CEO Jaime Raskulinecz of Next Generation Services Shares Insights in U.S. News & World Report About Self-Directed IRAs
Expert in Self-direction as a Retirement Strategy Comments on Common Mistakes Investors Make
ROSELAND, NJ, March 20, 2023 /24-7PressRelease/ — A recent article in U.S. News & World Report titled “Self-Directed IRA: Know the Risks Before Investing” laid out the basics of self-directed IRAs—what they are and the types of investments these retirement plans allow. Among the industry professionals quoted in the article is Jaime Raskulinecz, founder and CEO of Next Generation Services and Next Generation Trust Company.
Raskulinecz shared her perspective on the ideal self-directed investor and common errors investors make. As she described, self-directed IRAs are best suited for sophisticated investors who take the time to understand the regulations regarding the alternative assets allowed in these plans or those who work with an experienced financial advisor familiar with the alternative investment space. Self-directed IRAs enable investors to include a broad array of alternative assets within their plans, such as real estate, precious metals, private equity, secured and unsecured notes, and many more.
As for the common mistakes her firm sees, Raskulinecz noted that the biggest ones involve allowing a disqualified person to use a property owned by the IRA, using personal funds to add to an investment or do improvements, lending funds from an IRA to a friend or associate in order to personally take those funds and later claim it’s a bad loan, and making an investment without adequate due diligence. She also said there is potential for fraud when investors are lured into a transaction with a party that promises unrealistic or outsized returns or cannot provide adequate details about the investment.
“In a perfect world, more advisors would be familiar with this strategy and the rules of self-directed IRAs in order to add to their practice and help investors who might be less sophisticated but could still benefit from the diversification,” she added in the article. To read the full piece, click here.
For more information about self-directed IRAs, rules about disqualified persons, or alternative assets allowed through self-direction, go to www.NextGenerationTrust.com.
About Next Generation Services, LLC
Founded on the philosophy that every person should have control over their retirement plans, Next Generation educates consumers and professionals about self-directed retirement plans and nontraditional investments, a strategy at one time reserved only for the very wealthy. Next Generation Services provides comprehensive account administration and transaction support, and its sister company, Next Generation Trust Company, acts 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. For more information, visit www.NextGenerationTrust.com, or contact Next Generation at 888.857.8058 or NewAccounts@NextGenerationTrust.com.
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Women are Making History in Finance—and Strides in Creating Wealth
March is Women’s History Month—a perfect time to take stock of the many strides and contributions women have made to the worlds of commerce and finance. Those contributions have sometimes had a worldwide or regional impact, and the strides are often more personal. Either way, there is a lot to celebrate, and much work ahead as women continue to work hard to close the gender pay and wealth gaps.
As we noted in this 2021 Forbes Finance Council article, women have fought and progressed to be able to have credit in their names—but longstanding gender norms in families are still somewhat stagnant, although we see societal progress in that realm as well. That said, finance and investment education for women is on the rise, as are online investment platforms that cater to women:
- Ellevest, a relatively early female finance player, provides an investment platform for women by women
- 100 Women in Finance is dedicated to building a more diverse and gender-equitable finance industry by developing the next generation of female leaders in investment or executive roles in finance
- Female Invest (U.K.) is all about financial education for women
- Marmot Finance (Switzerland), and Alpher (U.K.) are women-centric investment platforms committed to closing the financial gender gap
- Girls Who Invest offers financial education and career training for young women
Can you hear the glass ceilings shattering?
Gains in business
According to statistics from Fundera, women entrepreneurs—including women of color—are becoming a major force in commerce in the United States. One figure that stands out is that there are 114% more women entrepreneurs than there were 20 years ago, among others:
- The US has 12.3 million women-owned businesses, representing 40% of all U.S. businesses
- Women-owned businesses generate $1.8 trillion a year
- Women of color started 64% of new women-owned businesses last year and Latina women-owned businesses grew more than 87%
While these figures show promise for the future, others still show a need for more equitable progress:
- Women only receive 7% of venture funds for their startups
- Female entrepreneurs ask for less in business financing than men—around $35,000 less—and the average loan size is almost $5,000 less than what men receive
Lots of room at the top for women leaders—and lots of success for the companies they lead
As a retirement services firm led by a woman founder and CEO, we want to see more women take on the world of finance. There is so much room for growth in this realm as these statistics bear out:
- Quantic reports that only around 6% of the top public financial institutions have female CEOs, while 55% of human resource officers are women (a more traditional role)
- In investment banking, women hold less than 17% of senior positions
- Only 2% of assets and mutual funds are controlled exclusively by women in the United States
- A study by Deloitte and 100 Women in Finance, about leadership and gender equity in financial services firms, states that the number of women in C-suite roles in North America is expected to rise by about 7% in the next seven years:
- In 2021, the proportion of women in leadership roles (within financial services firms surveyed) was 24% and this figure is projected to be 28% by 2030; the study’s authors state this figure is still below parity.
