How Can Women Leaving Corporate America Still Save for Retirement?
We’ve all been hearing about the Great Resignation (or the Big Quit), which was thought to be a result of the COVID-19 pandemic. Throughout 2020 and 2021, many Americans have confronted how they felt about their jobs, many deciding it was time to quit what was no longer satisfying and seek more fulfilling career paths—including self-employment/business ownership.
According to the Bureau of Labor & Statistics, there were nearly four million voluntary separations (quits) in July 2021.
For women specifically, this decision may have been motivated by family or childcare issues and homeschooling when classes were remote. Purse Strings has called this the “she-cession,” and shared that 1.8 million women left the workforce entirely. In September 2021, women who left the workforce outnumbered men by more than five to one (863,000 women compared to 168,000 men).
Further, Market Watch reported that a March 2021 U.S. Census Bureau population survey found that 80% of Americans who left the workforce since the start of the pandemic were women. Plus, a McKinsey study on women in the workplace reported that:
- Women are stepping up as leaders and taking on leadership roles, but their contributions are not recognized or rewarded
- Women are even more burned out than they were a year ago; burnout is escalating much faster among women than men
- One in three women say they have considered downshifting their careers or leaving the workforce this year, compared to 1 in 4 at the start of the pandemic
- Additionally, 4 in 10 women have considered leaving their employer or switching jobs—and high employee turnover in recent months suggests that many of them are following through
Goodbye Corporate America, Hello New Retirement Plan
Leaving behind the “golden handcuffs” of Corporate America can be a daunting decision for many women but when done, it opens the door to an exciting future with many options for taking more control.
Have you left, or considered leaving, a corporate position at a well-paying job with benefits such as a qualified retirement plan? If so, you may be well positioned to take time off and consider a shift that will bring meaningful personal and professional rewards.
If you decide to dabble in entrepreneurship, you will have many things to think about. That also means considering what to do with your workplace retirement plan—and as a self-employed person, thinking about a new retirement savings strategy. Here are a couple of tips we have if you’ve left the workforce or decided to go solo:
1 – Don’t abandon your retirement money! The funds left in your old employer-based 401(k), or other workplace retirement plan, are yours. Contact your former employer to find out about rolling over those funds into a new retirement plan. Depending on your age and financial situation, a rollover IRA can ensure the money in your old employer plan ends up in a new account for continued growth.
2 – Consider opening a self-directed retirement plan. If you’re now self-employed and launching a new business, you’re already a person who is comfortable being in the driver’s seat—making your own decisions about your future. A self-directed retirement plan could be a powerful option for your retirement savings strategy—especially if you know and understand certain alternative assets, which these plans can hold.
What is a self-directed retirement plan?
As the name implies, a self-directed plan is one in which the account owner makes all her own investment decisions. You can open the same types of plans that you could at any other financial institution, such as a Traditional/Roth IRA, SEP, SIMPLE, Solo 401(k), and even HSAs and ESAs.
As a self-directed investor, you are also responsible for conducting full due diligence on any investment, so being comfortable doing that research is important—or having the experience with investing in a certain asset class outside of your existing retirement plan already.
All income and expenses related to the assets flow through the retirement plan (such as management fees for an investment property, or the rental income derived from that asset; the loan amount to a borrower, and the repayment with interest).
What types of assets may I include?
A self-directed IRA or other retirement plan may include a broad array of alternative assets that cannot be held in a typical retirement account, which typically limit you to invest in publicly traded assets such as stocks, bonds, and mutual funds. Self-directed retirement accounts allow you to broaden your options and include things like real estate, precious metals, private equity/partnerships, notes and loans, cryptocurrency, and many more. The only alternative assets you cannot include in a self-directed account are life insurance and collectibles.
Why open a self-directed IRA?
Just as with a new business enterprise, your self-directed IRA and your retirement savings will benefit from your knowledge. Self-directed investors take advantage of what they already know to build a more diverse retirement portfolio and a hedge against stock market volatility. Self-direction also allows for increased control over investment returns, as these assets tend to be non-correlated with the stock market.
