The Winds of Change for Roth IRAs

Roth IRAs are a good way to save for retirement. However, President Obama’s recent 2015 budget proposal includes proposed changes to Roth IRAs that may make them less appealing and less attractive for investors. The good news is that most of these proposals are not new; they have been included in prior budgets but none have been adopted. Nevertheless, it is important to consider when planning your long-term retirement savings plans since the winds can change.
If President Obama’s 2015 budget proposal is any indication of what the future may hold, Roth IRAs may end up having a required minimum distribution in the future, which they currently do not have. This would eradicate one of the main reasons many people contribute or convert to Roth IRAs in the first place. For some investors, Roth IRAs have great estate-planning benefits.
Key retirement account provisions in the budget:

• Required minimum distribution (RMD) – Currently, if you have a Traditional IRA, you have to start taking minimum distributions when you reach the age 70 ½. With a Roth IRA, there is no RMD. However, the Obama budget would impose the same RMD rules on Roth IRAs. Essentially this would force retirees to withdraw tax-free money from their accounts even if they don’t need it. The idea behind the change is to harmonize the distribution rules across retirement accounts.
• Maximum benefit for retirement fund contributions – The maximum tax deduction for making a contribution to a defined contribution retirement plan such as an IRA or 401 (k) would be limited to 28%. Individuals in a tax bracket higher than 28% would be adversely affected, resulting in significant tax costs.
• Mandatory 5-year rule for non-spouse beneficiaries – In essence, this would eliminate the stretch IRA. It would force non-spouse beneficiaries to empty inherited retirement accounts after the end of the fifth year after the year of the IRA owner’s death. There are some exceptions to this rule—disabled beneficiaries and a child who is under the age of majority.
• Retirement savings cap – There would be a limit or cap on the amount of money you can save in a combination of retirement accounts. You would not be allowed to make additional contributions to retirement accounts once this cumulative amount has been reached. The formula to calculate this cap is the lump-sum payment that would be required to buy a joint and survivor annuity of $210,000 per year starting at age 62. The current amount needed for this purchase is $3.2 million.

How to combat winds of change
Many people were counting on Roth IRAs for their retirement and have converted Traditional IRAs to Roth IRAs. To save for a secure retirement no matter which way the wind is blowing, 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.

This diversified portfolio allows the individual the ability to respond to changes in the economic winds or to take advantage of opportunistic (and tax-advantaged) investments with greater flexibility. A self-directed IRA administrator like Next Generation Trust Services handles all the details of the transactions and holds the assets.

At Next Generation, our professionals are available to answer questions about self-directed retirement plans 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 specific Traditional or Roth IRA and your retirement investments. Contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com for information about how a self-directed Roth IRA can help you no matter which way the wind is blowing.

Read about a Traditional IRA vs. Roth IRA on our website.

Take the Fear Out of Your Retirement Formula – Include Alternative Assets in a Self-Directed IRA Instead!

When is enough, enough? When it comes to retirement savings, many Americans are gripped with fear that they haven’t saved enough. In fact, according to a recent Gallup poll, it tops their list of concerns about financial matters, with a firm majority of Americans (59%) worried about not having enough money for retirement.

In good economic times and bad, Americans have been “very” or “moderately” worried about retirement savings every year since 2001. Perhaps it is because the three-legged retirement stool–Social Security, individual savings and employer-sponsored pensions—is getting too wobbly to place retirement dreams on.

If you are tired of living in fear as retirement looms on the horizon, here are some simple steps you can take to prepare for the retirement life you want with more confidence:

Downsize. Reduce your spend. Weigh whether you need those luxury items or every day incidentals that can add up over time. Consider moving now to smaller digs rather than waiting for retirement, and save on taxes, utility costs and insurance dollars. This is all money that can be socked away into retirement savings.

Roll over orphaned 401(k) plans. If you’ve changed jobs, you may still have money in a former employer’s 401(k) plan, which you can roll over into a new IRA. Consolidating your retirement savings in one place gives you a better idea of how much money you have and a line of sight into your investment portfolio performance as a whole.

