Investors Have a Lot to be Thankful for with Self-Directed IRAs

Investors Have a Lot to be Thankful for with Self-Directed IRAs

Self-directed IRAs have been around since the inception of IRAs in the 1970’s. While there is still much that is misunderstood about them, they provide a world of benefit to savvy investors who are comfortable making their own investment decisions. As we look to the Thanksgiving holiday, we’d like to highlight those benefits, which show why the many investors currently using self-directed IRAs have a lot to be thankful for.

The broad array of alternative assets these plans allow enable individuals to build a more diverse retirement portfolio. The importance of this cannot be overstated in these turbulent times for the stock market. Countless investors whose portfolios are locked into stocks, bonds and mutual funds have seen balances plummet, then rise a bit and drop again this year. We all know that what goes down eventually comes back up (and vice versa), but creating a hedge against this stock market volatility through self-directed investments is an excellent strategy.

Alternative assets tend to not correlate with the stock market. While traditional investors are wringing hands over poor stock performance, owners of self-directed IRAs can enjoy many happy tax-advantaged returns from real estate, private stock or venture capital, gas and oil, and many other nontraditional investments.

All types of retirement plans can be self-directed with alternative assets. The types of plans that you would typically be able to open through a brokerage can also be self-directed. This includes Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, Solo 401(k)s and even ESAs (Education Savings Accounts) and HSAs (Health Savings Accounts). The main difference between a “self-directed” account with a brokerage and a “self-directed” account with a custodian like Next Generation are the types of investments that can be included within them to build retirement wealth.

The flexibility, creativity, and agility that self-direction offers investors is unparalleled. Self-directed investors can take advantage of investment opportunities as they arise with greater ease. And they can include a personally selected mix of assets that closely align with their values, knowledge or expertise, and retirement savings goals. As we stated above, individuals who are comfortable making their own investment decisions are most grateful for the added control they have over their investment returns afforded through this strategy.

What is Next Generation thankful for?

Since our founding in 2004 as a third-party administrator of self-directed retirement plans, Next Generation has helped countless investors build their retirement savings through self-direction. In 2017, we launched Next Generation Trust Company, our custodial arm, to better serve our clients with full administration and custodial services under one corporate umbrella. We are thankful to all the people who have opened accounts with us and helped us grow, to the expert collaborators with whom we have provided client education, and to the many individuals who have referred our firm to investors wishing to self-direct their retirement portfolios.

It brings us an abundance of joy knowing that each and every day we help individuals achieve the retirement goals they once dreamed of by providing best-in-class education on self-direction as a retirement strategy and exceptional customer service.

From all of us, thank you.

Retirement Plan Contribution and Income Limits for 2023

The IRS has increased the contribution limits for all types of retirement plans—Traditional and Roth IRAs, certain governmental plans, and qualified retirement plans (defined benefit and defined contribution plans) for 2023. The new amounts adjust for cost-of-living increases and also apply to income limits as we detail below.

Cost-of-Living Adjusted Limits for 2023

Roth IRA contribution and AGI limits

Taxpayers with a Roth IRA may contribute up to the full allowed amount annually depending on their income. The adjusted gross income (AGI) ranges have increased for 2023 for making the maximum deductible contributions.

Traditional IRAs

If the taxpayer or the spouse was covered by a workplace retirement plan during the year, the deduction on the Traditional IRA contributions may be reduced or phased out until it is eliminated. This depends on filing status and income.

All the details about these increased contribution limits and cost-of-living adjustments for 2023 are on IRS.gov (see Notice 2022-55), which also has information for participants in employer-sponsored retirement plans. As always, we recommend you consult your trusted tax advisor for guidance.

Maximize your contributions to a self-directed IRA

All types of IRAs may be self-directed (Traditional, Roth, SEP, SIMPLE, etc.). While they are governed by IRS contribution limits, the types of alternative assets these plans allow are far broader than in their typical counterparts. Therefore, you can maximize those annual retirement plan contributions by investing in a broad array of alternative assets you already know and understand.