- Those leadership roles include positions below the C-suite such as executive and senior vice presidents, division chiefs, and regional managers.
At Next Generation, we are fully behind woman-power in the workplace. Here are two amazing reasons why:
- Private tech companies led by women achieve 35% higher ROI
- Among companies in the portfolio of the seed-stage venture firm First Round Capital, those founded by women outperformed companies founded by men by 63%
For centuries, women have been behind great successes; we need look no further than the story of the three “Hidden Figures” behind NASA’s milestone moments to grasp that! And we will continue to push open more envelopes to create more opportunities for women in business. There’s no question that when companies keep their employment doors open to women and create a professional path to leadership, great things can happen. We salute all the women who are out there every day, making a difference for their families, communities, and companies!
Celebrating the Women of Next Generation
March is National Women’s History Month. This annual observance has been recognized formally in the U.S. since 1987.
At Next Generation, we have some of our own women’s history—and women to celebrate—that we’d like to share in honor of Women’s History Month. Let’s start at the top with our founder and CEO, Jaime Raskulinecz, CPM, SDIP.
Jaime is someone who has always identified gaps in the marketplace and filled it with what is needed. When she wanted to make real estate investments within her IRA but found there was a lack of professionals to help her make those transactions, she founded Next Generation Services in 2004, as an administrator of self-directed retirement plans. Over time, she recognized that also being the custodian of our clients’ assets would streamline our client service. In 2017 she launched Next Generation Trust Company to do just that.
Jaime is a long-time real estate investor who has also worked in real estate since 1994. She is a certified property manager (CPM) and CEO/principal of Rainbow Property Management, a credentialed real estate management firm. She is also a New Jersey licensed real estate broker, and a member of several national and statewide real estate organizations.
A recognized expert in the field of including alternative assets within self-directed retirement plans, Jaime believes investor education about self-direction should be shared widely. She has contributed articles to prominent real estate and investment publications, has spoken to investment groups, and has been interviewed many times on the topic; she is a frequent contributor to the Forbes Finance Council.
Jaime has earned several prestigious awards throughout her career for entrepreneurship and leadership, which you can read about in her bio on our website.
Karen Jung, CPA, SDIP, Director of Finance recently celebrated her seventh anniversary with us, having started at Next Generation in January 2016. Karen applies her extensive background in corporate finance to her supervision of our internal financial operations as well as the client-related areas of transaction billing and execution. She continually refines our accounting and reporting procedures to improve efficiency. In addition to being a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants, Karen is also certified in human resource administration.
Erica Figueiredo, SDIP, Marketing Specialist started with us in July 2018 and directs many of our marketing efforts. She is most excited by marketing strategy and marketing automation, is well-trained in applications such as Salesforce and HubSpot, and holds several HubSpot Academy certifications for various marketing, sales and operational functions. Whenever you come across one of our social media posts, receive an email from Next Generation, or read one of our blog articles, know that Erica is behind those in some way. She holds a B.A. in communication studies from Kean University.
Emma Olson, SDIP, Client Service Supervisor officially joined Next Generation in August 2018. She reviews our clients’ investment documentation for compliance with IRS regulations and assists with ongoing account management. Her previous experience is in retail and banking so it’s no wonder she does so well working with individual customers and facilitating efficient transactions. Emma has a bachelor’s degree in mathematics with a statistics emphasis from the University of Utah and is an excellent critical thinker who can analyze different situations in a way that is useful in customer service.
Lisa DeSimone, SDIP, Client Service Associate joined the company in September 2020. She is part of the transaction team and assists with client inquiries and transaction support. Prior to coming onboard at Next Generation, Lisa worked for several years in the insurance industry in account management and compliance and has experience in office management, employee training and supervision, and client relations.