Where do I open a self-directed plan?
The account is opened with a self-directed retirement plan custodian/administrator, a firm that specializes in these types of plans. The administrator manages all the paperwork and mandatory filing, executes the transactions on behalf of the account (based on account owner’s instructions), and the custodian holds the assets. In many cases, the custodian/administrator are the same entity. The administrator also reviews transaction documents to ensure there is no risk for a prohibited transaction, which can endanger the account’s tax-advantaged status.
To all the women who’ve bid farewell to Corporate America, we support you! To those who are launching new businesses, we congratulate you. And to those who are shifting their retirement plans to a self-directed version, be sure to work with a custodian/administrator who offers ample client education, stellar customer service, and is available to answer your questions about this exciting strategy.
DON’T MESS WITH OUR IRAS! Let Your Representatives Know the New Rules on IRAs Would Hurt Ordinary Investors
There are major concerns with the proposals recently added to the Build Back Better Act regarding IRAs.
If this is the first you are hearing about this legislation, the U.S. Congress is considering a spending bill that covers many issues. Last week, text of the legislation was made public and concerning language in the tax section proposes changes to IRAs aimed at preventing mega-wealthy investors like Peter Thiel from using Roth IRAs to accumulate massive wealth tax-free. (A recent Forbes piece did a great job of explaining the potential impacts of this bill.)
These proposed changes include:
- Restricting IRA investments to public securities and barring most investments into private equity or startup companies. This includes barring investments into single member LLCs
- Prohibiting the use of IRA funds for investments requiring accredited investor status
- Barring self-directed IRA investments in potentially high-return assets such as startups and private equity
- Forcing IRA accounts with private security holdings, and other newly prohibited investments, to divest and take distributions of 100% of those investments before they are eligible for withdrawal, effectively leading to massive out-of-pocket tax penalties
While the intention of these policies may be to target the ultra-wealthy, the reality is that, if passed, these proposals would hurt ordinary, hard-working investors the most.
We cannot allow this bill to pass as it currently stands. In the days since this language appeared, we have met with policymakers across the aisle to discuss the potentially catastrophic and unintended consequences of this bill, consulted with government affairs consultants, and built a coalition with others in the self-directed IRA space.
But we can’t do this on our own. Your representatives in the House and Senate need to hear from you about why these proposed changes will be harmful to you personally.
To help make your voice heard, we’ve made it easy to look up your representatives, as well as drafted a message you can use to contact them.
Let Your Representatives Know the New Rules on IRAs Would Hurt Ordinary Investors
You can find contact information for your House Representative and Senators here.
If you would like to contact your representative—which is strongly encouraged—a sample message is below:
“I’m a constituent of Representative/Senator [Last name]. My name is ____ and my ZIP code is _____.
I’m calling today to express my concerns with some of the language recently added to the Build Back Better Act. The legislation includes two sections (Sections 138312 and 138314 of the House reconciliation bill) that will restrict my ability—and millions of middle-class Americans like me—from self-directing our IRAs into investments we believe in, like startups.
I understand the goal is to prevent the mega-wealthy from using their IRAs to avoid paying taxes, but this language would impact all of us. I’m in the middle-class and have worked hard to invest money for my retirement. If this goes into law, not only might I be required to divest from these assets, but I may also be forced to take early distributions and be taxed heavily for doing so.
I cannot afford to lose these savings or be taxed on them just because the richest people in the U.S. have taken advantage of this. I’m asking my members of Congress to remove these sections from the Build Back Better Act that restrict or penalize IRA investments.
PLEASE DON’T MESS WITH OUR IRAs.”
Please join us in demanding that these proposed new rules be removed from the final bill.
And believe us when we say that every single voice not only counts in this fight, but any single voice could be the one that makes the difference. So please don’t discount your potential impact here.
