Tax Filing Day is Extended to May 17
Taxpayers get an extra month to pull together their reports and receipts for their accountants, now that the Internal Revenue Service has issued a tax return deadline extension until May 17. The reason given was pandemic related, as many Americans are dealing with economic upheaval. You may recall that last year, the deadline was pushed to July 15 as the country underwent extraordinary circumstances, high unemployment, and general distress related to COVID-19.
The May 17 target date allows those who’ve been out of work, had hours cut, or are just getting back into the workforce time to figure out their finances and review tax changes that went into effect with the American Rescue Plan. For example, unemployment benefits up to $10,200 received in 2020 are tax free for individuals with incomes below $150,000. A few things to note:
- The extension is for 2020 federal tax returns only, not state returns. Check with your state agency to find out if their deadline has changed.
- Taxpayers who pay quarterly estimated taxes still must pay the next installment by April 15.
- If you’ve already filed your 2020 federal return and are eligible for the recently passed tax break, do not file an amended return until the IRS issues additional guidance on that matter.
- Filing timely may help those whose 2020 income creates eligibility for a stimulus payment or a larger one than anticipated. Your tax professional can explain more in detail about how you may qualify and how the filing extension may affect you.
At Next Generation, here’s a caveat we like about this filing extension: it gives taxpayers more time to contribute to their retirement accounts and reduce 2020 income (since the prior year contribution deadline was also extended to May 17) using stimulus money or compensation from their restarted or new job. Contributing to your retirement plan has the potential to qualify an individual for stimulus funds by reducing income on the tax return (for tax year 2020). And of course, if you have a self-directed IRA or other self-directed retirement plan, health savings account (HSA), or education savings account (ESA), you can also leverage the power of alternative assets to build a more diverse portfolio and a hedge against stock market volatility.
Weather-related extensions for affected taxpayers
In Louisiana and Texas, people affected by the bitter February storms and cold snap now have until June 15 to complete activities related to retirement plans (IRAs and employer-sponsored plans), HSAs and ESAs. These time-sensitive activities, which typically must occur by the tax filing deadline, include:
- Making contributions for the 2020 tax year to a Traditional, Roth, Simple or SEP IRA, HSA, and Coverdell ESA
- Completing various types of rollovers
- Extending the time frame for using IRA distributions for first-time home purchases without penalty
- Filing Forms 5498, 5498-A, 5498-SA, 990-T, and 550 with the IRS
- Making corrective distributions of excess deferrals, contributions and aggregate contributions to qualified retirement plans
If you are in the affected areas, you can read more here.
It’s always a good time to invest in alternative assets
All those retirement plans and other accounts noted above can be self-directed—including HSAs and ESAs.
Savvy investors who self-direct their retirement plans (as well as other plans) enjoy the benefits of portfolio diversification. They can also take advantage of investment opportunities as they arise or invest in assets that align with their values or goals. Examples of alternative assets allowed in self-directed IRAs are real estate, precious metals, notes/loans, private equity, cryptocurrency, impact investments and more. We recently presented webinars on how to invest in music royalties and impact investments, so you can see the field is quite open for including nontraditional investments you already know and understand—any time of year.
Here’s another tip: you can schedule a complimentary educational sessions with someone from the Next Generation team; or contact us directly via phone at 888.857.8058 or email NewAccounts@NextGenerationTrust.com to get answers to your questions about self-direction as a retirement wealth-building strategy.
Celebrating Women in Finance During Women’s History Month
All hail the powerful women who are making strides and breaking glass ceilings in the world of banking and finance! As it is Women’s History Month, the team at Next Generation is shouting out kudos to female visionaries and leaders in the financial realm.
Although women in the U.S. only gained the right to open their own bank accounts in the 1960s, today they are at the helm of global banks as CEOs, presidents, executive VPs, chief strategy officers, risk management officers, senior investment strategists, and many more leadership roles. According to American Banker, this year’s Most Powerful Women in Finance lead major banking institutions, credit card/transaction processing companies, and asset and investment management firms (no surprise, given the organization’s name). You can read about 100 influential women in U.S. finance on Barrons (March 2020 list). For a regular dose of inspiration, you can hear from women about their careers, industry trends, and diversity issues in the Women Leaders in Finance podcast out of London.