As you can see, the history of Next Generation is truly women’s history. All of us (even the guys!) are proud to celebrate these women and everyone’s contributions to the company’s success.
PS – If you are wondering about our team members who have SDIP after their names, this is the Self-Directed IRA Professional (SDIP) designation from the Retirement Industry Trust Association (RITA). This designation is awarded to employees within the industry who have been employed with their respective companies for at least 2 years, complete a pre-requisite training course, and pass the required examination, which demonstrates their IRA technical, operational, and compliance-oriented expertise.
Next Generation Services Publishes Updated Account Disclosure Regarding Important Changes to IRAs and Other Retirement Accounts
Administrator and custodian of self-directed retirement plans outlines changes that affect IRAs from SECURE Act 2.0 and other legislation.
ROSELAND, NJ, February 24, 2023 /24-7PressRelease/ — Next Generation Services has published updates for account owners of self-directed IRAs and other retirement accounts related to the recently enacted SECURE Act 2.0. The SECURE Act 2.0 was part of President Biden’s $1.7 trillion omnibus spending bill that was signed into law on December 29, 2022.
You can find the updated account disclosures here. The link is available at the top of the firm’s website, at www.NextGenerationTrust.com.
The account disclosures cover historical updates that affect IRAs starting with the enactment of the SECURE Act of 2019 through the CARES Act and now, SECURE Act 2.0. Taxpayers can follow the chronology of changes and download the sheet as reference.
The SECURE Act 2.0 contains over 100 provisions that affect IRAs and qualified workplace retirement plans, with many scheduled for implementation in 2024 and beyond. Among the chief provisions in effect this year, shared on Next Generation’s account disclosure form, are:
• The increase in the age at which retirement plan owners must begin taking required minimum distributions (RMDs); this rose from age 70 ½ to 73 for taxpayers who will turn age 72 during 2023 or later
• Higher contribution limits for Traditional and Roth IRAs (up by $500 for either type of IRA)
• Increased catchup contributions for those age 50+, by $1000
• Higher AGI (adjusted gross income) phase-out ranges for determining Traditional and Roth IRA deductions for active participants
“We know how important it is for our clients and owners of retirement plans to be aware of legislative updates that can affect their accounts,” said Jaime Raskulinecz, founder and president of Next Generation. “As other provisions of the SECURE Act 2.0 are enacted in the future, we will share those updates, and invite people to check our website periodically for information about retirement plans.”
Next Generation also published a blog article that outlines some additional changes to retirement plan rules that will be enacted in the future, which you can read here. Those cover some updates related to plan sponsors/employers, employees who participate in a workplace retirement plan, and owners of IRAs.
Next Generation specializes in administrative and custodial services for self-directed IRAs, which allow investors to include a broad array of alternative assets within their retirement plans. Anyone interested in learning about self-direction as a retirement wealth-building strategy is encouraged to sign up for the company’s newsletter, read the blog, or watch Next Generation’s on-demand webinars.
About Next Generation Services, LLC
Founded on the philosophy that every person should have control over their own retirement plans, Next Generation educates consumers and professionals about self-directed retirement plans and nontraditional investments, a strategy at one time reserved only for the very wealthy. Next Generation Services provides comprehensive account administration and transaction support, and its sister company – Next Generation Trust Company – acts 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. For more information, visit www.NextGenerationTrust.com, or contact Next Generation at 888.857.8058 or NewAccounts@NextGenerationTrust.com.
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Why Savvy Investors LOVE Self-Directed IRAs
For self-directed investors, love is always in the air when it comes to their retirement portfolios. These savvy investors understand that the answer to romancing their retirement savings is by opening and funding a self-directed IRA to be used to invest in alternative assets.
Self-directed IRAs enable individuals to include a broad array of nontraditional investments in their retirement plans, using what they already know and understand to build their retirement savings. Account owners enjoy three key benefits as self-directed investors:
- Portfolio diversification by including alternative assets within their plan such as real estate, precious metals, private equity, promissory notes and many more. Self-directed retirement plans are not limited to stocks, bonds, and mutual funds—or investments otherwise found on the public market.
- A hedge against market volatility. The alternative assets these plans allow tend to not correlate with the public market, so even if (or whenever) the stock market takes a dive, the self-directed investments may not be directly affected.
- Better control over investment returns by investing in what they know best. Self-directed investors have the flexibility to take advantage of investment opportunities as they arise (and that they already understand); and the independence from public markets means selecting long-term investments that have the potential to yield more lucrative returns.