Don’t borrow from your 401(k). Reducing the funds in your 401(k) will have an adverse affect on the compounding magic of a retirement investment because the dollar amount that gets compounded on will be lower. Plus, there are loan expenses such as origination, administration and maintenance fees as well as the interest you must pay to repay the loan (or the penalty you pay if you do not replace those funds).

Consider alternative investment options. In a world of wobbly three-legged retirement stools, it may be worthwhile to examine nontraditional investment options such as real estate, mortgages, unsecured loans, private hedge funds, precious metals, limited partnerships, commercial paper and more. This is especially true of individuals who might already be making these investments outside of their existing IRA; they can open a self-directed IRA and make these investments with the same tax advantages that a retirement plan provides.

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 boldly with alternative assets. 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.

Next Generation Trust Services, a self-directed IRA administrator, handles all the details of the transactions and manages all the paperwork and filing. Our professionals are available to answer questions about self-directed retirement plans and our transaction specialists ensure our clients 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.

Take the fear out of retirement and control your future, today. Contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com to learn how. Or, read through our Starter Kits for more information.

The Seven Deadly Sins of Taking a Loan on Your 401(k)

Yes, it’s your money. Yes, you can look at it. But beware of taking a loan from your 401(k). While many 401(k) plans allow participants to borrow from their funds, these loans are subject to limits, fees and, yes, penalties.

According to the University of Pennsylvania’s Pension Research Council, about 13,000 401(k) participants take a loan each month. The median loan amount is $4,600 and about 10 percent of these borrowers default on these loans.

The not-so-hidden cost of taking a loan on your 401(k):

1. Limits on the amount you can borrow. Participants in 401(k) plans are eligible to borrow up to 50 percent of their vested account balance (up to $50,000 if the plan permits loans).
2. Typical repayment time is five years. There are certain stipulations and regular loan repayments that must be made at least quarterly over the period of the loan. For instance, if the loan is used to purchase a home, the repayment period may be able to be extended. And, repayments may be suspended if the borrower is engaged in military service.
3. Miss a payment, pay a penalty. If the loan is not repaid in regular payments within five years, it is treated as a plan distribution. The penalties can be high with the entire outstanding balance of the loan subject to income tax. And, for workers under age 59½, there is a 10 percent early withdrawal penalty applied to the loan balance.
4. Switching jobs. The outstanding loan balance may become due. If you are unable to repay the loan, the loan becomes a plan distribution and taxes and penalties may be applied to it. (See #3.)
5. Compounding loss. You lose out on the power of compounding interest, which is one of the greatest things going for a retirement plan. By taking a loan on your 401(k), you are reducing the money that can be compounded on.
6. Loan expenses. There are often origination, administration and maintenance fees as well as the interest you must pay to repay the loan.
7. Double taxation. 401(k) contributions are usually made with pretax monies, which are not taxed until you withdraw it from the account. In this case, by taking a loan on your 401(k), you will be taxed twice—the loan repayments of both principal and interest are made with after-tax dollars.

Bottom line: Taking a loan on your 401(k) ultimately adds up to less retirement savings. It hurts your retirement investment growth rate and reduces the amount of money you will have at retirement.

Want to do something devilishly smart instead? Consider rolling over a former employer 401(k) into a self-directed retirement plan to help your bottom line grow.

Add to Your Bottom Line
Financially savvy investors know that retirement investment is something that must be done over time for savings to add up to sinfully strong retirement savings. And, for those who understand alternative investment options, 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. Alternative assets allowed include real estate, mortgages, unsecured loans, private hedge funds, precious metals, limited partnerships, commercial paper and more.

A self-directed IRA administrator like Next Generation Trust Services handles all the details of the transactions and manages all the paperwork and filing. Contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com to learn how to roll over your former employer 401(k) to a new self-directed retirement plan. Our professionals will answer your questions about self-direction 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.

Start Contributing More to Your Health Savings Account in 2015

Health savings accounts are a tax-advantaged way to save and pay for medical expenses, available for people who are enrolled in high-deductible health plans. Just as with various types of retirement plans, there are annual contribution limits for HSAs but funds may accumulate year to year.

The IRS has announced it is raising the contribution limits for health savings accounts (HSAs) in 2015. These increases will go into effect in January 2015.

