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

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

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

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

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

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

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

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

Retirement plans for small-business owners

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do You Have a 401(k) at a Former Employer? You can roll it over into a self-directed IRA

According to the Investment Company Institute’s 401(k) Center, 401(k) plans held $6.3 trillion in assets as of September 30, 2022. The assets were in more than 625,000 plans on behalf of approximately 60 million active participants and millions of former employees and retirees. 

Further, the savings that were rolled over from 401(k)s and other employer-sponsored retirement plans represented about half of the $11.0 trillion held in individual retirement account (IRA) assets as of September 30, 2022.

However, there are many inactive 401(k) plans that have been left behind when employees left their jobs.

• In an article published by CNBC this past August, about 50.5 million people left their jobs in 2022—a new record high—as part of the continuing Great Resignation.
• Those workers left behind many 401(k) accounts with balances that average $55,400.
• The job-switching across U.S. workplaces drove up the number of forgotten 401(k)s.
• A 2023 analysis by Capitalize estimates there are 29.2 million left-behind or forgotten 401(k) accounts holding approximately $1.65 trillion in assets.
  • This figure is up from 24.3 million and $1.35 trillion in May 2021 and represents 25% of all 401(k) plan assets.

 

Taxpayers who are leaving their accounts at a former employer are leaving a lot of money on the retirement savings table!

 

Leave the job, take the 401(k) assets

If you choose to go to another employer or decide to retire, there is no reason to leave your old plan behind and let it go inactive. Think of all the opportunities you’ll miss to rebalance your portfolio or add to your retirement savings. Plus, you’ll pay administrative fees and penalties for an inactive account—and risk losing your retirement savings as a “missing participant” if your former employer is unable to find you due to outdated contact information.

You can merge the funds with the 401(k) at your new job if one is offered; cash out the old 401(k) if you need the money immediately; or roll over the funds into a self-directed IRA and take advantage of the broad array of alternative assets a self-directed retirement plan allows.

 

What happens with a rollover?

Unlike a transfer (which moves funds between two similar retirement accounts), a rollover moves assets between two different kinds of retirement accounts, such as from a 401(k) or another qualified plan into an IRA.

If you have an old 401(k) and you want to roll over the funds into a new self-directed IRA, you must notify the previous financial institution of your plans and complete the required paperwork to move the funds to the new custodian.

The financial institution that is sending the funds must file IRS Form 1099-R, which tells the IRS money is moving between the two different types of accounts and that there may be a temporary distribution. The institution that is receiving the funds (the IRA custodian) will file Form 5498. You must note the rollover on your tax return.

The same amount of funds must be rolled over from the former to the new account. There are no tax triggers when this is done correctly.

The rollover may be direct or indirect.

• Direct rollover: The funds are moved directly from your existing retirement account (such as the one from your former employer) into a new self-directed IRA. The account owner initiates the transaction by notifying the previous financial institution and completing the required paperwork to roll over the funds to the new custodian of your self-directed IRA.
• Indirect rollover: the funds are distributed to you first and then you have 60 days from the date of that 401(k) distribution to deposit the money into your new self-directed IRA. Doing an indirect rollover could trigger required tax withholding by the plan administrator at your former workplace. You’ll receive a check for the net amount minus the withheld tax.

As always, we recommend you discuss this with a trusted financial advisor to make sure you conduct the rollover in the best way possible for your specific tax scenario.

 

Lost track of your old plan? Here’s how to find it.

Before you initiate a 401(k) rollover, contact the human resources department of your previous employer or check old account statements to get all the information you need to start the transaction.

If that leads nowhere, search for your lost plan on the National Registry of Unclaimed Retirement Benefits, or search the database available through the National Association of Unclaimed Property Administrators. The U.S. Department of Labor also has an abandoned plan database.

Open a self-directed IRA with Next Generation

As a full-service administrator and asset custodian for self-directed retirement plans, Next Generation is here to help. You can open a new self-directed IRA and follow the steps in our starter kits to implement a rollover from your old 401(k) into your new plan. You can build a more diverse portfolio with alternative assets you know and understand—and include real estate, precious metals, royalties, private equity funding, commodities, and many more nontraditional investments to grow retirement wealth. We offer a complimentary educational session to review the many options and benefits that self-direction allows, and our team will ensure that your rollover is conducted in accordance with IRS guidelines. Contact us with any questions you have.