Investment flexibility and independence – who doesn’t love that?
Savvy self-directed investors are those who are comfortable making all their own investment decisions, based on the research and due diligence they conduct.
- You are already investing in real estate outside of your existing retirement plan, and understand what the world of investment property is all about. Whether you’re into the fix & flip market, rental properties, vacation properties, or have a partnership in a REIT, you could be making those investments within a self-directed IRA, with all the tax advantages that these retirement plans provide.
- You enjoy investing in mineral rights, music royalties, or agricultural commodities (such as lumber, corn, or soybeans). Bingo! You can make a date with a self-directed retirement plan administrator like Next Generation and start including these alternative assets in a self-directed IRA.
- Your friend needs an unsecured loan and you have the funds available. Your self-directed IRA can make the loan, with all the terms worked out between you and the borrower, and instructions sent to the plan administrator. You build retirement savings when the money is paid back to the IRA with interest and your friend gets the needed financial assistance.
Getting sweet on self-direction? We can help make the match.
Next Generation provides comprehensive account administration, including transaction support, and holds the assets for our clients’ self-directed IRAs. We also offer a plethora of educational materials so you can learn more at your own pace with our webinars and white papers. If you’re interested in a more coupled approach, you can also schedule a complimentary educational session with a Next Generation representative who will answer your questions about the many options available through these plans, tailored to your specific interest(s). You can always reach us directly by giving us a call at 888.857.8058 or emailing NewAccounts@NextGenerationTrust.com.
Alternative Assets and High-Net-Worth Investors
Anyone who is financially savvy with alternative assets, wants to diversify their retirement portfolio, or create a hedge against market volatility can include those types of investments within a self-directed retirement plan. This strategy seems to appeal strongly to high-net-worth (HNW) and ultra-HNW individuals.
According to the Motley Fool, this may be because alternative investments are often less volatile than stocks and bonds and can offer a higher rate of return. These factors can reduce risk and enhance the investor’s ability to build more retirement wealth (through the nontraditional investments they already know and understand). Quoting an investment firm study that surveyed the super-rich, The “Fool” also stated that in 2020:
- Among ultra-high-net-worth individuals (commonly defined as people with at least $30 million in investable assets), 81% invested in alternative assets
- Alternative investments comprised 50% of this group’s assets (as opposed to only 5% among average investors)
- Millionaires (net worth of at least $1M) allocated 26% of their assets to alternative investments that year
- Equities are popular among this group, with 31% in listed equities and 27% in private equity investments
Why the wealthy are attracted to alternative assets
As noted in an article in Financial Planning, it’s possible that HNW individuals are attracted to (or don’t shy away from) investments such as real estate, precious metals, private equity, hedge funds, secured and unsecured loans, and other alternative assets because they understand these are more long-term investments.
These assets are also not correlated with the stock market. Investing in a real estate partnership is likely to return a much higher return than traditional stocks. The article cites a report by Cerulli Associates whose research found that investors with a net worth of at least $5 million now have 9.1% of their assets in alternatives to stocks and bonds, up from 7.7% in 2021. Cerulli Associates projects this figure to increase to 9.6% in the next year.
Anyone with heavy investments in stocks and bonds in 2022 has felt the pain of sharply declining portfolio values. With that in mind, it isn’t surprising that about half of the respondents in the Cerulli Associates study said they are attracted to alternative assets to diversify their portfolios and another 50% look for growth opportunities that these asset classes can deliver.
The Cerulli Associates survey cites private real estate investments as popular among financial advisors who work with HNW clients; and another report quoted in the article (by Robert A. Stranger & Co.) found that $33M was raised in 2022 for private REITs—where investors can put money into office buildings, multifamily properties, and other income-generating real estate assets. Cerulli’s results also support private equity funds as appealing to the wealthy, with 45% of respondents saying, “they would be directing more money to private equity in the next two years.”
Private credit—a scenario in which multiple investors pool their money into loans to privately held companies—is another way many of the ultra-wealthy are investing in alternative assets according to the survey.
Younger HNW investors also seek out alternative investments
Disappointing stock market performance is a big reason why younger HNW investors are turning to alternative investments, as reported by CNBC. The media outlet stated that 80% of investors ages 21-42 are invested in alternative assets because most of them don’t expect “above-average returns” from traditional stocks and bonds. CNBC went on to say that these younger investors allocate three times more to nontraditional investments than other generations, and only half as much of their portfolios in stocks than their parents or grandparents held.
