Retirement Savings: What’s Hot, What’s Not

Americans are saving for retirement in a new way. They have thrown out the traditional three-legged stool (Social Security, employer-sponsored pension plans, and private savings) and replaced it with a pyramid.

According to the Investment Company Institute, the five basic components of the retirement pyramid are: Social Security, home ownership, employer-sponsored retirement plans (both private-sector employer and government employer plans, as well as defined-benefit and defined-contribution plans), IRAs, and other assets.

But, the reality, as reported by the Boston College Center for Retirement Research, is that it is a shaky pyramid. In fact, working-age households are not saving enough to maintain their current standard of living when they retire. With Social Security, Medicare, and underfunded federal and municipal pensions representing the biggest risks for future retirees, Americans need to plan ahead so they won’t get left behind.

Being prepared to supplement Social Security with a robust retirement savings plan is key. In fact, workers should anticipate getting between one-quarter to one-half of their retirement income from retirement savings plans, such as 401(k)s. However, in order to generate this level of income, the typical household must save about 15 percent of earnings—which is well above today’s actual saving rates.

What’s Hot?

What’s trending in retirement savings? According to a recent Fidelity Investments report, retirement savings trends include:

• Companies offering Roth 401 (k) plans; investing in these plans is increasing, particularly among younger participants in lower tax brackets.
• A rise in self-directed brokerage windows for participants who want to invest in options outside of their company’s core 401(k) fund lineup through self-direction.
• Increasing the use of high deductible health plans (HDHPs). HDHPs are gaining traction and helping people save for future health costs in a tax-advantaged account.
• Growing prevalence of “do it for me” 401(k) options. According to the Fidelity survey, more than two-thirds of respondents admitted to not having the time or investment knowledge to be confident in their retirement investment decisions.

Are you up to date on the latest retirement investment tools? Or, are you like many people faced with the thought of retirement—unprepared?

What’s Not Hot?

Being unprepared is not hot. Retirement should be a time in your life where you can relax and enjoy the fruits of your hard work. But, unfortunately, many retirees are not financially ready to retire.

TIAA-Cref’s Ready-to-Retire Survey  asked retirees what they wished they had done to better prepare for their retirement. Here’s what they reported:

• Started saving sooner. Time is on your side if you commit today to a serious savings routine. Think of the dramatic benefits long-term compounding will have on your nest egg.
• Saved more. Yes, there are many financial obligations that your hard earned money has to cover but there are ways to free up some extra dollars for retirement.
• Invested more aggressively. Determine the right balance for you between risk and reward.

A self-directed retirement account should be on everyone’s wish list as a great way to boost retirement savings through alternative assets. Savvy investors who already know and understand nontraditional investments can develop a more diversified, tax-advantaged portfolio than in regular IRAs or 401(k) plans. Self-directing retirement investments allows for a broader array of assets.

For more information about self-direction as a retirement strategy, or to open a new self-directed IRA, contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com, or click here to read through our Starter Kits.

IRS crackdown on mega IRAs

Do You have a “Mega IRA?” Make Sure You Comply with the IRS

Last month, Senate Finance Committee Chairman Ron Wyden (D-Ore.) told the Internal Revenue Service and the Treasury Department to crack down on high-value “mega” IRAs; this came after a Government Accountability Office report found holders of large IRAs were using alternative investment strategies such as excess contributions and undervalued assets as tax dodges.

This does not affect the majority of account holders but is worth taking note. The GAO report found that for tax year 2011, approximately 600,000 taxpayers had IRA accounts worth more than $1 million, and about 9,000 taxpayers had IRAs worth more than $5 million (only 314 had IRAs worth in excess of $25 million). The report stated that a small number of taxpayers had accumulated these mega balances by likely “investing in assets unavailable to most investors — initially valued very low and offering disproportionately high potential investment returns if successful.” The GAO contends that these individuals may escape taxation on investment gains.