Next Generation – as always – will continue to advocate for individual investor choice.
September is National College Savings Month. Have You Considered Self-Directing an Education Savings Account?
With classes underway in colleges and universities across the country, families are reminded of the importance of saving for college, to make higher education available for their students. September is National College Savings Month, which puts researching college savings plans at the top of many families’ to-do lists.
According to Salle Mae’s report on how American families pay for college:
- Families report paying $26,373 for college in academic year 2020–21
- Scholarships were used by 56% of families and covered 16% of education costs in academic year 2020–21
- More families (56%) report making loan payments while the student is still in school—a significant increase from last year’s 46% of families, and 41% of families two years ago
- FAFSA completion rates are declining
Completing the Free Application for Federal Student Aid (FAFSA) qualifies millions of students for scholarships, grants, work study programs and federal student loans every year. However, given the high cost of higher education and the many expenses related to attending college, an education savings account (ESA) is an excellent way to save for post-secondary education. Even better, an ESA can be self-directed, enabling the account owner to boost those savings by investing the funds into alternative assets.
ESA 101: what it is, who can open one, who benefits
Similar to a Roth IRA, contributions to an education savings account grow tax free and distributions are also tax free for qualified education expenses—if they do not exceed the beneficiary’s qualified education expenses. In other words, the funds must only be applied to qualified expenses (noted below).
When applying for financial aid for school, the assets held within a self-directed ESA are treated as those of the account owner (not the student).
Here are some ESA fast facts:
- Anyone can establish an ESA for anyone who is under the age of 18. Next Generation includes education savings accounts among the many self-directed plans available.
- The maximum contribution limits (from all sources—parents, other relatives, friends) is currently $2000 per year per account; while there is no limit to the number of education savings accounts a single student/beneficiary can have, the cumulative annual contributions must stay within the $2000 limit. Therefore, if the account is opened when the child is born, this gives him/her the opportunity to start college with up to $36,000 to cover expenses.
- The funds may be used for private elementary or high school (K-12) as well as post-secondary education (college, trade school). Qualified expenses can include tuition, books, school supplies and equipment (such as a computer for school), certain fees, room & board, and even uniforms.
- The beneficiary must use the funds before age 30. If that doesn’t happen, assets are distributed to the beneficiary at age 30, at which time the account is assessed taxes and penalties. Note that there are certain waivers for students with special needs. Should the student not use all the funds available in the ESA, or if the student’s school plans change, the account holder can transfer the plan to another beneficiary without any fees or penalties.
Unlike other college savings instruments, an education savings account allows for greater flexibility in terms of how the assets are invested. And that’s good news for individuals who prefer to self-direct their plans. Rather than being limited to investment options such as stocks, bonds, mutual funds or CDs, investors who are knowledgeable about certain nontraditional investments can include alternative assets like real estate, private equity, lending, cryptocurrency, precious metals and more.
The team at Next Generation can provide education about these and other self-directed ways to save, such as using self-directed IRAs for retirement and building generational wealth. You may schedule a complimentary educational session with us to learn more, or contact Next Generation directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
Protecting Seniors Against Investor Fraud
August 14 was National Financial Awareness Day and August 21 was National Senior Citizen Day, which was proclaimed in 1988 by President Ronald Reagan to recognize the achievements and services of our country’s more mature citizens throughout their lives. According to the U.S. census, more than 54 million seniors were living in the U.S. in 2019; that number is projected to grow to 95 million by 2060.
Seniors lose more than $3 billion annually to fraud; this heartbreaking statistic includes the retirement savings of millions of people a year. These are all good reasons to raise awareness of potential fraud among older adults especially, and among all investors in general.
The top financial fraud scams that target seniors are listed here, including those that use fake tech support, Medicare, and scared grandchildren ruses via phone, email, or text.
Beware investor fraud at any age
You know the saying, “It’s too good to be true?” That’s one way to recognize a potentially fraudulent investment opportunity. You can also visit Investor.gov (a website of the SEC), which has a wealth of information about how to avoid retirement fraud.
