Who is Next Generation and what do they do?
Next Generation provides custody, comprehensive account administration and transaction support for self-directed IRAs. We offer the same retirement plans as other plan administrators with the same tax advantages. Although we do not provide investment advice, our account representatives work to ensure that your investments are purchased properly and accurately, keep accurate records for the retirement accounts, and provide guidance about transaction procedures as needed.
What is a self-directed retirement plan?
With a self-directed retirement plan the account holder chooses the investments made within the account and makes all his/her own investment decisions—usually from instruments he/she already knows and understands. The allowed investments are much more diverse than stocks, bonds, and mutual funds.
What kinds of alternative investments can I make?
Allowable investments include residential or commercial real estate, notes, partnerships, LLCs, hedge funds, tax liens, precious metals, international assets, social causes and more . . . anything that is not prohibited as defined by the Internal Revenue Code (more on that below). In fact, under the Employee Retirement Income Security Act (ERISA) and IRS codes, only two types of investments are excluded from self-directed retirement accounts: life insurance contracts and collectibles (art, rugs, jewelry, etc.).
What are the different account types available to individuals or business owners?
Anyone can open the same types of retirement accounts with Next Generation as they can at other financial institutions. Individuals can open a Traditional IRA, Roth IRA, Health Savings Account (HSA) or a Coverdell Education Savings Account (ESA). Business owners can open any of the before mentioned, as well as a SEP IRA, SIMPLE IRA, Solo 401(k) or outsourced portion of an existing Qualified Plan (PSP, DCP, DBP, etc).
Why have I not heard about this before?
It is a common misconception among Americans that the only investments allowed in a retirement account are stocks, bonds, CDs, and mutual funds. The fact is that broader investment options have been available since the inception of the IRA in 1975. Given the stock market’s volatility, interest in and awareness of self-direction has grown enormously in recent years.
Can funds in a current 401(k) be used to buy nontraditional assets?
Contact the employer’s 401(k) administrator to find out if a self-directed plan is available. If not, you may be able to roll over those assets into a new self-directed IRA. A 401(k) with a former employer may be rolled over into any plan at Next Generation. Next Generation cannot initiate rollovers but our funding form must be used to document the rollover. Contact the former employer’s plan administrator or benefits department for any other special procedures that may be required.
How are these accounts funded? Is there an account minimum balance requirement?
A self-directed retirement account can be funded by contributing new funds, by a transfer or rollover of existing retirement accounts, or by converting from a Traditional to a Roth IRA. There is no minimum amount required in the account; the amount to start with depends on the type of deal or investment you are planning. Keep in mind: in the case of cash contributions, you should check on the contribution limits for that account type.
WHAT HAPPENS WITH INCOME AND EXPENSES FROM THESE INVESTMENTS?
Since the IRA is the owner of the investment, all income must be paid to the IRA and all expenses related to the investment must be paid from the IRA. This is one reason why it is important to review how much cash should be kept available in a self-directed account when making an investment.
What are the limits to these self-directed investments?
Bottom line: everything the IRA engages in must be for the exclusive benefit of the self-directed retirement account, not the individual. In addition to life insurance and collectibles being excluded there are also certain “prohibited transactions” (defined in IRC § 4975 and IRS Publication 590) and “disqualified persons” (addressed in IRC § 4975) that would disallow a transaction. Disqualified persons include the account holder, spouse, ascendants, descendants and their spouses, business partners, fiduciaries, and anyone providing a service to the retirement account. Violation of these rules could result in the entire IRA losing its tax-deferred or tax-free status; therefore we strongly recommend that investors consult a tax and/or financial advisors, or attorneys who are well versed in ERISA law and know the requirements/procedures needed to avoid jeopardizing the account’s tax-advantaged status.
What happens to the funds that aren’t invested in assets?
All funds at Next Generation for which we receive no investment instructions are held for our clients at one of our depository banks. Clients may choose to invest the remaining funds in publicly traded assets through our TD Ameritrade sub-account option.
When can distributions be taken from a self-directed IRA?
There are no restrictions on when an account holder may take distributions from an IRA. However, there are penalties for early withdrawals from certain types of accounts. Contact us for details or to register for one of our seminars that cover the tax consequences concerning different distribution situations.
How do I open a self-directed IRA?
It’s easy! Just contact Next Generation at 1-888-857-8058. We’ll ask a few questions regarding the type of account that you’d like to open and send you the appropriate application forms (these are also available on our website). Simply fill out, sign, and return the forms to Next Generation. We also offer a DocuSign option for those who wish to sign electronically.
At Next Generation, all of our transactions are processed promptly in our office by individuals familiar with your account and your circumstances. Our courteous, knowledgeable staff is extensively trained to handle all account management tasks—from opening accounts to expediting transactions and handling clients’ inquiries. Our employees will answer questions immediately or connect you or your clients with someone who can. No voice prompts are used during office hours so that you always speak to a live representative, and we respond to inquiries within one business day.
With self-direction it is expected that individuals and their advisors do their own due diligence regarding the many options and benefits of this wealth-building strategy, including potential tax issues and financial ramifications of their investment decisions. Next Generation offers educational seminars throughout the year for tax advisors, financial planners, real estate professionals, and individuals on these topics.