Besides “mega IRAs,” Wyden told the GAO to review self-directed IRAs, which he said “may be a growing target for fraud.” The IRS plans to collect data identifying non-publicly traded assets comprising IRA investments in order to identify potential IRA noncompliance. You can read more about what triggered this initiative by Sen. Wyden as well as GAO recommendations here.

The GAO analysis of very high-value IRAs got a start during the 2012 presidential campaign when it was revealed that Mitt Romney had $100 million in his IRA. IRA guru Ed Slott opined at the time that, “Either these few people with the mega IRAs ($25 million and more) are consistently fantastic investors or the assets going in were extremely undervalued. The undervaluation is probably more likely.” Our CEO, Jaime Raskulinecz, thinks otherwise, and shared her views recently with Bankrate.com:

Undervaluation

“It doesn’t seem very feasible to me that assets could be so undervalued. These investors (such as Mitt Romney) are specialists in investing in start-up companies. My opinion is, especially in the case of Romney, that high-net-worth individuals achieved high balances in IRAs when rolling over large 401k accounts. In Romney’s case, this is speculation since details weren’t released; I assume he made investments in private equity (company stock before it goes public) and made some great investments. Someone with this experience and risk tolerance should be able to increase retirement funds using strategies they know and understand. In private equity there are generally many losers but the winners usually make up for them.”

Starting in tax year 2014, the IRS, through Form 5498, will require IRA custodians to include the fair market value of non-publicly traded assets and information on the type of asset. Our team has extended the filing deadline for Form 5498 to make it easier for all our clients to have their nontraditional investments properly valued by a third party and sent to us for filing. Hard-to-value IRA assets within a self-directed retirement plan may be non-publicly traded stock, partnership and LLC interests, real estate, and options.

Beware of prohibited transactions

At Next Generation Trust Services, we educate our clients on the many options and benefits of self-direction, as well as guide them in terms of prohibited transactions and disqualified individuals (a potential issue for those who wish to invest in non-publicly traded shares of their own companies through their self-directed retirement plan; see our blog post on ROBS for more insights on using an IRA rollover for startups).

Since different kinds of retirement plans have different contribution limits and different tax advantages (depending on the plan, your particular financial picture, and your retirement goals), we highly recommend you consult a tax specialist or financial planner to review your self-directed retirement plan selection and contributions. As part of our full-service account administration, our expert transaction specialists are available to answer any questions you have regarding alternative assets allowed through self-direction and help you comply with IRS investing guidelines. Next Generation handles all the paperwork and meets all the mandatory IRS filing requirements for our clients.

Looking to build a high-value IRA through alternative investments?
Contact Next Generation Trust Services to discuss your goals at Info@NextGenerationTrust.com or (888) 857-8058.

Click here to open up a self-directed retirement account with the convenient tools on our website.

New Year, New Retirement Savings Strategy

Many people make New Year’s resolutions that seem practical. This is the year I will (fill in the blank):

• Lose weight
• Save more
• Get organized
• Exercise more

One resolution that you should put at the top of your list is saving for your retirement.
Like any New Year’s resolution, it is all about starting early. According to Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of “Falling Short: The Coming Retirement Crisis and What to Do About It,” the golden age of retirement is over. Munnell and her co-authors assert that retirement security in the 21st century is challenged by increasing life expectancy and high health care costs. Therefore, Americans must adjust their practices and expectations.

Make Your Resolution Stick

Here are some easy ways you can stick to your resolution and ensure that your golden years are truly golden:

• Save one percent more or, better yet, put any “windfall” such as year-end bonuses, raises, or tax refunds directly into your retirement savings.
• Find painless ways to reduce expenses and divert those monies to retirement savings.
• Take advantage of employer matching contributions. Make sure you save enough to qualify for your company match. Read the fine print on your company’s vesting program so you understand what portion you get to take with you if you leave the company.
• Consider whether to claim retirement saving tax breaks. For instance, you can defer paying up to $18,000 that you have contributed to a 401(k) or $5,500 in an individual retirement account in 2015. If you are 50+, these limits jump to $24,000 in a 401(k) and $6,500 in an IRA.
  • Alternatively, you can contribute the same amounts to a Roth 401(k) or Roth IRA and prepay the tax at your current rate, and then withdraw the money tax-free in retirement. Some low/moderate income households may qualify to claim the saver’s credit on their 401(k) and IRA contributions.
• Consider alternative investment options in a self-directed IRA. The ability to self-direct retirement savings with nontraditional investments (such as real estate, mortgages, unsecured loans, private hedge funds, precious metals, limited partnerships, commercial paper and more) can help make that New Year’s resolution grow a whole lot quicker for those in the know.

Freedom of Choice

Investors who want to have a stable and secure retirement know that a self-directed IRA can be a great way to build retirement wealth more aggressively. With a self-directed retirement plan, informed investors have the ability to develop a diversified portfolio that they control, with both traditional and nontraditional assets they know and understand. If you are already investing in these alternative assets outside of your existing retirement plan, why not resolve to build a potentially more lucrative nest egg through self-direction? It’s easy to get started with a call to Next Generation Trust Services.

As a self-directed IRA administrator, we handle all the details of the transactions and manage all the paperwork and filing. Our professionals are available to answer questions about self-directed retirement plans and our transaction specialists ensure you are investing within IRS guidelines.

Contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com to learn how to open a new self-directed retirement plan in the New Year.

Or, read through our Starter Kits for more information. 

Click here for more information about self-directed IRAs.

Do You Sponsor a Defined-Contribution Retirement Plan?

It Might be Time to Evaluate Congress’ Proposal for Change—and Look into Self-Direction.

Tax reform

Tax reform is likely to appear on our horizon in the near future, when the 114th Congress takes office next month. According to an article in Investment News, the enactment of new revenue-raising initiatives could be implemented which have the potential to make it harder for business owners to save for retirement. This is in relation to employer-sponsored 401(k)s and other defined-contribution retirement plans. The article suggests that business owners and their financial planners evaluate whether the current proposals would affect their retirement plans, and explore available strategies to mitigate the impact of regulatory changes (or increase savings) before potential new limits are enacted.

The Congressional Budget Office projects $414 billion in federal tax revenue lost to defined-contribution plans between 2015 and 2019; this shortfall stems from contributions made on a pretax basis and earnings that are tax-deferred. Although these monies would be subject to tax once retired account holders make withdrawals from these retirement plans, these future revenues are “essentially invisible to federal budget makers who view the world through a 10-year window.”

Several proposals before Congress

One proposal regards lowering the caps on annual contributions by plan participants. This would generate more tax revenue (since contributions are made on a pretax basis) but making saving for retirement through these particular vehicles more difficult. The contribution cap for 2015 will be $18,000 with another $6,000 allowed for those age 50 and older (as a catch-up contribution).

Another proposal meant to raise tax revenues places tighter limits on tax deductions taken by small-business owners for contributions made on behalf of employees to a retirement plan. This provision could have a potential negative impact on small-business owners and on formation of employer-sponsored plans. Many employers sponsor 401(k)s with a profit-sharing plan model, and make contributions on behalf of all employees—including the owner and executives—as an equal percentage of each employee’s salary. (Others with more advanced designs permit bigger contributions on behalf of business owners and key employees based on various criteria.)

A third proposal calls for freezing the contribution limits that apply to defined-contribution plans until 2024. After that, the limits would rise to track the cost of living. This proposal also calls for cutting the allowable pretax contributions by participants in half, and the other half of allowable contributions to be made as Roth or after-tax contributions.

Regardless of whichever proposals end up being enacted, this is a wake-up call for business owners who sponsor 401(k) or other retirement savings plans. Some people may want to make sure they are saving as much as current law allows now, or establish different kinds of defined-benefit plans after consulting with their legal and tax advisors, and plan administrators. Another way to mitigate the impact of congressional tax reform is for business owners—or anyone for that matter—to control their retirement plan more directly through self-direction.