Individuals who invest in alternative assets through a self-directed IRA should be accustomed to doing their research and conducting full due diligence about their investments, and typically have experience with alternative investments. While they may already know these tips, some chief ways to avoid possible investor fraud are:
- Never be rushed into an investment decision
- Research the company before you invest – something we strongly recommend all self-directed investors do, every time they invest in an alternative asset
- Watch out for unsolicited offers
- Know who you are dealing with – you should know and trust your self-directed IRA custodian; never be afraid to ask questions and get referrals to firms that put a high price on integrity
- Always know where your funds are
Fraud risk and self-directed IRAs
Baby boomers and Gen Xers who are approaching retirement age, or seniors who’ve continued working into their retirement years, cannot afford to become victims of senior fraud. Because of the broad array of alternative assets allowed through self-direction, and because self-directed investors make all their own investment decisions, it is increasingly important for senior investors to educate themselves on the risks.
As with any financial account you open, research the plan custodian that will hold the assets. How transparent is their transaction process? Are the forms for opening and funding a plan easy to follow? Is the team available by phone or email to answer your questions about self-directed investments?
The SEC and Next Generation Trust Company offer these tips for avoiding retirement fraud in self-directed IRAs:
- Verify information in self-directed IRA account statements, such as prices and asset values
- Avoid unsolicited investment offers. Fraudsters may attempt to lure investors into transferring money from traditional IRAs and other retirement accounts into new self-directed IRAs.
- Research the investment thoroughly. Depending on the asset, get as much information as you can about the type of investment (royalties, real estate, precious metals, private equity funding, etc.)
- Be wary of “guaranteed” returns. Fraudsters often try to convince investors that extremely high returns are low risk by calling them “guaranteed” or “can’t miss” opportunities. Be extremely wary of such claims.
- Understand the roles and responsibilities of the self-directed IRA custodian. The custodian should provide a custodial agreement and explain that the firm does not endorse nor sell any investments.
- Consult a professional. Having a trusted advisor, like a financial advisor, tax advisor or attorney, to consult about certain alternative assets is always a good idea.
If you fear that you or a loved one has been the victim of investor or senior fraud, contact the SEC Complaint Center.
To learn more about self-direction as a retirement wealth-building strategy, you can always get the information you need from Next Generation, where our team is here to answer your questions. We can be reached via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com. Alternatively, you can schedule a complimentary education session for a 1-on-1 with one of our IRA specialists at your convenience.
Using a Self-Directed IRA to Invest in a Broadway Show
Ah, the Great White Way – dazzling marquees, bright lights, the glamor of Broadway. With plans for theatrical productions to open again in New York City this fall, there will be new opportunities to become an investor in a Broadway play.
You need not use discretionary income to make this investment; if you have a self-directed IRA, you can include this and other entertainment assets within your retirement plan, and build a more diverse retirement portfolio while feeding your passion for plays.
Broadway musicals—with their elaborate sets, high rent, union employees and large casts—cost a lot of money to get off the ground. Playbill states that the average cost of a Broadway show was between $10 and $18 million in pre-COVID seasons. Think: development costs, running costs, and closing costs to finance. However, there is money to be made; according to an article on RIA Intel, the 2018-2019 Broadway season grossed $1.8 billion and attendance reached 14.8 million, both all-time highs. The 2019-2020 season was cut short by the COVID-19 pandemic, completing 41 weeks, and even that curtailed box office grossed $1.4 billion.
Straight plays (non-musicals) are generally less expensive to produce. Off (and off-off) Broadway shows, which play in small theaters with smaller budgets in every way, are also much less expensive to mount and run. Either way, a long-running show plus solid ticket sales can equal strong ROI for investors over time.
How to invest in a Broadway show
Most shows are set up as an LLC or partnership, and the investors and producers are shareholders. You can invest in a private equity fund that invests in certain types of shows, or an investing group that finances multiple productions, which can mitigate risk for its investors/members.