With a self-directed IRA, you can build a more diverse retirement portfolio and a hedge against market volatility and inflation—so crucial in today’s market. You’ll also have the potential to save more for retirement through nontraditional investments such as real estate, precious metals, private equity, royalties, and many more. The only limitations on your self-directed investments are no collectibles or insurance policies, no self-dealing or extensions of credit, and no transactions with disqualified persons.

Self-directed IRAs at Next Generation

As we head into 2023, consider how you can maximize your annual retirement plan contributions with a self-directed IRA at Next Generation—and the diversity of alternative assets you can include. You may register for a complimentary educational session with a Next Generation representative to get more insights into the many benefits and options of self-direction as a retirement strategy. You can also contact us directly by email at NewAccounts@NextGenerationTrust.com, call us at 888.857.8058, or text us at 848.233.4076.

Where Will Your Retirement Dreams Take You? A Self-Directed IRA Can Help Get You There

If an affordable retirement lifestyle is at the top of your wish list, best to put Hawaii at the bottom, as a recent Bankrate report revealed it to be the most expensive state for retirement this year.

The top ten list of least affordable states are Hawaii followed by: California, Connecticut, Massachusetts, New Jersey, Vermont, Rhode Island, Maryland, New York, and Maine.

Bankrate evaluated two data reports to derive its affordability list for each state. They were the Community and Economic Research’s cost of living index (July 2022) and the Tax Foundation’s 2022 rankings for property and sales tax rates. See how your state ranks for retirement affordability here.

It is estimated that retirees will need about $2 million saved for that retirement in Hawaiian paradise, due to that state’s cost of living. However, many Americans have not saved nearly that millionaire amount. CNBC reported that on average, Americans have saved up approximately $141,542 for retirement, based on Vanguard’s 2022 “How America Saves” report.

Of course, what one person deems “affordable” may be another person’s “out of reach” based on retirement savings and sources of income. The definition of “comfortable retirement” also varies. Is it downsizing to a modest home, living on a small monthly budget, and taking one big travel splurge a year? Is it a luxury beach house and a busy social life or a quiet retreat? A NYC condo, weekly theatre outings, and dining out several times a week?

When you factor in the inflation and extreme stock market volatility of 2022, many near-retirees may be reconsidering their retirement timelines, with plans to work a bit longer to cover living expenses and have more time to shore up their retirement accounts.

Planning early and often for retirement will help guide savings goals and determine how to invest your retirement savings. And saving for retirement with a self-directed IRA could help you reach those retirement goals (and that dream lifestyle) by investing in alternative assets.

Self-directed IRAs forge a potential path to that dream retirement

Taxpayers can’t do much about inflation other than weather that financial storm. But when it comes to building a more diverse retirement portfolio—and a hedge against stock market volatility—self-direction can be a powerful retirement strategy.

Imagine building retirement savings with investments whose performance may not correlate with the stock market—investments in which you may already be investing outside of your existing retirement account.

Self-directed IRAs can include a broad array of nontraditional investments. This enables account owners to think big about their retirement dreams and use real estate, private stock, precious metals, cryptocurrency, tax liens, secured and unsecured loans and many more alternative assets to build retirement wealth. Plus, self-directed IRAs offer all the same tax advantages of their regular IRA counterparts. You can open and self-direct a Traditional or Roth IRA, a SIMPLE IRA, Solo (k) or SEP plan, as well as a health savings account or education savings account.

If you are comfortable doing your own research into alternative assets, conducting your due diligence on those investments, and making your own investment decisions, you can design a retirement portfolio with the potential to support a comfortable retirement anywhere your dreams take you.

Get started on your dream retirement at Next Generation

At Next Generation, our team of IRA specialists can walk you through the steps to open and fund your self-directed retirement account, as well as discuss your investment ideas. In addition, the webinars offered on our website provide expert insight on making a variety of nontraditional investments through self-direction. Feel free to book a complimentary educational session with a Next Generation team member who can answer your questions and provide further insights. Alternatively, you may contact us directly by email at NewAccounts@NextGenerationTrust.com, via phone at 888.857.8058, or text our team at 848.233.4076. We can’t wait to hear about your retirement dreams!