Today, the doors are opening to more and more women in the financial industry taking their places at the head of the figurative table in many ways, in fintech, alternative assets, traditional banking and finance, and more.
Among the women we herald are Wall Street veteran Sallie Krawcheck, who founded Ellevest in 2016, in recognition of gender wealth inequality and how the financial industry was not serving women (“built by women+, for women+”). According to its website, the organization’s mission is to get more money in the hands of women, non-binary individuals, and allies. Membership in Ellevest provides access to investing, banking, learning, and coaching.
Currently an organization in Chicago, First Women’s Bank is setting sights on bridging the gender gap in lending by connecting women-owned small businesses with capital solutions. Marianne Markowitz, who was acting administrator for the SBA nationally and regional administrator for its Midwest Region V will be president, CEO and a member of the board of directors of the bank and the company. Amy R. Fahey, whose banking career spanned nearly 29 years at JPMorgan Chase and its predecessor organizations, will be the chair of the boards of directors.
Given her remarkable career in the public and private sectors, we must also include economist Janet Yellen. The current (78th) secretary of the U.S. Department of the Treasury, she was the chair of the Federal Reserve from 2014 to 2018 and the first woman to serve in those roles. She chaired the Council of Economic Advisors in the Clinton administration and is the first person in American history to have led the White House Council of Economic Advisors, the Federal Reserve, and the Treasury Department.
Our praises would be incomplete if we failed to mention Jaime Raskulinecz, founder and CEO of Next Generation, who has nurtured and grown our organization to become two sister firms—one focused on the administration of self-directed retirement plans, the other a custodian for the assets held within our clients’ plans. Her vision, determination and guidance have helped our team develop and expand professionally, so we can help our clients develop and diversify their retirement portfolios with alternative assets. Thank you, Jaime, for all you do for Next Generation and its clients!
This is dedicated to the memory of Ms. Raskulinecz’s mother, Ella Raskulinecz, 1/7/1929-3/12/2021. Ms. Raskulinecz said, “She was an extraordinary woman who was fiercely independent and much stronger than she realized. It is because of her unconditional love and unwavering support that I have become the woman I am today and I cherish every day we had together.” May she rest peacefully.
The Answer to the DOL’s Final Rule on Environmental, Social and Governance (ESG) Investments
The Department of Labor (DOL) has issued a final rule, “Financial Factors in Selecting Plan Investments,” concerning environmental, social and governance (ESG) funds in private employer-sponsored retirement plans, such as 401(k)s. While the final rule does not prohibit these investing choices for workplace retirement plans, its goal is to provide clear regulatory guidelines for ERISA plan fiduciaries, with the suggestion that ESG investing conflicts with their fiduciary responsibilities.
ESG investments advance positive social change such as improving the environment or promoting human rights. According to the DOL, decisions about these investments are not primarily pecuniary (in other words, determined and expected to be in the plan participants’ best financial interests, with a material effect on the risk and return), so plan fiduciaries may be cautious about recommending or including them in the workplace plans.
According to DOL Secretary Eugene Scalia, rather than further social goals or policy objectives, “This rule will ensure that retirement plan fiduciaries are focused on the financial interests of plan participants and beneficiaries, rather than on other, non-pecuniary goals or policy objectives.”
Therefore, employees who are saving for retirement through a 401(k) or other workplace plan may now experience some roadblocks when it comes to including ESG funds or individual investments in their retirement plans.
ESG investments can be held in self-directed IRAs as an alternative
Self-directed IRAs allow individual investors to embrace social investing and include alternative assets that align not only with their financial goals but their values as well. For example, the self-directed IRA can invest in funds and initiatives that combat climate change, nefarious labor practices, or human trafficking; or support green energy, fair trade cooperatives, and other investments that address inequities in the economic landscape, promote sustainability, and support positive governance practices.