You can also make a direct investment into the production, which usually means having a personal connection to the lead producer or one of the co-producers, as this is not typically an “open to the public” investment opportunity. Producers may only want accredited investors to come in, but the criteria and minimum investment vary from production to production.
Pulling back the curtain
With most Broadway shows, the investors are paid back before any funds are distributed to the producers—this is called recouping the investment, which occurs when weekly gross revenues generate income that exceeds weekly running costs. Once the initial capitalization is met, the show is recouped. There may be certain circumstances where the show keeps some funds in reserves for cash flow purposes.
Successful shows often yield licensing rights for touring companies, cast recordings, merchandise, and other possible ancillary revenue or investment opportunities. Think of all the shows that continue their Broadway runs while also having national and international tours, and you get the picture.
Like any investment, there is risk in theatrical productions and many shows do not recoup their original investment, but when the shows are hits, everyone wins. Therefore, as with any alternative asset within a self-directed retirement plan, the account holder should conduct full due diligence on the investment. It would be wise to research who is behind the show (producers, director, stars), as their past performance can be a strong indicator of future success; understand the source material or know the script enough to feel comfortable with it (and the investment); be a raving fan of the show; and be mindful of your risk tolerance.
At Next Generation, we’re here to help clients understand the many options and benefits of self-direction as a retirement and wealth building strategy— such as including theatrical productions as an alternative asset in their self-directed IRAs. If you’re thinking of giving your financial regards to Broadway by investing in a show, but have some questions about this transaction, we invite you to schedule a complimentary educational session with one of our team members. You can also call us at 888.857.8058 or email us at NewAccounts@NextGeneration.com.
Next Generation Trust Company and ErisX Announce Administrative Relationship to Streamline Cryptocurrency Investment Process for Self-Directed IRA Owners
Third-party Exchange Allows for Custody of Crypto Assets Without the Need for an IRA LLC
ROSELAND, N.J. (PRWEB) JULY 30, 2021
Jaime Raskulinecz, CEO of Next Generation Trust Company, has announced that her firm has formed an administrative relationship with ErisX, an exchange that provides crypto spot and U.S. regulated futures. The relationship will allow Next Generation’s clients to diversify their retirement portfolios by investing in crypto assets such as Bitcoin, Ethereum, Litecoin and Bitcoin Cash, without having to open an IRA LLC to do so. These retirement accounts, more commonly known as self-directed IRAs, allow for a broad array of alternative assets like real estate, private equity, hedge funds, notes, precious metals, and cryptocurrencies.
“Up until this point, our clients would have to establish a newly formed LLC after opening their accounts for checkbook control over these digital assets. But through this new option, investors may now directly invest in cryptocurrencies via a regulated, secure and transparent exchange,” said Raskulinecz. “While clients may still establish an LLC if they wish, it is no longer necessary when making these self-directed investments on ErisX.” Next Generation has listed ErisX as a professional resource on their website, which also provides more information and education on trading cryptocurrencies.
Through self-directed IRAs, investors make all their own investment decisions and may include many non-publicly traded alternative assets within their retirement plans. This affords them more control over their investment returns, provides a hedge against stock market volatility, and gives the same tax advantages that come through investing with a retirement account.
Next Generation supports self-directed investors with account administration and transaction processing through Next Generation Services and asset custody through Next Generation Trust Company.
“We provide access to crypto trading and investing on an exchange built to the exacting standards of traditional commodity markets,” said Thomas Chippas, CEO of ErisX. “Next Generation customers can open an account and access our world-class exchange to diversify their IRA investments in a few simple steps.”
Next Generation and ErisX co-hosted an educational webinar about investing in cryptocurrency on June 17; it is available on demand at https://bit.ly/375VMQp.
More information about self-direction as a retirement wealth-building strategy is available at https://www.NextGenerationTrust.com. To learn more about including cryptocurrency in a self-directed IRA with ErisX, visit https://www.erisx.com.