Gig Workers: Tips for Building Your Retirement Savings Hustle

The gig economy is growing, with more people working “on-demand” and side jobs. According to the U.S. Chamber of Commerce, gig workers are independent contractors or freelancers who typically do short-term work for multiple clients. The work may be project-based, hourly or part-time, an ongoing contract or a temporary position. What they have in common is that they earn income outside of traditional long-term, employer/employee arrangements.

Popular food delivery, pet care and transportation services, usually app or online-based, are among the more well-known side hustles that emerged in recent years. However, there’s more than on-demand work in the gig economy. Upwork reported that in 2021:

Saving for retirement as a gig worker

As independent contractors, gig workers do not get the same workplace benefits that many employees may have, such as health insurance or access to an employer-sponsored retirement plan. Plus, the lack of a steady paycheck may make it difficult for some to save for retirement.

At Next Generation, we’re all about educating people on how to build retirement savings. And we love the entrepreneurial spirit that goes along with growing a freelance business or enjoying the schedule and location flexibility of gig work. To that end, we offer these retirement tips for those working in the gig economy:

#1: Explore the types of tax-advantaged retirement plans available to you as a self-employed taxpayer.

#2: Tap into your affinity for flexibility with a self-directed IRA.

When it comes to the types of investments these retirement plans can include, a self-directed IRA offers a higher level of flexibility and creativity—with the same tax advantages of their typical counterparts. You can self-direct a Traditional, Roth, SIMPLE or SEP IRA, as well as a solo 401(k) – you can even self-direct an Education Savings Account (ESA) or Health Savings Account (HSA).

As a member of the gig workforce, you can make contributions to your self-directed retirement plan as your income allows—and grow those contributions through a broad array of alternative assets not available in other plans. These include real estate, unsecured and secured loans, precious metals, royalties, and many more. Doing so gives that extra boost to your retirement savings, provides a hedge against stock market volatility, and allows you to take advantage of investment opportunities not available through stocks, bonds or mutual funds.

Furthermore, if you weren’t always part of the gig-economy and you used to have a regular, W-2 job, you may have some cash sitting in an old employer-sponsored plan, like a 401(k), that can be rolled over into a self-directed account.

“Self-direction” means you are comfortable doing your own research and making your own investment decisions—just as you are directing your professional life. And many people who already know and understand nontraditional investments want to build a more diverse retirement portfolio by including alternative assets in a self-directed IRA. If that sounds like you, and you’d like to learn more, we invite you to register for a complimentary educational session with a Next Generation representative. You can also contact us by email at NewAccounts@NextGenerationTrust.com or call 888.857.8058 for answers to your questions about self-directed IRAs.

Earning Passive Income in a Self-Directed IRA Through Cryptocurrency Funds

The interest in cryptocurrencies continues to grow and the crypto investment market is evolving. Although these digital assets have taken a beating in the markets in the last few months, investing in crypto—even in a bear market—remains a popular alternative asset for self-directed IRAs.

Cryptocurrency and self-directed IRAs

One reason why crypto is attractive to self-directed investors is that, as with most alternative assets, it performs better as a long-term investment. In our August webinar about financial fragility and cryptocurrency investing, Junaid Ghauri, chief investment officer of Pareto Technologies, said the data shows the cryptocurrency is a robust investment year-over-year and its average value has increased, thanks in part to mining the digital asset around the world for broader distribution.

He believes that more nontraditional assets, such as cryptocurrency, will prove to be more resilient against financial fragility over time. To paraphrase Junaid, “Any market must be strong enough to withstand the shocks of volatility. Crypto is a nascent asset when compared to traditional financial instruments, but it is accessible, fungible and less fragile than large institutions think it is. Massive market drawdowns happen cyclically, this is not unheard of in crypto and it is what we are seeing now.”

Self-directed IRAs and passive income through crypto funds

As we shared in a previous post, investors can invest directly in cryptocurrencies by purchasing the “coins” on an exchange/online platform. For investors who prefer a more hands-off approach, there is also the growing world of cryptocurrency funds that provide a passive income stream through cryptocurrency investments.

Crypto funds may invest exclusively in cryptocurrencies, or manage a mix of crypto and other assets. Crypto funds buy and trade the digital assets on behalf of the investor. In the case of a self-directed investor, the fund does so on behalf of the self-directed IRA.