With a self-directed IRA, investors have access to the same types of account types as they would with a brokerage firm, such as a Traditional IRA, Roth IRA, SEP IRA, or even a Solo 401(k). Individuals with these retirement plans can include a broad array of non-publicly traded alternative assets in addition to ESG-related assets, such as real estate, private equity, hedge funds, precious metals, private lending and more.
It is unclear whether there will be a lot of pushback about this final rule or how it may be amended in the future. However, for investors who want to proactive take control of their financial futures, opening a self-directed retirement plan is a great step forward. At Next Generation, we invite you to schedule a complimentary educational session to learn more about self-direction as a retirement strategy.
Social Security Cost of Living Adjustment (COLA) for 2021
It was announced in mid-October that Social Security beneficiaries will see a 1.3% cost- of-living adjustment (COLA) in their monthly distribution checks, effective January 1, 2021. The Social Security Administration says this is in line with prior years’ increases, although it is slightly smaller than the 1.6% increase in 2020 and a more significant 2.8% bump to monthly checks in 2019. Looking back over a longer timeline, the COLA was zero several times (2010, 2011, 2016) and only 0.3% in 2017. Back in the 1970s and 1980s, the figures are much higher, ranging from around 6% in 1977 to 14% in 1981.
Given the financial effects of the COVID-19 pandemic on many Americans, including those receiving Social Security checks, that 1.3% increase won’t go too far in many areas of the country. According to the Social Security Administration, the average monthly benefit increase will be as follows for various categories of recipients:
- All retired workers, $20
- Aged couples who both receive benefits, $36
- Disabled workers, $16
Some other changes coming in 2021 are:
- The maximum amount of wages taxed for Social Security goes up from $137,700 now to $142,800 in 2021.
- For those of full retirement age, the maximum monthly retirement benefits are going up from $3,011 to $3,148 a month in 2021.
- In addition, the full retirement age is once again inching up based on year of birth.
The cost-of-living adjustment is based on the consumer price index for urban wage earners and clerical workers. However, this formula focuses on younger workers under age 62, who are not claiming benefits nor having Medicare payments deducted from their monthly Social Security income. Let’s not forget the rising costs of living seniors face in general, which outpace that COLA amount—food, housing, and prescription drugs among them.
There is a groundswell to change the COLA calculation to the consumer price index for the elderly instead. This is the Social Security 2100 Act, which is being put forward by Congressman John Larson of Connecticut. It expands benefits for current and future recipients, cuts taxes on the elderly, and aims to keep the Social Security Trust Fund solvent through the rest of this century.
Social Security is not so secure
Any way you slice it, relying heavily (or in many cases nationwide, solely) on Social Security for one’s retirement income does not bode well for today’s retirees —especially right now, when the fund is scheduled to be insolvent by 2033. Being more proactive about retirement saving can provide more stable financial health during one’s working and retirement years.
While Social Security benefits provide a financial safety net as per the program’s original intent, in today’s world, those benefits don’t stack up for individuals seeking to retire comfortably and maintain their accustomed lifestyle. That’s where self-directed IRAs and the nontraditional investment they allow can really shine.
Self-directed IRAs allow account owners to include a broad array of non-publicly traded, alternative assets, such as real estate, private equity, notes/loans, precious metals, and so many more. Self-directed investors can be proactive as well as nimbler about how they invest for their later years. That’s because, as individuals who make all their own investment decisions, self-directed investors can take advantage of market shifts and opportunities, and invest in many alternative assets they already know and understand, and that provide a hedge against stock market volatility.
At Next Generation, we’re all about client education. You can read more about the different types of self-directed retirement plans for individuals and business owners here. You may also schedule a complimentary educational session to get the information you need to decide whether self-direction is the right retirement strategy for you. Our helpful team is here to answer questions as well; you may contact us directly via phone at 888.857.8058 or NewAccounts@NextGenerationTrust.com.