A Word of Caution for Self-Directed Investors: Use a Custodian That Specializes in Alternative Assets

The late actor James Caan found himself in a tax tangle in 2015 that his estate has been fighting . . . and lost last month. At issue was an IRA rollover that Mr. Caan claimed was a nontaxable event. It wasn’t.

His IRA at one financial institution held a partnership interest in a hedge fund. Those funds were distributed to another retirement account at a different brokerage house. Mr. Caan, who passed away last year, was hit with a deficiency and an accuracy penalty of nearly $936,000 three years later. He and subsequently his estate challenged this, but in October of this year, the U.S. Tax Court determined that his estate owed the money to the IRS.

The matter centered on two issues:

• The failure of Mr. Caan and/or his financial management team to provide the IRA’s FMV, and
• The correct transfer of a non-publicly traded hedge fund.

It is a somewhat complicated issue. Here’s an outline of what happened.

• The custodial agreement between Mr. Caan and the first financial institution stated that it was his responsibility to provide the brokerage with the fund’s year-end fair market value (FMV) every year. He failed to do this for tax year 2015.
• Having not received the FMV information it requested, the brokerage notified him that it had distributed the funds to him pursuant to the relevant terms of the custodial agreement (to remain compliant with U.S. Treasury regulations).
  • This was done as an in-kind distribution with no actual disbursement of funds directly to Mr. Caan.
• The hedge fund interest in the IRA was liquidated almost a year after the financial institution reported the distribution. The funds were eventually transferred into a new IRA elsewhere.
• The estate argued that Mr. Caan transferred the IRA holdings between the two brokerage firms accurately and that there were many challenges associated with the transfer between the two financial institutions.
• The judge ruled that the actor “did not thereafter contribute the [hedge fund holding] in a manner that would qualify as a nontaxable rollover contribution.”
• The IRS declined to grant late rollover relief to Mr. Caan.
• The judge’s decision “determined that (the first brokerage firm) had indeed disbursed the account” and found the IRS rejection to be valid because “the exact asset distributed from the (that) IRA was not the one transferred to the new IRA.”

Even wealthy celebrities who can afford top financial advisement get caught in the IRS’s crosshairs for faulty rollovers and failure to report the fair market value (FMV) of alternative assets within their retirement plans—which is required by the IRS of the retirement plan’s trustee or custodian.

 

Avoid IRS Problems and High Penalties. Use an IRA Custodian That Specializes in Alternative Assets.

In Mr. Caan’s case, the two-prong failures of his custodians/brokerage firms and financial team provide a cautionary tale for investors. The failure to report the FMV of his IRA’s partnership holdings led the original brokerage firm to issue its distribution notice based on the asset’s last known value, which was from the prior year. Also, because his financial team did not provide the year-end FMV timely, the brokerage firm ended its custodial relationship with him.

Further aggravating the problem, the alternative asset held in the IRA (the hedge fund partnership interest) was not eligible for the transfer through the Automated Customer Account Transfer Service, which is used by brokers to transfer stocks, bonds, cash, unit trusts, mutual funds, options, and other investment products. Instead, the financial advisor directed the fund to liquidate the holdings and transfer the cash proceeds to the new IRA—which did not take place until nearly a year after the distribution notice was sent out. This was far afield of the 60-day rollover period for IRA distributions.

At Next Generation Trust Company, we know the importance of reporting the FMV of the alternative assets within our clients’ self-directed IRAs. As an administrator and custodian of self-directed retirement plans, we are required to file Form 5498 annually; to do so, we send reminders to our clients to provide us with the updated FMV on the assets held within their accounts. Form 5498 reports the fair market value of the IRA as of December 31^st of every year to clients and the IRS. You can read more about FMVs and Form 5498 on our blog.

If you plan to execute an IRA rollover of assets in kind, our team has the industry knowledge to make sure:

1 – that you are doing the rollover correctly,

2 – the successor custodian is aware that it is a non-publicly traded asset to ensure they will accept it, and

3 – that the transaction is completed within the proper time frame to avoid IRS penalties.