About Next Generation
Founded on the philosophy that every person should have control over their own retirement plans, Next Generation Trust Company educates consumers and professionals about self-directed retirement plans and nontraditional investments, a strategy at one time reserved only for the very wealthy. A custodian of self-directed retirement plans, it is a trust company chartered in South Dakota. Its sister firm, Next Generation Services, provides comprehensive account administration and transaction support with Next Generation Trust Company acting as custodian for all accounts. The neutral third-party professionals at Next Generation expertly guide clients and their trusted advisors as part of their white glove, personalized service for a seamless transaction experience from start to finish. Reach Next Generation by phone at 888.857.8058 or via e-mail at NewAccounts@NextGenerationTrust.com. For more information, visit https://www.NextGenerationTrust.com.
ErisX provides crypto spot and U.S. regulated futures markets without sacrificing security, transparency or the benefit of market oversight. ErisX’s spot market supports Bitcoin, Bitcoin Cash, Ether, Litecoin, and USDC. Borrowing building blocks from the traditional capital markets, ErisX ensures proper security protocols are in place to best protect members as well as further establish confidence in the crypto markets. ErisX Futures are offered through Eris Exchange, LLC, a Commodity Futures Trading Commission (CFTC) registered Designated Contract Market (DCM) and Eris Clearing, LLC, a registered Derivatives Clearing Organization (DCO). The CFTC does not have regulatory oversight authority over virtual currency products including spot market trading of virtual currencies. ErisX Spot Market is not licensed, approved or registered with the CFTC and transactions on the ErisX Spot Market are not subject to CFTC rules, regulations or regulatory oversight. ErisX Spot Market may be subject to certain state licensing requirements and operates in NY pursuant to Eris Clearing’s license to engage in virtual currency business activity by the New York State Department of Financial Services. https://www.erisx.com/disclaimer/
State IRA Programs Give Workers a Retirement Plan Choice – But Self-Directed Investors Have Broader Investment Choices
We’ve written before about the lack of retirement readiness for so many Americans. And although IRAs have been in existence since 1975, available to anyone with earned income to save for retirement, millions of workers rely on an employer-based plan instead—especially if they work for larger firms.
Policy makers in many states are trying to level the retirement savings playing field for millions of workers who do not have access to an employer-sponsored retirement plan. To do so, some states are mandating certain small businesses to offer a qualified retirement plan or automatically enroll their employees in a state-sponsored, payroll deduction IRA program.
The concern behind the mandate stems, in part, from these figures:
- The U.S. Bureau of Labor Statistics notes that 35% of private sector workers (representing approximately around 43 million Americans) work for companies with fewer than 100 employees. (S. Bureau of Labor Statistics, “National Business Employment Dynamics Data by Firm Size Class”)
- Fewer than 48% of those firms offer retirement plans to their workers, compared to the 94% of firms with 500+ employees. (S. Bureau of Labor Statistics, “National Compensation Survey: Employee Benefits in the United States”)
- The retirement plan gap widens further for people of color: according to the Federal Reserve, 68% of working-age white families have access to a workplace retirement plan compared to 56% of Black and 44% of Hispanic families. (FEDS Notes, “Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances,” September 28, 2020.)
The state-run IRA basics
The criteria differ slightly from state to state, but to put it into a nutshell, they require companies who do business in the state and meet a certain employee census to offer a qualified retirement plan or offer the state-run IRA program to their workers. Within this requirement, is an automatic payroll deduction for participants. Employees can choose to opt out, select a different contribution percentage, or select an investment other than the default, but there is no other plan flexibility.
As of May 2021, over 30 states are considering retirement savings plans for small-business employees, and 12 states are already implementing them. Here is the list of those states with the mandated IRA and links to their program details:
Greater flexibility and choice: a self-directed IRA
At Next Generation, we’re all about saving for retirement. We encourage all workers to open an IRA and contribute as much as they can, up to the annual contribution limits, based on the type of IRA they have. We’re also all about investment options—and for individuals who are comfortable making all their own investment decisions, a self-directed IRA offers tremendous flexibility about the types of investments they can include in their plan.