Further Expansions to “Accredited Investor” Definition
Last month, the Securities and Exchange Commission amended its “accredited investor” definition that goes beyond income and net worth criteria; the expanded definition allows investors to qualify based on defined measures of professional knowledge, experience, or certifications. There is also an expanded list of entities that may qualify as an accredited investor, including tribal governments, family offices and certain other organizations.
This status allows individuals to participate in private placements—equity investments such as those allowed in self-directed IRAs. This amendment to the final rule aligns with self-directed investing in another way—using an investor’s knowledge or experience as a basis for participating in investment opportunities. Self-directed investors make their own investment decisions about the alternative assets they wish to include in their retirement plan, based on what they have researched, know, and understand—decisions not based solely on wealth.
The SEC’s previous rule used income or net worth as factors of financial sophistication—individuals had to meet the test of a net worth of at least $1 million excluding the value of primary residence, or income of at least $200,000 each year for the last two years (or $300,000 combined income if married). The amended rule goes beyond wealth as the criterion for purposes of the accredited investor definition.
What the amendments include
The amendments revise Rule 501(a), Rule 215, and Rule 144A of the Securities Act to:
- Include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund
- Clarify that limited liability companies with $5 million in assets may be accredited investors
- Add SEC- and state-registered investment advisers, exempt reporting advisers and rural business investment companies (RBICs)
- Add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries
- Add family offices with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act
- Add the term “spousal equivalent” so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors
Self-directed IRAs for investors of all kinds
Several years ago, the SEC implemented the JOBS Act in full, which opened up equity crowdfunding platforms to even more individuals, including nonaccredited investors who did not meet the income/net worth tests but wanted to take advantage of equity funding opportunities. For those who want to be angel investors in an early-stage company and/or wish to participate in equity crowdfunding platforms, a self-directed IRA is a valuable vehicle for making these types of investments. The flexibility of these retirement plans and the many non-publicly traded, alternative assets, they allow offer a great way to build a diverse retirement portfolio—and a hedge against stock market volatility with potential to earn greater returns.
At Next Generation, we’re here to help our clients understand the many options available to them as self-directed investors. If you’re wondering what types of investments you can include in a self-directed retirement plan, or have questions about how private equity/private placements can be part of your self-directed portfolio, you can sign up for a complimentary education session to learn more about this retirement wealth-building strategy. You may also contact our team directly with questions, via phone at 888.857.8058 or via email at NewAccounts@NextGenerationTrust.com.
The 2020 RMD Waiver and How it May Affect Your Retirement Plan
The CARES Act (or the Coronavirus Aid, Relief, and Economic Security Act) was an enormous piece of legislation enacted in March 2020 in response to the COVID-19 pandemic. It was designed to mitigate the effects that lockdown and lost business (and wages) were having on employers and employees. Its passage was preceded by the SECURE Act (Setting Every Community Up for Retirement) in late December 2019. Both brought many changes to retirement plan design, participation, and administration.
Waiving the requirement for required minimum distributions
One change concerns the 2020 required minimum distribution (RMD) that retirement account owners or participants historically had to withdraw upon reaching age 70½ .These distributions must be taken for Traditional IRAs, SIMPLE IRAs, SEP IRAs, rollover IRAs, and most 401(k) and 403(b) plans. RMDs do not apply to Roth IRAs unless it is an inherited IRA.
However, for 2020, the CARES Act waives RMDs. Even if you’d already been taking this distribution, you no longer have to do so in 2020 (which enables you to keep those funds in a tax-advantaged retirement plan for continued investment and growth).
Here are some other updates regarding RMD regulations:
- RMDs are also waived in 2020 for inherited IRAs.
- This waiver is temporary; account owners and participants must resume or start RMD payments in 2021.
- The waiver also applies to people who turned 70½ in 2019 and did not take their first RMD before January 1 of this year. (One usually has a three-month extension until April 1 of the following year to take the very first RMD; otherwise, the deadline is always December 31 of the tax year.)