Given the bear market that cryptocurrency has been facing since May 2022, earning passive crypto income is driving interest among investors to help offset losses during downturns and grow crypto capital proactively while reducing risk.

Investing in crypto funds

The list of crypto funds of various kinds is growing. According to Crypto Fund Research, there are more than 800 cryptocurrency/blockchain investment funds. In addition to a large number of venture capital funds and hybrid funds (which invest in liquid cryptocurrencies as well as initial coin offerings), there are:

Active guidance from Next Generation

At Next Generation, there’s nothing passive about our approach as an account administrator and custodian. Whether our clients prefer direct investments into cryptocurrency or crypto funds for passive investing, every transaction undergoes a review process to ensure all mandatory paperwork is completed correctly, the transaction would not be considered prohibited, and is executed correctly—either with an exchange platform or fund manager.

Next Generation knows that self-directed investors are informed investors. If you’re thinking of including crypto funds in your self-directed IRA portfolio as a path to passive income generation, we recommend you thoroughly research and fully understand the fund before making the investment. You can always register for a complimentary educational session with a Next Generation professional for answers to your questions about self-directing your retirement plan.

Alternatively, you can contact us directly via email: NewAccounts@NextGenerationTrust.com, toll-free phone: (888) 857-8058, or SMS Text: (848) 233-4076.

Please note that we do not provide financial, or investment advice and we encourage you to consult with a trusted advisor if this is a strategy you’d like to explore.

Earning Passive Income Through a Self-Directed IRA

Work, work, work; it’s the way we earn income to sustain ourselves. However, earned income isn’t the only way to support your lifestyle. Passive income—a sort of “set it and forget it” income stream—can be attained through the alternative assets that can be held in a self-directed IRA.

A peek at passive income
The way passive income functions is that you do the upfront work to get an income-producing entity launched that will return a continual income stream down the line. Many people have done this by setting up online courses people can download, writing a book for sale, creating portfolios of their creative work (paintings, photography, handiwork/crafts) to sell on an e-commerce platform or their own website, and renting out a prime parking space or a swimming pool they’re not using (yes, the swimming pool rental is a real thing!).

Another way to create long-term income: passive investing.

Passive investing through self-direction

Passive investing is a buy-and-hold strategy and is typically a long-term path for building retirement wealth.

A self-directed IRA provides numerous avenues for passive investing and for taxpayers to earn passive income over the long-term. Self-directed investing through alternative assets requires upfront research and due diligence on the part of the investor; after that, they are low maintenance because they typically don’t require active involvement on the account owner’s part once the investment is made. That said, as with any investment, they do require monitoring to ensure they are delivering positive ROI. The IRS also requires that you provide your self-directed IRA custodian, like Next Generation, an annual Fair-Market Value (FMV) of any assets held within your account.

Some examples of passive investments that can be held in a self-directed IRA include:

Getting started on passive investing with a self-directed IRA

If you already have a self-directed IRA, you’re well on your way to building a more diverse retirement portfolio—one that can include passive investments in a range of alternative assets.

For investors who are getting started on self-directing their retirement accounts, Next Generation is here to help. You can you can schedule a complimentary educational session to learn more about self-directed IRAs and get answers to your questions about the types of passive investments and alternative assets these plans allow. Alternatively, you can contact our team directly via email at NewAccounts@NextGenerationTrust.com or call 888.857.8058.

Why Financial Advisors are Adding Alternative Assets to Clients’ Portfolios

In the last two decades, investors have dealt with periods of intense market volatility and this year, a high level of inflation is adding to investor woes.

Although financial advisors have historically stuck with more traditional investments (stocks, bonds, mutual funds) and the occasional foray into hedge funds, alternative assets—like those allowed in a self-directed IRA—are gaining favor with financial advisors who seek to diversity their clients’ retirement portfolios.

The bottom line: Including alternative assets enables advisors to work more responsively with clients’ investing goals, and align certain investments with their risk tolerance, age, and timeline to retirement with greater creativity and variety.

Benefits of diversifying with alternative assets

Financial advisors are seeing more and more that including nontraditional investments that are not tied to interest rates, nor correlated with stock market performance, offer a hedge against volatility and a buffer against inflation.

recent survey from Cerulli Associates of 100 advisors revealed average alternative allocations of 14.5% during the first half of 2022; advisors reported they want to boost percentages to 17.5% in two years. The industry average for alternative allocation (such as real estate, commodities, and private equity) is closer to 10%.