Self-directed IRAs have the same tax advantages as their regular counterparts, with funds growing tax free or tax deferred, depending on the type of plan. However, rather than relying on stocks, bonds and mutual funds, self-directed investors can diversify their retirement portfolios by including non-publicly traded, alternative assets – such as real estate, private equity, precious metals, notes and loans, cryptocurrency, and much more. Self-directed retirement plans create a hedge against stock market volatility while enabling individuals to invest in more creative assets, with the added potential of greater control over investment returns.
We applaud lawmakers for putting retirement readiness on their dockets and for encouraging Americans to save for retirement. But for savvy investors who know and understand alternative assets, an employer-based plan or state-run IRA program won’t come close to the nearly limitless investment choices a self-directed IRA provides.
Want to learn more? You may schedule a complimentary education session with a Next Generation team member; or email NewAccounts@NextGenerationTrust.com or call 888.857.8058 with your questions about the broad choices of alternative assets these plans allow.
What’s Your Preference: Financial Freedom or Retirement?
A self-directed IRA can get you to both with investments in alternative assets
Retirement for American workers—how it looks, what we want and how we get there—is changing. Franklin Templeton’s recent Voice of the American Worker Survey* revealed that the majority of those surveyed said that path to retirement, and how retirement looks, is different for everyone.
In fact, 80% of survey respondents indicated “traditional retirement” is not an accurate expectation for most people, and 75% said their future financial goals have changed over the past five years.Of note: while more than three-quarters (76%) of survey participants said that the goal of achieving financial freedom appeals to them, only a little over half felt it was achievable. In regard to retirement, specifically—69% found retirement appealing, and 61% thought retirement was likely to be more achievable.
Financial freedom connotes being able to live the life you want with enough savings, investments and cash to do so; of course, this means different things to everyone. So does retirement, which could mean a full stoppage of work, or working part-time—perhaps trying out a new avocation—with time for hobbies and traveling; again, carrying different significance to each individual. This article in Forbes talks about these concepts in greater detail.
In the Franklin Templeton study, “financial independence” was reported to feel more empowering than “retirement” by 81% of participants, especially among women. Respondents also viewed retirement through the lens of their overall well-being.
- More than half (57%) of respondents say their financial well-being includes health and lifestyle rather than being all about the money.
- Along physical, mental and financial health criteria, nearly three-quarters (74%) said their current physical health, 70% said mental health, and 65% said financial health are associated with well-being.
- Many reported that they struggle to get a holistic view of their financial health, having to go to multiple sources (61%), and nearly 90% would like more planning tools and resources to track their financial health and achieve financial independence.
Financial independence and a comfortable retirement? Self-directing might get you there.
Where do YOU stand on financial freedom vs. retirement? At Next Generation, our clients are working on their financial goals using self-directed IRAs (and other types of retirement accounts) as a retirement wealth-building strategy. With a self-directed IRA, investors can include a range of alternative assets, building a more diverse retirement portfolio and meeting their long-term financial goals through these tax-advantaged retirement plans.
Whether you plan to completely retire, cut back on your work, or continue working well into your 70s or longer, you can map out your road to strong financial health by investing in assets you already know and understand, such as real estate, precious metals, private equity, notes, cryptocurrency and more. When you open a self-directed IRA with Next Generation, you’ll also have access to all your statements and reports to track your goals and make well-informed investment decisions—backed by a third-party administrator that handles all mandatory filing and a custodian that holds the assets.
As you work out a long-term financial plan with your trusted advisor—and determine what financial freedom means to you and the lifestyle you desire during retirement—we invite you to learn more about how and why a self-directed IRA could be a powerful part of your plan. At Next Generation, we’re here to help. You may schedule a complimentary education session with someone from our team, email NewAccounts@NextGenerationTrust.com or call 888.857.8058 with your questions about self-direction and the many types of alternative assets these plans allow.