Including alternative assets in a self-directed IRA
High-net-worth investors aren’t the only ones who can include alternative assets in their retirement portfolios. Anyone who self-directs their retirement investments can include a broad array of alternative assets within their self-directed IRA (Traditional or Roth), other self-directed retirement plan (SIMPLE IRA, SEP IRA, Solo 401k), an education savings account, or health savings account.
You can learn more about the many options and benefits of self-directed IRAs by registering for a complimentary educational session at Next Generation with a knowledgeable representative. Alternatively, you may contact our helpful team by phone at 888.857.8058 or by email at NewAccounts@NextGenerationTrust.com.
The SECURE Act 2.0 and How it Affects Retirement Plans
In December 2022, President Biden signed the $1.7 trillion omnibus spending bill. Bundled into it is the SECURE Act 2.0 retirement reform package, which includes provisions that will affect the retirement industry and increase the savings potential for many Americans. Most of the 100+ provisions do not go into effect until January 2025, but some affect plan sponsors and account owners now.
Here’s a recap of need-to-know SECURE Act 2.0 provisions that are designed to help close Americans’ retirement gap (financial readiness to retire) and help provide more opportunities and ways to build retirement savings.
RMD age is higher
Uppermost in account owners’ minds is likely to be the higher age at which required minimum distributions must start from pre-tax retirement accounts. The first SECURE Act, passed in 2020, pushed the RMD age to 72. Starting on January 1, 2023, the RMD age is now 73 years old. This will get pushed up again in 2033 to age 75. Taxpayers who turned 72 years old last year (2022) must still take minimum distributions. RMDs apply to all pre-tax retirement accounts (such as Traditional IRAs), but not after-tax retirement accounts (such as Roth IRAs). As always, we recommend you discuss your RMD strategy with your trusted advisor, as everyone’s financial needs and tax scenarios differ.
RMDs and Roths
Unlike a Roth IRA, a Roth 401(k) is subject to RMDs. The SECURE Act 2.0 eliminates RMD requirements for workplace-based Roth plans beginning in 2024. Therefore, Roth 401(k)s will be treated similarly to Roth IRAs regarding required minimum distributions (in other words, no more RMDs for workplace Roth accounts starting next year).
Roth accounts for SIMPLE and SEP retirement plans
Effective now, employers may create Roth accounts, open to after-tax contributions, for SIMPLE and SEP retirement plans, which previously only allowed for pre-tax contributions.
Increased catch-up contributions
Catch-up contributions to retirement plans are for people ages 50 and older, who may contribute amounts above the typical annual contribution limits.
- Effective immediately, the maximum additional amounts that taxpayers age 50+ can contribute to a workplace plan bumps up from $6,500 per year to $7,500 per year.
- Another provision requires all catch-up contributions to be on an after-tax basis for any who earn over $145,000
- Beginning in 2025, individuals between the ages of 60 and 63 will be able to add $10,000 more per year above the standard limit to their workplace retirement plan.
For IRA owners, your catch-up contributions (currently limited to $1,000 extra per year) will be adjusted for inflation in increments of $100 starting in 2024.
New emergency withdrawal exemption
Effective January 1, 2024, a new exemption will enable retirement plan owners (IRA or 401(k) plan) to withdraw up to $1000 annually, without tax penalty, “for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.” Note that after this provision goes into effect, those borrowed funds MUST be replenished within three years to avoid future penalties if you make another emergency withdrawal for the same reasons as stated here.
Until then (throughout 2023), you will still pay a 10% tax if you withdraw funds from your retirement account before you are 59 ½ years old.
Of note: Employers can now create emergency savings accounts within their retirement plan.
Automatic enrollment in employers’ 401(k) or 403(b) plans
Does your employer now offer a 401(k) or 403(b) retirement savings plan? If so, effective January 1, 2025, you will be automatically enrolled in a new 401(k) or 403(b) once you become eligible (existing plans are grandfathered). Unless you opt out of participating, your employer will deduct money from each paycheck automatically, and transfer it into the 401(k) or 403(b). SECURE 2.0 specifies that the initial contribution must be between 3% and 10% of your pretax earnings. The contributions will escalate by 1% per year of service to a minimum of 10% and a maximum of 15%. An employee can opt out of the escalation (as well as the auto-enrollment).