As Mr. Caan’s story tells us, if the brokers/custodians understood how to deal with these non-publicly traded assets and his financial team understood the ramifications of not getting the FMV reported—as well as the intricacies of executing an IRA rollover when alternative assets are involved—the prolonged and expensive legal battle could have been avoided.

Private Real Estate Investing Through a Self-Directed IRA

Investment property has long been popular among self-directed investors and the private real estate asset class is gaining popularity among self-directed IRA account owners.

 

Investing in private real estate funds within your self-directed IRA is a great way to diversify your retirement portfolio and build a long-term investment that earns passive income. Read on to learn more about private real estate investing.

 

How Do Private Equity Real Estate Funds Work?

One way to think about a private equity real estate (RE) fund is simply a group of people pooling their money to invest in a specific property or multiple properties. Private real estate funds are professionally managed pooled private and public investments in real estate markets. The assets may be multifamily properties, office buildings, warehouses, even student housing and retirement communities. Investing in these alternative assets has the potential for high returns as a source of passive income.

 

As with any nontraditional investment, individuals who wish to invest in private real estate funds through their self-directed IRA should do their due diligence and research the fund and its holdings as well as the investment manager (the sponsor) before sending investment instructions to the self-directed IRA administrator.

 

Private REITs as Self-Directed Investments

Real estate investment trusts (REITs) also comprise commercial real estate investments and generate revenues through rental incomes from the portfolios’ holdings. There are public and private REITs.

 

Publicly traded REITs are companies whose shares trade on major stock exchanges like NASDAQ. Anyone can invest in these REITs. They are registered with the SEC and as such, are subject to the same regulatory compliance issues as other publicly traded companies. They are also subject to supply & demand pressures of the market.

 

Private REITs are not listed on a major exchange and are not subject to most SEC regulatory requirements. Their valuation is based on appraisal of the asset. Since public REITs are not vulnerable to the same market pressures as public RIETs, they offer good portfolio risk protection as well.

 

Although private REITs are typically available only to accredited and institutional investors, self-directed IRAs can invest in these entities they are not publicly traded assets. Non-traded REITs can be an excellent source of passive income because by law, these entities must distribute at least 90% of their taxable income to shareholders as dividends, giving them the potential to provide a steady income stream (and long-term gains) for investors.

 

Investing Through Real Estate Crowdfunding Platforms

RE crowdfunding is a way to raise money online from a large pool of investors for real estate acquisitions. Individuals and businesses can use crowdfunding to access capital from a larger group of potential investors through the Internet and social media. Plus, crowdfunding makes opportunities to invest in real estate accessible to more people. The benefits of RE crowdfunding include liquidity and the potential for high returns. 

 

NOTE: In addition to investing in a private REIT, a private real estate equity fund, or a real estate crowdfunding platform, your self-directed IRA can also partner with another such retirement plan to purchase a specific investment property, with terms worked out between account owners.

 

If you have questions about how investing in private real estate funds and or real estate crowdfunding works through self-direction, you can schedule a complimentary educational session with one of Next Generation’s team members. As a full-service self-directed IRA administrator and asset custodian, we are committed to client education and helpful experts can explain the ins and outs of self-direction as a retirement wealth-building strategy. Contact us by email at NewAccounts@NextGenerationTrust.com or call us at 888.857-8058 with your questions.

 

 

Unlocking the Power of Self-Directed IRAs: A Guide to Choosing Your Own Investments

Do you have a self-directed IRA account? Did you know that with it comes the power to choose your own investments? What does it all mean and what’s the best way to navigate it? Jack Malpass, Business Development Specialist at Next Generation Trust Company, recently had the opportunity to discuss just that on Naked Notes, a podcast by The Note Assistance Program focused on investing in the secondary mortgage market.

A self-directed individual retirement account (SDIRA) is a type of retirement account that allows you to invest in a wider range of assets compared to a conventional IRA, where the account custodian usually limits you to approved asset types. Put in simple terms, an SDIRA empowers you to make investment decisions on your own terms. This allows you to invest in your area of expertise, while diversifying your retirement portfolio and hedging against stock market volatility. SDIRAs are beneficial for investors at any age – if you have qualified retirement income you can set up an account and start earning passive income now.