Self-directed 401(k)s and other retirement plans

Accelerating your saving in any retirement plans is always smart—and for savvy investors who wish to make all their own investment decisions, self-direction is a great way to build to build retirement wealth through assets they already know and understand.

Self-directed 401(k)s offer the same pre-tax savings as do traditional 401(k) plans, but with the ability to invest in a much broader range of assets. This may appeal to business owners and employees who are seasoned investors and who are experienced at researching various types of investments; they may prefer to participate by making their investment decisions from both traditional and nontraditional investments (depending on the limits placed on the plan).

A self-directed 401(k) plan allows participants under the age of 50 to contribute up to $52,000 and $57,500 for plan participants over the age of 50; participants may also borrow up to $50,000 for any purpose. Also called an Individual 401(k) plan, it can be adopted by a sole proprietorship, LLC, partnership, or corporation.

Don’t wait for the 114th Congress to start debating legislation that will limit retirement plan contributions; take control of your future today with a self-directed retirement plan. Next Generation Trust Services has all the information you need to learn about and open any type of self-directed plan, and our knowledgeable professionals are available to answer your questions and get you started.

Read more about self-directed IRAs here

Then contact Next Generation at Info@nextgenerationtrust.com or call (888) 857-8058 to take control of your retirement, today.

More Ways to Save Money in 2015 – Forecast of Changes to IRAs

As people hasten to bolster their contributions before the year is over, Next Generation Trust Services is looking ahead to 2015 at some big changes to IRAs that are coming.

MyRA

A MyRa is a  unique Roth IRA account is available to individuals with annual income (individual income, not household) of under $129,000. Workers will be able to contribute after-tax dollars through a payroll deduction, but this account is not connected to the employer. This arrangement is meant to make saving for retirement as easy as possible for many people.

These retirement accounts invest in government bonds with a guaranteed return of principal because the money will be invested in a government bond fund set up for just this purpose. Initial contributions can be as small as $25 and $5 per pay period after that. The principal may be withdrawn without penalties. The program could appeal to part-time and other workers who don’t have access to retirement accounts at work (such as 401K plans).

Increased limits on 401(k) contributions:

The contribution ceiling will go up by $500 toward your 401(k) account in 2015; workers over 50 years of age will also enjoy a $500 increase in their catch-up contribution limit.
You can see a chart that compares contribution limits for 2014 and 2015 on this blog post.

Higher Tax Credit for Savers

Single individuals with adjusted gross income of less than $30,500 can apply for a saver’s tax credit. New in 2015 is that the credit will be worth $1000 in taxes, up from $500 in 2014.This credit is available to qualified individuals who contributed to a 401K or IRA.

Increased COLA in Social Security benefits

Social Security is boosting benefits slightly due to the standard increase for cost of living expenses. The good news: People will see an increase of 1.7 percent in their checks in 2015. The not-so-good news: the portion of your income that is subject to Social Security tax will also go up about 1.3 percent.

Whether you are saving for retirement in a regular IRA or are choosing to control your retirement investments through self-direction, Next Generation’s knowledgeable employees are available to answer your questions about retirement plans. Of course, as specialists in self-directed retirement plans, we can also help you open a self-directed IRA, HSA or Coverdell account so you can include alternative assets within your retirement portfolio. Our Starter Kits for any type of retirement plan you wish to open have the information you need; or contact our staff for more information: Info@nextgenerationtrust.com or (888) 857-8058.

Click here for more information on self-directed IRAs.

What Are You Really Worth?

Are you worth your weight in gold?