Recommending that they include alternative assets in their retirement portfolios enables advisors to be more effective with their clients and develop more personalized retirement strategies.

They can guide clients towards asset classes that they are interested in or know a lot about. And for those clients who are already investing in alternatives outside of their existing retirement plan, advisors can show they “speak their language” and build a stronger relationship.

Alternative assets and self-directed IRAs

Alternative assets are typically long-term, offer greater investing flexibility, and are somewhat protected from the macro trends of the stock and bond markets.

They enable individuals to invest along their personal interests, such as shares in a theatrical production, a coffee plantation, or a biotech startup. And when held within a self-directed IRA, the assets grow in a tax-advantaged account, which benefit the investor in the long run.

Although they may consult a trusted advisor regarding asset allocation, typical self-directed investors are those who are comfortable making all their own retirement decisions and conducting their due diligence about these nontraditional investments.

And while the self-directed IRA custodian/administrator, like Next Generation, does not sell or endorse any investments, the individual’s financial advisor can serve as a reliable sounding board when exploring the many options available through self-direction.

Next Generation is here to help

Next Generation is here to help self-directed investors and their advisors understand more about how self-directed IRAs work and share information about the types of investments allowed in these plans.

For financial advisors and/or their clients who wish to learn more about self-directed retirement plans, you may schedule a complimentary educational session with a representative from Next Generation. Alternatively, can contact us directly with your questions about self-direction by email at NewAccounts@NextGenerationTrust.com or call us at 888.857.8058.

Private Equity is Popular Among Billionaires . . . and Among Self-directed Investors – Here’s Why

According to a recent article on Bloomberg.com, there is some concern about the future of private equity (PE) investing. The author cited fewer initial public offerings, hesitation by banks to give buyout loans, and pension and endowment funds allocating less money to PE as an asset class (due to a selloff of global stocks and bonds). All these factors are contributing to fewer deals in terms of buying and selling companies.

However, PE is now attracting ultra-high-net-worth family offices and retail investors. Billions are being invested in venture capital funds and a survey by UBS revealed that among the biggest family offices with an average of $1.2B in assets each, 21% of their money was allocated into PE.

Why PE?
The family offices are seeking to boost returns and are seeking to broaden their asset allocation in alternative assets.

The UBS survey also showed that among respondents, 85% said they’re likely to invest early-stage companies this year, up from 74% in 2021. And about 75% of these billionaire families believe private equity will continue to outperform public markets. Plus, 51% plan to increase their asset allocation into direct PE investments and 44% plan to do so in PE funds within the next five years.

Private equity and self-directed IRAs
You don’t need to be a billionaire to include private equity as an alternative asset within a self-directed IRA. Private equity funding is growing in popularity among self-directed investors—especially since the SEC broadened the criteria regarding accredited and nonaccredited investors with full passage of the JOBS Act. This enabled a wider pool of investors to add private equity funding part of their self-directed retirement plans.

And given the volatility of the markets today, savvy investors seeking to diversify their retirement portfolios—and create a hedge against both inflation and market volatility—are looking at private equity as an alternative asset class that can enhance portfolio returns. As we’ve written in a previous post, self-directed investors can include the following PE investments:

These are all non-publicly traded assets which qualify them for inclusion in a self-directed IRA; however, PE investments—like many nontraditional investments allowed through self-direction—are often illiquid and should be considered as a longer-term investment.

One clear benefit of PE investments is that returns they deliver do not necessarily correlate with markets. So, while traditional investors are worrying about stocks and bonds on the decline (or slow to rebound), PE investors are helping early-stage companies or those seeking growth capital to thrive.

Are you adding private equity to your self-directed IRA? Next Generation can help.
Remember that as with any alternative asset held in a self-directed IRA, you as the account owner are responsible for preforming thorough due diligence on any potential PE investment, and you make all the investment decisions regarding the account. Your trusted financial advisor can offer insights into how adding PE investments may affect your tax picture or help you reach your retirement savings goals.