• Individuals with self-only coverage will be able to contribute $50 more than the current maximum contribution (now at $3300).
• Those with family coverage will be able to contribute $100 more for a total of $6650 (the current maximum contribution is $6550).

For 2015, a high-deductible health plan is defined by the IRS as follows: “A health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,450 for self-only coverage or $12,900 for family coverage.”

You can read more at www.irs.gov and the Revenue Procedure 2014-30. You can always consult with one of the professionals at Next Generation Trust Services if you need help deciphering the guidelines concerning health savings accounts.

Self–directed HSAs
Saving for your health care during your retirement years is a necessity in today’s world and with Americans’ longer life spans. You may self-direct the investments the HSA makes and accumulate a heftier emergency medical fund within the health savings account. By investing in alternative assets you already know and understand, you have the potential to build a much larger nest egg to pay for your health care costs. The accumulated funds may be withdrawn tax-free to be used for qualified medical expenses. After age 65, the account holder may use the funds for anything deemed necessary without penalty.

You may also make a one-time (per lifetime) tax-free rollover of funds from an IRA into an HSA. That rollover amount must comply with the prevailing annual contribution limit. We recommend your consult your tax professional regarding these transactions to ensure you are doing so to your advantage and within IRS guidelines. There are restrictions regarding these rollovers and your health plan enrollment requirements; we are happy to answer questions about self-directed HSAs, so contact Next Generation Trust Services at (888) 857-8058 or Info@NextGenerationTrust.com

High-Net-Worth Individuals Can Include Roth IRAs in their Retirement Planning

Because of the income limits placed on Roth IRAs, higher-income individuals typically do not consider including a Roth IRA in their retirement planning. They may be prevented from contributing to a Roth IRA because they make too much money.

However, there are ways to include a Roth IRA in your portfolio, even if your individual or household income thresholds exceed the proscribed limits. Some high-net-worth individuals who wish to fund a self-directed Roth IRA are starting with a Traditional IRA and converting that into a Roth.

With some planning, high-tax-bracket investors can still enjoy the tax advantages of a Roth IRA—and even greater advantages of directing their own investments if they are comfortable doing so with a self-directed Roth IRA. One way to do this is to open a Traditional IRA and make the maximum allowed contributions to that account ($5500 or, if you are 50 or older, $6500); then convert the Traditional IRA into a Roth IRA. You can repeat this process every year and grow the Roth IRA.

There are tax implications around the Roth conversion but there will be tax-free distributions on the other end during retirement. Depending on the amount of assets held in the Traditional IRA, whether or not you plan to take distributions, and how much you are converting now or taking later will affect your tax burden.

Income limits regarding Roth IRAs
In 2014, the ability to contribute to a Roth IRA starts to phase out for married couples with combined income over $181,000 or single investors with an income over $114,000. The ability to contribute is completely blocked for married investors who earn over $191,000 and individuals who earn over $129,000.

Roth IRAs offer some tax advantages. Unlike a Traditional IRA, account holders do not have to begin taking required minimum distributions (RMDs) at age 70½. Therefore, wealthier investors who do not need those funds during their retirement years can do some estate planning around the Roth IRA. And if it is a self-directed Roth, investors can build a more diverse retirement portfolio by including alternative assets such as real estate, commodities, precious metals, private placements and much more.

Depending on your particular tax and financial situation, you may be able to leave the entire balance, and the account’s tax benefits, to your heirs. However, as with all self-directed IRAs, certain restrictions apply regarding disqualified individuals and prohibited transactions, so don’t hesitate to call one of our professionals to ask your questions about self-directed retirement accounts.
We recommend as with all investing that you consult your tax professional about this strategy, and whether or not it makes sense for you and your family. If you have any questions about self-directed IRAs or the types of nontraditional investments allowed in these accounts, contact Next Generation Trust Services at (888) 857-8058 or Info@NextGenerationTrust.com. To open a new account, everything you need is at https://www.nextgenerationtrust.com/open-an-account/

Plan to Continue Working in Your Retirement Years? Make Sure You Continue Your Roth Contributions

Merrill Lynch has recently conducted a study among pre-retirees over the age of 50. This study, in partnership with Age Wave produced some interesting results about baby boomers: Almost ¾ of the respondents (72 percent) stated that their ideal retirement will include working. This work might not be their current occupations—many respondents cited a desire to find new, flexible and fulfilling types and ways to work.