*The Harris Poll conducted the study on behalf of Franklin Templeton in October 2020 among 1,007 employed U.S. adults, all of whom had some form of retirement savings.
Investing in Distressed Mortgage Notes with a Self-Directed IRA
We all remember the Great Recession, the housing market crash, and what that wrought for homeowners who could not afford to pay their mortgages. With COVID-19 bringing unemployment and financial hardship to many families, those with mortgages may be struggling to keep up with their payments. These distressed mortgages—also referred to as nonperforming mortgages—can be invested in through a self-directed IRA and create a win-win scenario for both investor and homeowner.
Distressed mortgage notes, like other private lending transactions, are among the alternative assets allowed in a self-directed retirement plan. These nonperforming mortgages are purchased at a discount—typically anywhere from 10 to 50 percent lower than the property’s value—with repayment terms negotiated by the retirement plan owner and the homeowner. This enables the homeowner—who is likely at risk of foreclosure and losing his/her home—to stay in the home and make payments to the self-directed IRA that now holds the note.
Meanwhile, the IRA generates passive income as the full value of the note is repaid, along with the interest agreed upon by both parties. Plus, the investor builds a more diverse retirement portfolio and a hedge against stock market volatility by including private alternate assets in the IRA.
Example of a distressed mortgage note investment:
- John and Lisa owe $250,000 on their home and their mortgage has an interest rate of 3%. However, John lost his job last year due to the pandemic and Lisa’s salary doesn’t cover all household expenses.
- They are unable to make their mortgage payments and are in danger of foreclosure.
- Sandra has a self-directed IRA and picks up that mortgage for $212,500 (a 15% discount) from the lender that is off-loading a “toxic” loan.
- Sandra works out new payment terms with John and Lisa for the full $250,000 mortgage amount but at a lower interest rate, for a longer term to spread out their payments.
- Sandra’s self-directed IRA makes the extra $37,5000 on that loan amount plus interest.
- John and Lisa get to stay in their home while they work out their finances.
Due diligence on distressed mortgages
Self-directed investors are accustomed to doing due diligence on their potential investments, and distressed mortgages should be no exception. Like any investment, these notes can carry risks, especially since the buyer (the self-directed IRA) becomes the creditor.
For example, what if the homeowner defaults? The self-directed investor would be wise to research foreclosure laws in that state to ensure they have a backup plan. In addition:
- Although the loan is secured by the real estate as collateral, it’s critical to know the property’s current value by hiring a professional appraiser.
- Know the original loan terms – it sounds elementary but be sure to have the interest rate, timeline, and amount borrowed documented so you can evaluate the value of the investment opportunity.
- Vet the borrower’s credit history and ability to repay the loan.
- Consult a trusted advisor about any tax liabilities the investment may incur.
If the investor decides not to work with the homeowners, the self-directed IRA can resell the property or retain it as a rental investment. Again, as with any self-directed investment, it is the responsibility of the account holder to ensure due diligence, full transparency, and a clear understanding of all tax and legal ramifications.
Where to find nonperforming mortgages for investment
Although lenders will typically sell these notes to get them off their books, there are also online marketplaces and trading platforms that sell notes. However, expect to pay more for these notes than buying direct, as these are retail resellers. You can also invest in a company that buys nonperforming mortgages from banks at steep discounts.
At Next Generation, many of our clients include real estate as well as secured and unsecured loans within their self-directed retirement portfolios. Adding distressed mortgage debt is another valuable way to build retirement savings through alternative assets—with the potential of helping homeowners stay in their homes. If you have questions about this or other alternative assets allowed through self-direction, feel free to schedule a complimentary education session with someone from our team. You can also email NewAccounts@NextGenerationTrust.com or call 888.857.8058.