If you have questions about how PE investing works through self-direction, you can schedule a complimentary educational session with one of Next Generation’s team members. At Next Generation, we are committed to client education; our helpful experts can explain the ins and outs of self-direction as a retirement wealth-building strategy and share information about the many options and benefits of investing through a self-directed IRA. Contact us by email at NewAccounts@NextGenerationTrust.com or call us at 888.857-8058.

Achieving Financial Freedom Through Self-Direction & Alternative Assets

We don’t need to hammer home the concerns about inflation in the U.S. (actually, worldwide)—we are all seeing rising prices on products and services everywhere, and for many Americans, their paychecks don’t cover as much as they used to. According to Bloomberg, inflation hit a 40-year high in May with a consumer price increase of 8.6% over last year.

Add to that the terrible stock market performance we’ve been witnessing since the beginning of 2022, made worse by world events (and inflation). For people nearing retirement or those that are already retired, they’ve seen their retirement portfolios decline steeply over the past six months and market corrections or a quick fix are not on the horizon.

According to a CNN report in May, the stock market “meltdown” resulted in more than a $7 trillion decline in market value from the blue chip stocks in the S&P 500. The index at that time was down nearly 18% since the end of December.

CNBC reported more bad news in June, with the S&P falling to its lowest level since March 2021, bringing with it 21% losses from its January record. The Dow Jones Industrial Average has dropped (down 17% from its record high) as has the Nasdaq Composite by several percentage points (with 33% losses during this sell-off period). Treasury bond prices are dropping as well. All this is fueling recession fears.

With retirement savings in peril and the Fed trying to curb inflation, many people are feeling stuck. They are wondering how to invest to protect their retirement savings against the current market storm—and create a brighter future in their retirement years.

How alternative assets can help steady your rocking investment boat

With all this market volatility, investors may be feeling a bit of despair (we don’t blame them). And while many people understand that where there’s knowledge there is power, others might not realize the power that investing in alternative assets through self-direction can add to a retirement portfolio. Here are some of the benefits:

  1. Self-direction allows for a broad array of nontraditional investments—far broader than stocks, bonds and mutual funds. Savvy investors are including various sectors of commercial and residential real estate, precious metals, private equity, among others, in self-directed IRAs, and taking advantage of investing opportunities that arise in the asset classes they know and understand.
  2. The nontraditional investments allowed in a self-directed IRA have a low correlation to how other asset classes perform. So, while the stock market may tumble, an investment in mineral rights or music royalties can deliver unrelated returns. And real estate can be a lucrative option when done right.
  3. Alternative assets allow investors to fulfill on their ESG goals for environmental, sustainable and governance investments more nimbly and directly than through traditional funds.
  4. Self-direction enables investors to take advantage of “in the moment” investment opportunities and changing market conditions. For example, the supply chain issues the world has been dealing with since the start of the pandemic have opened opportunities to invest in transportation assets.

In short, alternative assets provide a hedge against market volatility while also helping investors develop a more diverse portfolio and offering inflation protection and yield. Additionally, the more you know about a specific asset class, the better chance you have at controlling (or increasing) your return.

Risk-reward

Imagine you’ve done your research and decided that investing in self-storage or senior housing—both growing real estate sectors—makes sense for your goals. Or you like the idea of investing in renewable energy assets, timber, or infrastructure sectors. All these are possible through self-direction.

Of course, there are risks with alternative assets as there are with any type of investment, but self-directed investors are comfortable making their own investment decisions; conducting their research and due diligence on the assets; and generally enjoy taking a more active—and proactive—approach to building their retirement wealth. They understand the nontraditional investments they are including in their self-directed retirement plan can have strong ROI. And they like the control they have over their investments and their future.

Investing in alternative assets in a self-directed IRA can create a powerful path to financial freedom. Self-directed investors have more avenues for beating back the hazards of inflation and stock market volatility. And they have more paths to take for investing in what matters most to them.

If you’d like to explore how a self-directed IRA can put you on the path to financial freedom, feel free to schedule a complimentary educational session with a representative from Next Generation. Alternatively, you can contact us with your questions about self-direction by email at NewAccounts@NextGenerationTrust.com or call us at 888.857.8058.