Part-time employees must be auto enrolled in their employer’s 401(k) after two years, instead of the current three-year wait.
Exempt from this mandate are small businesses with 10 or fewer employees and newer businesses that started less than three years ago.
Roth account contributions by employers
Effective now, participants in qualified plans can designate that their employer’s matching or non-elective contributions be directed to a Roth workplace account. The amount of the contribution will be added to the employee’s gross income, but it won’t be subject to FICA employment taxes.
In 2024, catch-up contributions for employees earning more than $145, 000 in the previous year must go into a Roth 401(k). That means that anyone who earns more than this amount this year will be subject to the new Roth requirement next year.
Discuss this with your plan administrator to get the most updated information as these provisions roll out.
Higher startup credit for small businesses
The small-business startup tax credit for companies with up to 50 employees goes from 50% of administrative costs to 100%, up to $5,000. This went into effect this month (January 1, 2023).
In addition, a new startup credit allows plan sponsors to write off up to $1000 of employer contributions per eligible employee; the percentage of allowable credit decreases over five years to zero. This credit does NOT apply to defined benefit plans.
Student loan considerations
Employers can treat student plan repayments as elective contributions to one’s retirement plan for matching purposes in the company’s 401(k) plan. In other words, the bill supports workers who want to save while also paying down their student loan debt, by allowing them to receive matching contributions to their retirement accounts based on student loan payments.
529 plan rollovers
Taxpayers who have funds left over in a 529 account (which can only be used to cover qualified educational expenses) will be able to roll over up to $35,000 into a Roth IRA account without penalties. This applies to 529 accounts that were opened at least 15 years ago and it goes into effect on January 1, 2024.
There are more retirement plan changes to come or already in place for qualified plan sponsors, small-business owners, and investors who are saving for retirement. Given that self-directed retirement plans adhere to the same legislative requirements and provisions as their counterparts available from employers, banks, and brokerage houses, we are sure our clients who self-direct their retirement investments will have questions about how SECURE 2.0 affects them. As always, we are available to answer your questions about self-directed IRAs.
If you are new to Next Generation or are considering self-direction as a retirement wealth-building strategy, you can email us at NewAccounts@NextGenerationTrust.com or give us a call at 888.857.8058. You may also schedule a complimentary educational session to discuss self-directed IRAs and working with Next Generation as your plan administrator and custodian.
How Passive Investments Can Boost Your Retirement Savings
In December, Next Generation announced a new webinar about investing passively in alternative assets, such as certain real estate classes, for example. It featured Scott Ritchie, business development specialist at Next Generation and Ted Greene, investor relations manager of Spartan Investment Group.
They discussed the current market and what might lie ahead for investors in the coming year as the Fed attempts to slow down the economy. The conversation turned to how passive investing can be a lucrative approach to building a retirement portfolio that meets investors’ personal goals. Of course, Scott talked about how that works with self-directed IRAs.
As we shared in a prior post, passive investing is a strategy wherein the individual makes investments in certain alternative assets that, after the upfront work and research are done, require no management on the investor’s part. It’s about being more hands-off (that’s the passive part), as the asset returns continued value to the investor.
Why passive investments?
The passive investment market is one way—with many asset options—to diversify one’s retirement portfolio and steer away from traditional stock market investments. It also provides investors with fresh ways to look at how they are investing. The question raised in the webinar was: Do you invest to make as much in gains as you can, and “go big” without regard to your risk profile and proximity to retirement age, or invest in line with your financial goals, with assets that will get you there?
With passive investments in real estate and other alternative assets—which can be included in a self-directed IRA—investors can, in Ted’s words, “orchestrate their portfolio and invest to get what they need . . . to architect a portfolio that provides cash flow to meet certain budgetary needs.”
Scott and Ted discussed the importance of taking on this posture the closer we are to retirement, with a strategy that creates income from a basket of private investments that work together to deliver the cash flow you need. The passive investment market is a tool to use to attain this goal.
As Ted explained, certain real estate classes—such as self-storage and multifamily housing, or investing via real estate syndication—can provide incremental net operating income that may yield that cash flow. Further, the beauty of that cash flow is that it can protect the asset’s value even in the face of rising interest rates (as we are experiencing in the market right now), and therefore can protect the investor as well.