Chances are, probably not. According to a recent New York Times article, Americans aren’t saving enough. To find out how you stack up, follow these three simple steps:

1. Know your Social Security benefits
2. Weigh your lifetime wealth ratio
3. Gear up your retirement game plan

Know Your Social Security Benefits

Your Social Security statement sums up all your taxable earnings over the course of your lifetime. You can access it online at www.ssa.gov/myaccount. Here are just some of the benefits of signing up for online access:

• Track and verify your earnings every year
• Estimate your future benefits if you are still working
• Secure a letter with proof of your benefits if you currently receive them
• Manage your benefits

Other important Social Security information you can get:

• Your monthly payment if you work until full retirement age (67)
• Your monthly payment if you work until 70
• Your monthly payment if you retire early at 62
• The number of Social Security credits you have. You need 40 credits to qualify for benefits, which you earn when you work in a job and pay Social Security taxes. (This is used to determine eligibility for retirement or disability benefits or your family’s eligibility for survivors’ benefits when you die.)

Having this information will help you and your financial planner make more informed decisions about your future and your retirement investments.

Weigh Your Lifetime Wealth Ratio

Let’s say that you started working in 2002 and your lifetime earnings are $729,500. Wow, that’s almost a million dollars!! Is that good? How does that stack up against others?

Well, it depends. Have your earnings been stable over the years in question? What are your current expenses? You need to look at more than just what you have earned; you need to take a hard look at what you have spent. Is the money going out as quickly as it comes in? Or do you save?

A useful number to help determine how well you are saving is the Lifetime Wealth Ratio. This concept was introduced by the budget blogger J. Money. If we look at the ratio of what you are saving in comparison to your earnings, it would look like this:
Net Worth ÷ Total Income Earned = Lifetime Wealth Ratio

For example,

The goal is to have as high a ratio as possible. If you have more than a 10 percent ratio you are doing OK; if the ratio is higher than 25 percent—even better. This shows that you are not only earning but you are saving and investing your money. And, compounding can help your savings even more!

Gear up Your Retirement Game Plan

Ensuring a comfortable retirement will not just happen by itself. And you can’t count on Social Security to be your retirement plan. Financially savvy investors know they need to have control of their retirement plan. And, for those who understand alternative investment options, a self-directed IRA can be a great way to build retirement wealth more aggressively. This investment vehicle allows individuals to invest in nontraditional assets that they already know and understand such as real estate, mortgages and other loans, private hedge funds, precious metals, limited partnerships, commercial paper and notes, and more.

For information about ensuring that your retirement game plan is in gear with a self-directed retirement plan, contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com.

We do not give investment advice and strongly recommend you consult your trusted financial advisors about your specific self-directed Traditional or Roth IRA and your retirement investments.

Take Control of Your Retirement with a Self-Directed IRA!

Our CEO, Jaime Raskulinecz, was interviewed for and is featured in the following article about self-directed IRAs.

Maximize Your Nest Egg With a Self-Directed IRA

Today’s investment landscape is rocky for investors with an eye on a  stress-free, comfortable retirement. It doesn’t necessarily help that so much of your financial prognosis is out of your control, thanks to a shaky job market, a tepid economic recovery, and reams of regulation heaped atop 401(k)s and other available retirement savings avenues.

There’s no magic wand to clear the way, unfortunately, but there is a compelling option for those who want to take firmer control of their investing course. If you’re looking for a way to broaden your retirement savings options while also deferring taxes, you may want to consider a self-directed individual retirement account.

Jaime Raskulinecz, founder and CEO of Next Generation Trust Services in Roseland, N.J., comments on “The Romney Way.” Click Here To read the whole story.

Additional Resources:

Take Control of Your Retirement with a Self-directed IRA
Maximize Your Nest Egg with a Self-directed IRA

Making the New IRS Ruling Work for You

If you have maxed out your 401 (k), have no fear, now there is a new way to make after-tax deposits or rollovers to a Roth IRA.

A recent IRS ruling allows eligible workers to easily move after-tax contributions from their 401(k) or 403(b) plan to Roth IRAs when they exit their company plan. This new ruling offers those saving for retirement a boost to their ability to transfer funds or roll over to a Roth IRA.

For example, if you have $100,000 in a 401(k) — $75,000 is pretax and $25,000 is after tax—and you take a distribution of these monies, you can take the $25,000 and convert it to a Roth IRA tax free. The $75,000 can be placed in a traditional IRA as a tax-free rollover. (It will eventually be taxed when it comes out.)