In addition, nearly half (47 percent) of current retirees have worked or plan to work during their retirement years (whether due to the economic downturns of the 2000s, lack of retirement savings, or other reasons). Baby boomers are redefining the notion of retirement and we will see a huge trend of older adults seeking work of some kind during those golden years.

The national survey of more than 7,000 respondents is called, “Work in Retirement: Myths and Motivations” and it explores and challenges some commonly held beliefs about work during retirement. Rather than permanently end their work life and enjoy a total-leisure lifestyle, survey participants are re-imagining retirement. After all, Americans are living longer, most employee pensions are going the way of the dodo bird, financial need among many has grown, and others see their older years as a time when they can still work, earn, and enjoy the benefits of staying active in that way.

The study also offers insights from more than 1,800 working retirees who were surveyed about their personal experiences, and includes helpful tips on how to prepare for a successful retirement career.

Retirement Phases

The study highlights modern-day realities that many pre-retirees (and retirees) are facing and talks about four phases of this retirement “workscape” as Merrill Lynch calls it:

• Pre-retirement – This phase starts five years before retiring, when 37 percent of pre-retirees who plan to work in retirement have already taken steps to prepare for their new or different career. When they get within two years of retirement, more than half of the participants have done so.
• Career intermission – Most pre-retirees take a break so they can relax a bit and retool. Among working retirees, 52 percent reported they took this break; average intermission is 2.5 years.
• Reengagement – According to the study this phase lasts nine years on average and includes a new balance of work and leisure. 83 percent of flex careerists are working part time and, compared to pre-retirees, are three times more likely to be self-employed.
• Leisure – During this fourth phase of retirement, people stop working to make more room for R&R, travel and other priorities. Working retirees in the study said they expect health challenges (77 percent) or simply not enjoying work as much (61 percent) to be the most likely causes of their permanent retirement.

Myths about retirement being a time of mental or physical decline, of a withdrawal from the world and their former lives, or that their retirement work is all about the money were overturned by the study’s findings. Rather, people are planning for and enjoying new ways to make money, new work-life balance, and engagement in life far beyond retirement age. The study also identified four types of working retirees based on their stated reasons for working. Their advice for those who want to work during retirement, 76 percent advise pre-retirees to be open to new things and 73 percent said to be willing to earn less while doing something you enjoy. Keeping up with technology was also cited as very important.

At Next Generation Trust Services, we remind all investors that keeping up with a Roth IRA is also important.

Don’t forget to fund your self-directed Roth IRA

You may continue to make contributions to your Roth IRA beyond age 70-1/2 (the contribution cutoff for Traditional IRAs is 70-1/2). Since there is no age limit for Roth IRAs (you simply need to have made reportable income for the year) you can continue to build up your self-directed retirement account as long as you are working. Your self-directed Roth IRA can make many different types of investments, including investments in alternative assets such as real estate, commodities, commercial paper, precious metals and so much more.

So our hats are off to those of you who plan to keep working—and for those who plan to keep contributing to their Roth IRAs past the age of 70-1/2, our professionals are here to answer any questions you might have about self-directed retirement plans and the many nontraditional investments they allow.

Contact us at Info@NextGenerationTrust.com or (888) 857-8058 for more information about self-directed Roth IRAs or other types of self-directed accounts, or visit our website.

Supreme Court Rules that Inherited IRAs are Not Protected From Bankruptcy Proceedings

, wherein a woman who’d inherited her mother’s IRA had tried to shield the account from creditors, claiming the account qualified as retirement funds.

No go, according to the decision, written by Justice Sonia Sotomayor, who noted that that “‘retirement funds’ is … properly understood to mean sums of money set aside for the day an individual stops working.” She likened the inherited IRA to a checking account or envelope filled with money as a similar example of what could potentially be used for retirement but is not recognized as retirement funds for this purpose.

The woman who had declared bankruptcy in 2010 (Mrs. Clark) had already been drawing down funds from the inherited IRA. This was not her own IRA that she had been contributing to with the intention of using the money for her retirement years.

