Protecting Seniors Against Investor Fraud

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:

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:

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.

Need more information? Contact us today.

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.

Need more information? Contact us today.

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.

About ErisX
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 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:

California

Colorado

Connecticut

Illinois

Maryland

Massachusetts

New Jersey

New Mexico

New York

Oregon

Vermont

Washington

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.

Need more information? Contact us today.

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.

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.

Need more information? Contact us today.

*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:

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:

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.

Need more information? Contact us today.

The Next Generation NJ Office Remains Closed to Public

The past year was understandably full of uncertainties and we hope that you and your families have remained in good health. As we move forward, we still want to ensure the health and safety of our staff, fellow building members, clients, and their respective families.

Our staff continues to operate on a mostly remote basis and will likely continue to do so throughout the summer. We will keep you apprised of our plans, which will depend on public health recommendations and local conditions.

We realize that uncertainty may linger through the foreseeable future. With that being said, our Roseland, NJ office and building remains closed to the public. What does this mean?

Until further notice, we still cannot accept any in-person visits, including in person meetings and drop offs. Effective immediately, we also cannot guarantee a staff member will be on-site to retrieve any drop offs from the main doors. Alternatively, we have increased our digital signature solutions, virtual meetings, secure file sharing options, and funds can be sent or received electronically.

Please check in with a Next Generation representative to review your options if you have any concerns. We will do our best to work with you given these restrictions. 

We can be reached via phone at (888) 857-8058 or via email at info@nextgenerationtrust.com.

Thank you.

How Real Estate Syndications Benefit Self-Directed IRA Investors

Although real estate syndications are not new, they are becoming a popular way for individuals to invest in real estate, including those with self-directed IRAs.

Real estate syndication—also called property syndication—is essentially a partnership between people who operate in two roles: the syndicator (or sponsor) and the investor(s). By partnering up, investors combine their resources, capital, and skills to purchase and manage a property or multiple properties that would not have been feasible to purchase on their own.

In short, the syndicate pools funds for greater buying power, enabling all parties, as a group, to access deal flow. You may hear syndication referred to as real estate crowdfunding because it is a way of making investments more accessible to a wider pool of interested parties. Syndicates may invest in office buildings, multifamily properties, warehouses, or a property fund.

Sponsors and investors

The sponsor is the individual responsible for finding, acquiring, and managing the real estate. Ideally, this person has experience in this area and can underwrite and conduct necessary due diligence on the property. He or she may choose not to put up any cash, and may also earn an acquisition fee or a property management fee if a third party is not contracted to handle that. Everyone else—including self-directed IRAs that participate—are the investors, who own a percentage of the real estate. It is passive ownership for them, providing all the benefits of owning real estate in their portfolios without having to do all the work.

Syndicate structures, syndicate profits

Syndicates are usually limited partnerships or limited liability companies; in these cases, the sponsor is the managing member or general partner. These are special purpose entities through which investors purchase the real estate. All members of the syndicate, including the sponsor, earn periodic returns on the initial investments.

A syndicate agreement is drawn up between the parties, with all arrangements agreed upon in advance (such as acquisition fees, returns on net income, ownership percentages, voting rights, the exit strategy, and how to divide profits after the property is sold). When it is sold, the syndicate is complete.

Using a self-directed IRA in real estate syndication

Rather than go all in on your own, you can have your self-directed IRA partner up with a syndicate. This lowers overall investments costs compared to buying real estate directly, since expenses are spread out over multiple investors. Plus, if your IRA is short on the necessary funds to directly invest in commercial property, participating in a syndicate is a great way to include this asset in your self-directed retirement portfolio.

As with all self-directed investments, you, as the investor, are expected to do your full due diligence—in this case, about the syndicate and the property or properties it plans to include in its portfolio. And, like any other asset, all income and expenses related to this investment flow through the self-directed retirement plan, which will earn returns on the investment until the syndicate is complete. Note that when using your self-directed IRA to invest in a syndication, you may NOT also act as a general partner; investments should be limited partnership only.

Need more information? Contact us today.

Investing in Oil and Gas Royalties Through a Self-Directed IRA

Last summer, we shared information on investing in energy assets through a self-directed IRA, including investments in mineral rights. Digging a bit further, some self-directed investors choose to include oil and gas royalties in their self-directed retirement plans. Let’s look at how that works.

What is a royalty interest in mineral rights?

In general, royalties are ongoing revenue streams based on production (in the case of energy assets) or licensing/usage (for intellectual property). In the case of oil and gas royalties in a self-directed IRA, the retirement plan owns a portion of the revenue that the oil or gas wells produce.

While most self-directed investors don’t have the equipment and financing needed to explore, extract, and produce oil or natural gas themselves, they can passively earn a royalty from the producing company that leases the land in exchange for access to it (and the ability to produce these energy assets).

How is the investment structured?

There are a couple of common scenarios. The first of which is when the oil/gas company leases land from a property owner (the IRA in this case), with mineral rights as part of the lease; this gives the producer access to the goods that lie beneath the surface (oil, natural gas, uranium, coal, etc.). The property owner is paid a percentage of the total production by the company—so if your self-directed IRA owns the land, the IRA will receive that income as landowner.

As an alternative to the above scenario, the IRA may choose to instead purchase mineral rights to the resources below the surface on a per-acre basis. The IRA then leases those mineral rights to the production company, which keeps its share of the revenue and distributes monthly royalty payments to the self-directed IRA.

These monthly royalty payments can range from a traditional 12.5% in the oil industry to upwards of 25%, depending on what is negotiated. The investor that owns the mineral rights—in this case, the self-directed IRA—may choose to sell those rights in the future for a profit. With profits flowing into the IRA, tax on those earnings would either be deferred or eliminated (in the case of a Roth IRA).

Benefits of mineral rights investments

  1. The production company is responsible for all exploration and extraction operations while the self-directed IRA passively collects an ongoing revenue stream.
  2. Unlike commercial and vacation property real estate investments, there are very little ongoing costs incurred by the investor, since the producer is dealing with expenses associated with working the land.
  3. Similar to real estate investments in self-directed IRAs, diversification is available within one asset class. Your self-directed IRA can invest in multiple oil and gas fields simultaneously—and collect royalties from these – or buy and sell as desired (with all income and expenses flowing through the retirement plan).

As with all self-directed investments, account holders are encouraged to conduct full due diligence about mineral rights investments and different energy assets, to fully understand how mineral rights work and the mechanics of land leases to energy producers.

At Next Generation, we’re here to answer questions you have about many types of non-publicly traded, alternative assets, including oil/gas.

Need more information? Contact us today.