Roth Benefits Retirees

As you may know, Roth IRAs offer a great income stream for retirees because contributions are made with after-tax dollars, which enables retirees to withdraw money tax free. With no mandatory distribution requirements (like traditional IRAs), Roth IRAs can continue to grow tax-free even after you turn 70 ½. Also, if you do need to make a withdrawal for a big expense, such as medical bills, that financial move won’t move you into a higher tax bracket.

This makes the IRS ruling particularly good news for those in a high income bracket because it allows these high-income individuals to divert 401(k) assets into a Roth IRA.

Roth IRAs are good for people who want to leave money to heirs. It’s the best asset to leave to your loved ones for a number of reasons: inherited Roth IRAs are free of tax and they don’t have a taxable minimum distribution requirement, which means your heirs can let the monies grow tax-free for years. Some rules or exceptions apply so see your tax advisor.

What else do you need to know
to take advantage of the new IRS rule?

• Your employer plan must allow after-tax contributions to your 401(k).
• You must also first max out your pre-tax contributions.
• You must transfer to a Roth at the same time you roll your existing 401(k)’s pre-tax savings into a traditional IRA.

At Next Generation, our professionals are available to answer questions about self-directed retirement plans or rollovers, and our transaction specialists ensure you are investing within IRS guidelines. Since we do not give investment advice, we strongly recommend you consult your trusted financial advisors about your investments and any tax implications they have for your unique situation.

Contact us at (888) 857-8058 or Info@NextGenerationTrust.com, or read through
our Starter Kits for more information.

The Wake-Up Call Heard ‘Round the World

Not just for Americans

The wake-up call for retirement savings is not just for Americans, people around the world are realizing that they need to save more.

The financial services industry has long expressed that consumers either don’t understand the need to supplement public or employer pensions, or think they have more than enough time to save. But, according to Accenture’s latest Global Retirement Services Survey, some people around the world are waking up to retirement reality. These consumers are fully aware of the risk of outliving their savings and are now ready to take responsibility for ensuring that their own retirement is comfortable, because no one else will.

The study found that 82 percent of respondents are worried about their post-retirement finances, and 57 percent believe their standard of living will fall when they stop working. An overwhelming majority of respondents are prepared to do something about it! A whopping 95 percent of respondents are willing to set aside money for their retirement. The amount differs considerably but survey respondents are willing to invest on average 17.2 percent of their monthly pretax dollars in retirement.

Who would these consumers turn to for retirement investment help?

• Financial advisors, insurance brokers or stock brokers (61 percent)
• Insurance companies (61 percent)
• Banks (58 percent)
• Comparison websites (57 percent)

Retirement around the globe

A recent survey by Natixis Global Asset Management, an investment firm, evaluated 150 nations to see which do best in ensuring retirement security and meeting retirees’ financial expectations. The report findings are eye-opening to be sure (see chart below). Americans are trailing behind other industrialized countries in retirement savings.

How is this possible? The shift away from traditional pension plans to 401(k) plans may partly explain why the United States tends to show poorly compared with many other industrialized countries on measures of retirement security. However, the reality is that Americans need to get busy saving.

If you are interested in what retirement looks like around the world, check our blog posts about these countries:

• Australia
• Belize
• Canada
• Costa Rica
• Ecuador
• France
• Ireland
• Italy
• Mexico
• Portugal
• Spain
• St. Thomas, U.S. Virgin Islands
• Thailand

Get Your Retirement Wake-Up Call

A self-directed individual retirement account is a great way to boost retirement savings through alternative assets that individuals already know and understand; these include real estate, precious metals, commercial paper and notes–nontraditional investment options not allowed within typical retirement plans.

Savvy investors can develop a more diverse portfolio and wake up their savings strategy with potentially more lucrative investments through self-direction. Contact Next Generation Trust Services’ professionals with your questions about self-directed retirement plans at (888) 857-8058 or Info@NextGenerationTrust.com or check out our Starter Kits.