Assessing the private investment market for your self-directed retirement portfolio
Determining one’s individual picture of “success,” identifying the risks and characteristics of certain private investments, and evaluating how those investments perform in risk-on and risk-off periods can be some of the factors in considering a private investment strategy for one’s retirement plan.
Ted suggested that investors think about creating a road map based on their definition of success to determine where, how, and when to move assets based on the account owner’s risk profile. Factors in that road map could look like this:
- Identifying where you want to be financially in five years.
- When will I have enough financial independence to take more control of my time (and retire)?
- What must happen between now and then to meet my goals?
The strategy would be to consider investments that can yield small increments of income spread out over various asset classes, with different risk profiles and maturity schedules. This can build a highly diverse portfolio and enable account owners to map out their current holdings based on various asset classes. This map can help spotlight how the different assets are performing and inform where to make investment adjustments to meet one’s financial goals.
We invite you to listen to the webinar and learn more about how a passive investment strategy can align with your self-directed retirement plan. As always, if you have questions about self-direction as a retirement wealth-building strategy, or want insights into the many options and benefits of a self-directed IRA, you can schedule a complimentary educational session with a Next Generation representative. You can also contact us by email at NewAccounts@NextGenerationTrust.com or call us directly at 888.857.8058.
Qualified Charitable Distributions: Charitable Giving Through Your IRA
Holiday time means receiving numerous appeals for charitable donations before the end of the year. Taxpayers often hurry to get their year-end checks or online donations transacted before December 31 so they can take the deduction on this year’s taxes.
Rather than write out a check, did you know you can use your Traditional IRA (or other tax-deferred account) as the source for making these donations? This is done via a qualified charitable distribution (QCD), for retirement-age taxpayers.
There are good tax-related reasons to do a QCD, so the charitable donation has double benefits to the account owner and the charity that receives the funds.
What is a qualified charitable distribution?
For people or couples who do not yet need the income from their mandatory required minimum distributions (which must start at age 72), they may use the QCD strategy, also called a charitable IRA rollover.
This QCD strategy enables charity-minded individuals to send up to $100,000 a year from their tax-deferred IRA to an operating charity (or qualifying public charity) as defined by the IRS in IRC section 170(b)(1)(A). The amount may represent all, a portion of, or more than their annual required minimum distribution (RMD). Account owners who are eligible to start taking RMDs may do this.
Why take a QCD?
Taking required minimum distributions from one’s IRA increases your taxable income (the withdrawals are subject to ordinary income tax). In some cases, this additional income may push the taxpayer into a higher tax bracket. This in turn may adversely affect Social Security and Medicare benefits.
Enter, the QCD.
Tax benefits of a QCD
While a qualified charitable distribution is not a tax-deductible contribution, the assets that are rolled over go directly to the charity. This bypasses the IRA owner, who will not have to report the QCD amount as taxable income and therefore, will not owe any taxes on it. Of course, the charity benefits as well with a generous donation.
The QCD is excluded from the donor’s taxable income and the taxpayer’s adjusted gross income is reduced, providing an additional tax benefit.
Do’s and don’ts of a QCD
- The qualified charitable distribution is only available as a rollover from an IRA.
- Regarding other retirement plans, donors can roll assets over into a tax-deferred IRA and then gift those assets to a charity via a QCD.
- They may also name a donor-advised fund account or another public charity as a beneficiary as part of their estate planning.
- Donor-advised funds, supporting organizations, and private foundations are not considered qualifying public charities.
- Although the donor may roll over more than their RMD for a particular tax year, the excess distribution can’t be carried over to cover RMDs in future years.
- The QCD can be made to more than one operating/public qualifying charity.
- Organizations that qualify for public charity status include churches, schools, hospitals, medical research organizations, publicly supported organizations that receive a specified portion of their total support from public sources, and certain supporting organizations. Check with your trusted advisor about the status of a charity you wish to support with a QCD before sending instructions to your retirement plan administrator.
- The donor cannot derive any personal benefit from the charity for making a QCD.
As always, the team at Next Generation recommends you consult with your tax advisor or estate planning professional to make sure the QCD strategy is in your best financial interest. If you have a self-directed IRA with Next Generation, we will execute your instructions regarding the qualified charitable distribution once you have done your due diligence about the charity and your RMD amount.
From all of us at Next Generation, best wishes to you for a joyful holiday season!