Additional RMD updates:
- The SECURE Act increased the age at which an individual must begin taking RMDs to 72 beginning in 2020. Therefore, investors who haven’t yet crossed that 70½-year-old mark now have more time to allow their retirement funds to be invested and grow in a tax-advantaged retirement plan.
- Since any distribution in 2020 is no longer seen as an RMD, it can be converted to a Roth IRA, which was prohibited before COVID-19.
- Eligible individuals who took a distribution this year that was not treated as an RMD (due to the waiver) may roll over those funds to another eligible retirement plan or to an IRA within 60 days of the distribution.
- The IRS has extended the 60-day rollover deadline to allow most individuals until July 15, 2020 to do so.
- For beneficiaries taking distributions over a five-year period, 2020 is disregarded and one year is added to the remaining period to distribute inherited assets.
As with any retirement plan and investment, individuals are encouraged to consult their trusted advisor or tax professional to work out the best way to handle their required minimum distributions—whether to take advantage of this year’s waiver, do a rollover, or wait until age 72 to begin, depending on your age and situation. If you have a qualified retirement plan through work, check with the plan administrator about your options.
RMDs and self-directed retirement plans
The RMD waivers and updated provisions concerning these distributions apply to self-directed retirement plans as well. And, with the age increase for taking these distributions, self-directed investors with alternative assets within their plans have the potential to accrue more retirement income from real estate, precious metals, private equity, and many more nontraditional investments these plans allow. There is also now a longer time horizon for using self-directed funds for unsecured or secured loans, which are other popular ways to invest through a self-directed IRA.
The professionals at Next Generation are available to help you calculate your RMD when you’re ready—whether in 2020 or in the future—and will handle all the tax reporting and administration associated with your self-directed IRA. If you have questions about RMDs or about self-direction as a retirement wealth-building strategy, you can schedule a complimentary educational session. To connect with our team directly, call Next Generation at 888.857.8058 or email us at NewAccounts@NextGenerationTrust.com.
Amid Stock Market Downturn, Consider Self-Directed IRAs
Many investors are dealing with yet another stock market downturn, which is in reaction to current events such as global concerns about the Coronavirus and U.S. politics during an election year. These and other factors—from geopolitics to macroeconomics, trade issues to plant closings to a company’s profitability and earnings—can influence a stock market downturn.
Stocks by nature are volatile, which is why many investors look to alternative assets to build their retirement savings and avoid stock market downturns that are often hard to predict. That means looking at self-directed IRAs, which allow individuals to include a variety of nontraditional investments and build a more diverse retirement portfolio based on assets they already know and understand.
Look at it this way: unless they work there, many people are not experts on what a Blue Chip or Fortune 500 company produces or sells, and they certainly cannot control what those companies do in the marketplace. However, many people know a lot about investing in real estate, precious metals, or private equity. Others like the idea of including secured or unsecured loans in their retirement plan, with terms they determine with the borrower. All of these investment types can be included in a self-directed IRA, where investors build retirement wealth with alternative assets—and have better control over their earnings.
A self-directed IRA has the same tax advantages as regular retirement plans with the added bonus of being a great hedge against stock market volatility. For those who are comfortable making their own investment decisions and conducting their due diligence, self-direction is a powerful retirement strategy.
Typical retirement plans offered by brokerage houses or banks limit investors to publicly traded stocks, bonds, certificates of deposit, and mutual or exchange-traded funds. But a self-directed IRA allows you to hold the alternative investments noted above plus notes, private placements, limited partnerships, tax lien certificates and more.
Our whitepaper library has a lot of great information about self-directed IRAs and our helpful team is here to answer your questions about self-direction. To find out more about self-direction, you may call us at 888.857.8058 or send an email to NewAccounts@NextGenerationTrust.com. Alternatively, you can sign up for a complimentary educational session with one of our knowledgeable representatives.