plans if they wish to include alternative assets to build retirement wealth. Here’s a look at what’s available outside of qualified defined contribution or defined benefit plans for small-business owners and the self-employed.

Retirement plans for small-business owners

• SIMPLE IRA – the “SIMPLE” stands for savings incentive match plan for employees. This plan is for small businesses with under 100 employees as well as the self-employed (with certain restrictions). It is a good option for employers who don’t yet offer a qualified retirement plan at work but want to help employees save for retirement. Only businesses that do not have any other retirement plan may establish a SIMPLE IRA.

A SIMPLE IRA is a Traditional IRA in that the money grows tax deferred. The business owner sets up an IRA account for each eligible employee. In addition to each participant making contributions (which is discretionary), the employer is required to contribute to each account, either as a match to participants’ contributions (up to 3% of employee compensation) or as a fixed 2% of each eligible employee’s pay. Employees can roll over funds from an existing Traditional IRA to their SIMPLE IRA account.

For those who are self-employed or for any participant in a small-business plan, it offers higher savings potential in a tax-advantaged account than a regular IRA. The contribution limits for SIMPLE IRAs in 2024 will be $16,000 for participants under age 50 and $19,500 for those 50 and older.

• Employee contributions made through payroll deductions must be done within 30 days of the last day of the month in which the funds would have been paid to the employee.
• Employer contributions must be made by the federal income tax return deadline; this includes extensions.

People who participate in a SIMPLE IRA have complete control over their accounts. By self-directing the investments within one’s account, employees can diversify and build up the value of their portfolios.

Participating in a SIMPLE IRA does not exclude people from being part of another employer-sponsored plan, so employees with more than one job can be in your SIMPLE IRA and contribute additional funds to another plan (up to a total of $23,000 next year).

Setting up a SIMPLE IRA is relatively easy. Next Generation’s SIMPLE IRA starter kit has step-by-step instructions for business owners and participants to follow.

• SEP IRA – this is a simplified employee pension (SEP) plan. It offers more flexibility than a SIMPLE IRA in that businesses of any size, including the self-employed, can establish a SEP.

A SEP IRA is also a Traditional IRA set up for each eligible employee. But unlike the SIMPLE IRA, only the employer contributes to the plan.

• Employers can contribute up to 25% of each participating employee’s pay with a ceiling of $69,000. For the self-employed, this figure is a 25% deduction from net self-employed income.
• The contributions are tax-deductible, which makes these plans attractive to small-business owners.
• However, any contributions you make on behalf of eligible employees (as deemed eligible by the IRS) must be an equal percentage of compensation to what you as the business owner contribute to your account.
• Employer contributions must be made by the federal income tax return deadline, including extensions.

Because all contributions fall solely on the business owner, SEP IRAs are generally a good option for business owners with few employees or for self-employed individuals funding only their own retirement account. All participants are always 100% vested in the money in their account.

If you’re considering setting up a SEP IRA for yourself and/or your employees, we recommend you discuss this option with your trusted financial advisor or CPA, and compare the benefits and features to those of a SIMPLE IRA. The IRS offers guidance as well. We also invite you to review our SEP IRA starter kit and contact our team for assistance or answers to your questions.

• Solo(k) – this is a one-participant 401(k) plan for solopreneurs/business owners who do not have any employees but want the benefits of a qualified workplace retirement plan. The solo(k) can cover both the business owner and spouse. To open a solo(k) you must have an employer identification number (EIN).

The contribution limit in 2024 will be $69,000 (like the SEP IRA)—but the owner can also do a catch-up of $7,500 for those 50 or above. However, as the single participant, you are both the business owner/employer and the employee when it comes to contributions.

• As the employee, you may contribute up to $23,000 or 100% of your compensation, whichever is less (in 2024) plus the catch-up amount of $7500 if you are 50 or older.
• As the employer, you are allowed to make an additional profit-sharing contribution of up to 25% of your compensation or net self-employment income. That calculation is your net profit minus half your self-employment tax and the plan contributions you made for yourself.

With the Traditional 401(k), contributions reduce your income in the year they are made, and distributions are taxed as ordinary income. In a Roth solo 401(k), there are no initial tax breaks (money is taxed going in) but distributions are tax-free. As always, we recommend you consult with your financial planner and tax professional to determine which retirement plan is best for your business and financial circumstances.

As with many retirement plans we administer, we offer a solo(k) starter kit with step-by-step instructions to establish and fund your account.

Self-directed SIMPLE IRAs, SEP IRAs, and solo(k)s

As a business owner, you’re already accustomed to being the top decision maker at work. With a self-directed SIMPLE IRA, SEP IRA, or solo(k) plan, you’ll be the one making all your own investment decisions . . . and take advantage of alternative assets you already know and. Doing so enables you to contribute more to your account compared to a regular IRA—and you can create a more diverse retirement portfolio by including a broad array of nontraditional investments.

If you have questions about the types of investments allowed through self-direction, or how Next Generation works as both the full-service administrator and custodian for these plans’ assets, let’s talk! We invite you to schedule a complimentary educational session to find out more, or contact our helpful team at NewAccounts@NextGenerationTrust.com or (888) 857-8058.