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

• Turnkey real estate investments such as funds, syndications, and real estate investment trusts (REITs)
• Cryptocurrency
• Private equity
• Precious metals
• Royalties of various kinds
• Peer-to-peer private lending (unsecured or secured loans)
• Private notes

Just like any financial decision, however, self-directed investing through alternative assets requires upfront research and due diligence. Selecting the right SDIRA custodian is critical. A reputable SDIRA firm, like Next Generation Trust Company, can support you in your self-directed investment journey by providing thorough record-keeping, maintaining mandatory reporting, and handling transaction support. With a variety of account options and a dedication to white glove customer service, we can ensure you have the tools and support necessary to control your financial future.

You can learn more about SDIRAs by listening to Jack’s complete interview with Naked Notes here. If you’re interested in exploring the world of self-directed retirement planning, Next Generation Trust Company is here to help. Please contact us today to get started.

Gen Z Is Guessing What They’ll Need For Retirement (In The Wrong Direction)

Is Generation Z saving enough for retirement? The answer is complicated. According to a new survey from Northwestern Mutual, people in their 20s expect to need just $1.2 million to retire comfortably versus $1.56 million for people in their 50s. Gen Zers (born between the mid-1990s and mid-2010s) believe they will retire earlier (age 60) compared to millennials and Gen Xers, who plan to work until age 63 and 65, respectively. Despite all this, Gen Z members believe they will be financially prepared for retirement.

How much do people need to save for retirement?  Of course, that depends on how much one needs for monthly living expenses and lifestyle preferences. “If someone wanted to live off $4,000 a month after taxes for 40 years—taking into account 3% inflation and a return on invested retirement funds of 6%—they would need somewhere closer to $4 million,” said Linda Farinola, founder of Princeton Financial Group. This is far above what the Gen Z cohort expects to need.

 

Why is Gen Z underestimating retirement savings?

Age and lack of financial education are essential factors. So are major life events, such as marriage, starting a family, or buying a home, which they have yet to pursue.

Also, for many Gen Zers, money is not a driving factor in their careers. Nearly two-thirds (64%) said personal fulfillment is more important in a job than money (36%). It makes sense that this attitude about money and the workplace crosses into their retirement savings plans.

So what’s the key to encouraging Gen Zers to save for retirement?

Remember that this generation has different values, financial goals, and life experiences (and expectations), so alternative options for retirement savings speak to their interests. That includes saving for retirement with a self-directed IRA.

 

Gen Z: Enhance your retirement readiness with a self-directed IRA

A self-directed IRA can help younger workers build a diverse retirement portfolio beyond stocks, bonds, and mutual funds by including alternative assets such as real estate, precious metals, royalties, natural resources, NFTs, and other nontraditional investments. Gen Zers will be happy to know that these alternatives enable them to invest over the long term in assets they know and understand, and that support their eclectic interests.

Because those assets’ performance is not correlated with the stock market, they’re shielded against market volatility. This is especially important in our current financial environment. Plus, self-directed IRAs enjoy the same tax advantages as their regular counterparts (with lots more investment flexibility).

A note to young investors: self-direction means you’re taking control of your investment decisions. So do your homework, research your investments, and be sure you are making informed decisions. Another note: tap into the resources and guidance available from the team at Next Generation.

Next Generation provides comprehensive account administration, transaction support, and asset custody for our clients’ self-directed IRAs. We also offer many educational materials for investors to learn at their own pace with our webinars and white papers. 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 calling us at 888.857.8058 or emailing NewAccounts@NextGenerationTrust.com.

How Prepared is Gen X for Retirement? Not so much.

The generation right behind the baby boomers, Generation X, is between 43 and 58 years old (born between 1965 and 1980). Therefore, the oldest Gen Xers are near retirees while the younger cohort still has lots of time to save, invest, and plan for retirement.

However, Northwestern Mutual’s 2023 Planning & Progress* study revealed that a little more than half (55%) of Gen X predict they will not be financially prepared for retirement—more than any other age group. They were also more likely to resist retirement planning than the other age groups; 38% of Generation X members shared that they had not looked for retirement information at all nor spoken to a financial advisor. They rated their financial security an average of 5.6 out of 10.

Gen X needs to save more. A lot more.