Therefore, the Court ruled this IRA did not qualify as retirement funds.  Section 522 of the Bankruptcy Code exempts tax-exempt retirement funds from the bankruptcy estate.

AN INHERITED IRA VS TRADITIONAL OR ROTH IRA

In Mrs. Clark’s case, the bankruptcy court ruled against her, declaring that an inherited IRA represented “an opportunity for current consumption, not a fund of retirement savings.” The Supreme Court agreed unanimously.

An inherited IRA differs in a few major ways from the Traditional or Roth IRAs that people contribute to over the course of their working lives. For example:

• With an inherited IRA you can withdraw any amount or the whole amount in the account at any time without penalty. An original IRA account holder may not withdraw funds before age 59-1/2 without paying a steep penalty.
• Also, with an inherited IRA, withdrawals are mandated annually.

Justice Sotomayor pointed out that the reason retirement funds are exempted from bankruptcy is to ensure that those who declare bankruptcy can still “meet their basic needs during their retirement years.”

If you’ve inherited an IRA and you don’t need the money to meet your immediate financial needs, you may have the option to roll it over into your existing IRA (in the case of a spouse beneficiary) or you might be better served transferring the funds to a new custodian. The transaction specialists at Next Generation Trust Services can answer questions you might have about your inherited IRA and whether or not you can use those funds to open a new self-directed retirement account. We strongly recommend you consult your tax professional for guidance on how an inherited IRA may affect your tax and financial situation.

For self-directed IRA questions, contact us at Info@NextGenerationTrust.com or (888) 857-8058.

Welcome to … The Crowdfunding State?

” through web portals. What is new and important about the New Jersey bill, which was just recently reintroduced, is that it would permit companies to give out shares of equity in return for capital. In other words, investors would be providing equity funding.

Under the bill, total investments cannot exceed one million dollars and single purchaser investments are capped at $5,000 each. This was reported in NJBIZ, a statewide business newspaper, on June 6, 2014.

Since we are still waiting for all provisions in the JOBS Act to be finalized, right now the New Jersey-based bill can only offer intrastate (within New Jersey) crowdfunding. Similar versions have been put forth in states like Georgia, Kansas and Michigan. There is bipartisan support for the New Jersey bill.

State Sen. Joe Kyrillos (R) has been a sponsor and proponent of the measure. He told NJBIZ in May that, “Frankly, there is no reason to embrace laws enacted in the 1930’s that have outlived their usefulness. The economy is still troubled. Financing is hard to come by. Millions of people understand intuitively that when there is a good idea, people would like to risk their capital to make that a success.”

CROWDFUNDING AS A SELF-DIRECTED INVESTMENT VEHICLE

As administrators of self-directed retirement plans, Next Generation Trust Services—based in New Jersey—is watching this measure carefully. Account holders of self-directed IRAs and other retirement plans may make a broad range of alternative investments and high-net-worth individuals have been making equity funding investments through their self-directed accounts for years.

The New Jersey bill could open the door to a much wider population of investors who wish to make equity investments in startup companies through their self-directed retirement plans. We’ll keep you posted on the bill’s progress. In the meantime, you can read more about equity funding opportunities for accredited investors on our blog, and learn all about self-direction as a retirement strategy on our website. If you have any questions about self-directed IRAs, contact Next Generation Trust Services at (888) 857 8058 or Info@NextGenerationTrust.com

Pave A Strong Yellow Brick Road to Retirement

and we’ll say it again—Americans are not saving enough for their retirement.

Retirement concerns as employees age are many: More than half of all mid-career and older employees (53%) are concerned they will not be able to afford the health care they need in retirement; 83% believe Social Security will be less valuable in the future and 88% have comparable fears about Medicare.

For those seeking advice on how to catch up on retirement savings or get off to a good start, William J. Bernstein, an investment adviser and author on financial subjects, offers this simple advice on what millennials can do now in his e-book, “If You Can: How Millennials Can Get Rich Slowly”:

Self-directed IRAs can provide savvy investors the ability to develop a more diversified portfolio that they control. The self-directed IRA administrator like Next Generation Trust Services handles all the details of the transactions and holds the assets.

At Next Generation, 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. We’re here to answer any questions you have about self-direction.

Have a question now? Contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com, or read through our Starter Kits for more information.