The figures Gen X provided to Northwest Mutual about what they need for retirement vs. what they’ve saved also reflect this lack of preparation.

• Respondents in their 40s said they’d need $1.28 million for a comfortable retirement but only saved around $77,000 so far.
• Those in their 50s estimated they’d need $1.56 million but only saved $110,900 to date.
• Also, less than half (45%) expect Social Security to be there for them at all.

According to the study, Generation X respondents plan to work until age 65 (71 for baby boomers). The youngest workers, Gen Z, expressed the most confidence that they will be financially prepared when the time comes to retire. They also plan to retire by age 60. We admire that confidence!

More sobering statistics about Gen X’s retirement readiness

Prudential Financial, Inc.’s research survey, Gen X: Retirement Revised** also points to fears among Gen X that they won’t have enough saved for retirement, and haven’t done retirement planning.

• The results showed that 35% have less than $10,000 saved, and 18% of respondents (up to 12 million individuals) have nothing saved.
• Because of this, 40% of the respondents said they plan to work part-time after they retire.
• Only 12% expect an inheritance to help with retirement income.
• Only 11% said they will rely mostly on a pension while 20% plan to use pensions as a source of retirement income. These low figures are reflective of the fact that the number of traditional pension plans has declined steeply in the U.S. for many years.
• Despite projections that the Social Security trust fund will be depleted in 10 years, 58% of Gen X members said they will rely on it for retirement income.
• Many are not factoring health care into retirement costs.

They are also concerned about how inflation is affecting their savings goals and almost three-quarters of respondents said the current economic environment makes it hard to plan financially beyond their daily needs. Almost one-third (29%) fear being replaced by younger workers.

This lack of a retirement strategy and retirement savings for projected long-term expenses lays out a dicey financial landscape.

Gen X—take control of your future with a self-directed IRA!

There’s time to catch up on retirement savings—and give those savings a boost by opening a self-directed Traditional or Roth IRA. Thanks to a provision in the SECURE Act of 2019, there is no longer an age restriction to open one of these retirement accounts. You can fund your new retirement plan with a relatively small amount to get started . . . or roll funds over from an existing IRA or eligible employer-sponsored retirement plan. As long as you have earned income, you can contribute to your self-directed IRA (before the passage of the SECURE Act, the age limit for contributions was 70 ½).

Plus, self-directed IRAs are ideal for people who know and understand alternative assets such as real estate, precious metals, commodities, tax liens, private equity funding, and many more. If that sounds like you, you can put the power of your investing knowledge into growing your retirement savings through a tax-advantaged self-directed IRA. You do your due diligence about the alternative assets you wish to include, develop a more diverse retirement portfolio, and control your investments as a self-directed investor.

As a full-service self-directed retirement plan administrator, Next Generation Trust Company handles all the account administration and holds the assets. Our team will vet your transactions to ensure they meet IRS guidelines for these accounts, and we provide excellent client education about the many options and benefits of self-direction as a retirement strategy.

Whether you’re 25, 35, 45, or 55, it’s always the right age for individuals with earned income to take control of their future with a self-directed IRA. Need to learn more? Sign up for a complimentary education session or check out our on-demand webinars at your convenience. You can always contact us with questions at NewAccounts@NextGenerationTrust.com or 888.857.8058.

 

 

 

*Northwest Mutual’s annual research study explores U.S. adults’ attitudes and behaviors toward money, financial decision-making, and issues concerning their long-term financial security. The 2023 study gathered data online from 2,740 adults which included 640 Gen Xers. https://news.northwesternmutual.com/planning-and-progress-study-2023

** The Prudential Pulse survey was among 2,000 pre-retiree U.S. Gen Xers. The sample includes 1,717 occupied/working Gen Xers, those currently working full- or part-time, seeking work, or studying. The interviews were conducted online, and quotas were set to reflect a nationally representative population based on age, gender, race/ethnicity, educational attainment, and region. https://news.prudential.com/generation-x-confronts-harsh-new-reality-retirement-unreadiness.htm

 

 

SECURE Act Changes for Retirement Plans You Need to Know Now

SECURE 2.0 Has Made Updates to Prior Changes That Affect IRAs and Other Plans in 2023 and Later

Provisions in the SECURE Act 2.0, signed into law late last year, affect retirement plans in several ways, including required minimum distributions (RMDs). We are sharing some of the new rules here, as they may affect your tax planning as well as your retirement savings goals.

Age at which to start taking RMDs

Among the big changes is the higher age at which retirement plan account owners must begin taking required minimum distributions (RMDs) from their accounts.

• Historically, the age at which account owners had to start taking RMDs was 70½. With the first SECURE Act (passed in 2019), that age was increased to 72. Then late last year, the SECURE Act 2.0 upped it to 73.
• However, because that latter law was enacted at the tail end of 2022, investors who are turning 72 this year have a reprieve and can begin taking their RMDs in 2024 if they prefer.
  • If you turned 72 last year (2022) and began taking those distributions, you must continue to do so.

NOTE: If you have a Roth account in your employer’s 401(k) plan, there will be no RMDs for those designated accounts starting in 2024.

Returning erroneous RMDs

Given the confusion about when to start taking required minimum distributions (2022, 2023 or later), there is a way to correct that—but the deadline is fast approaching.

• If you turned 72 in 2023 and erroneously took a required minimum distribution (which could have been delayed until next year), and you wish to return that money to your IRA, the IRS has extended the usual 60-day rollover period for those unneeded RMDs to September 30.
  • When returning that unneeded money to your IRA, you must include any amount of taxes that were withheld to avoid it being treated as a taxable distribution.
  • As always, we strongly recommend you consult your financial or tax advisor before making any changes.

RMD penalty waivers

Thanks to SECURE 2.0, the penalty for a missed RMD is now cut in half, reduced to 25% of the amount not taken. If you correct that error quickly (in whatever way the IRS deems “quickly”) that penalty may be reduced to 10%.

Inherited IRAs

Before the original SECURE Act, beneficiaries were allowed to stretch their inherited IRA distributions over their lifetimes. However, most qualified beneficiaries who inherited IRAs on or after January 1, 2020 fall under the SECURE Act provision that requires they withdraw those funds completely over a 10-year period. (There are some exceptions such as surviving spouses.)

After some changes by the IRS in the RMD rule for inherited IRAs, there will be no penalties for RMDs that were not taken in 2021 or 2022 and the IRS has waived the RMD requirement for beneficiaries of inherited IRAs subject to the 10-year rule. However, the beneficiaries are still required to take full distribution of the inherited IRA account within 10 years.

If you are among those beneficiaries required to withdraw the funds over the 10-year period, you should consult with your trusted advisor to map out your distribution schedule and amounts that work best for your financial circumstances. If the retirement account is a Roth IRA and the original owner did not meet the five-year rule prior to death, be aware that this will affect that distribution timeline.

New Roth IRA opportunities

SECURE Act 2.0 expanded the types of workplace retirement plans that can use Roth features.

• Self-employed individuals or small-business owners may now open a Roth SEP IRA or a Roth SIMPLE IRA.
• Taxpayers with 529 plans for education may now roll the plan’s unused funds into a beneficiary’s Roth IRA starting in 2024. There are limitations to this rule regarding the lifetime rollover cap ($35,000), annual contribution limits for rollovers (currently $6500), and length of time the 529 has been open (at least 15 years) in order to make those rollovers. Additionally, contributions and earnings made in the last five years cannot be rolled over.
• If you have a Roth employer plan (such as a 401(k) with a Roth option), ask your plan administrator about the new requirements regarding catch-up contributions and the option to treat employer contributions as Roth contributions. There are also increased contribution limits for IRAs and 401(k) due to inflation to be aware of.

Increased contribution limits for 2023

With inflation in mind, the IRS has increased the contribution limits for IRAs and qualified workplace retirement plans. This includes solo(k) and other self-directed retirement plans. You’ll find all the figures, income ranges, and deductibility guidelines on the IRS website.

Contact Next Generation to discuss your self-directed IRA

With all the updates, it’s no wonder taxpayers are wondering which of these apply to them and how. If you have a self-directed IRA or solo(k), ESA, or HSA with Next Generation, please contact us to discuss how these changes may affect your retirement plan. We’re available via email at NewAccounts@NextGenerationTrust.com or by phone at 888.857.8058.