Has Your Work Situation Changed? You Can Roll Your 401(k) Funds into a Self-Directed IRA
Do you have a retirement plan that is still with an employer where you are no longer working? If you have recently lost a job due to COVID-19, or are in job transition, make sure you don’t leave your old 401(k) plan behind. If yours is still with a previous employer, you can rescue those funds and roll them over into a self-directed IRA.
Right now, it’s unclear for many workers if or when there will be a new employer with a new workplace retirement plan. However, one thing is clear: opening an IRA (Roth or Traditional) is an option that enables individuals to make sure their retirement savings stay with them. Moreover, if that new retirement plan is self-directed, there is a much wider range of potential investment options available that account holders—not their employers—control.
Rollovers into self-directed IRAs
Since most 401(k) plans are limited in terms of allowable investments, rescuing and rolling over those funds into a self-directed IRA opens up the door to greater investment opportunity, without the limits imposed by most plan sponsors on the defined contribution plans they offer. As you may know from your existing 401(k), most of those plans are limited to investing in mutual funds or exchange traded funds, stocks, and bonds. Opening a new self-directed IRA will enable you to include an array of alternative assets that you may already know and understand, such as real estate, private equity, precious metals, hedge funds, secured and unsecured notes/loans, energy investments, and more.
Through self-direction, you’ll build a more diverse retirement portfolio, create a hedge against stock market volatility, and gain better control over your investment returns as part of your retirement strategy. You’ll also have the flexibility of buying and selling your investments when you choose, rather than according to a prescribed schedule that most 401(k) plans follow.
You can choose to do a rollover into a new Roth or Traditional IRA, or a SIMPLE or SEP IRA, depending on your employment status, overall tax situation and how far out you are from retirement. As always, we recommend you discuss your unique scenario with a trusted advisor. You may also have to check with the current plan administrator to see if there are any restrictions concerning the type of IRA allowed for a rollover from the existing 401(k).
How to roll funds over into a self-directed IRA
At Next Generation, our comprehensive starter kits walk you through all the steps needed and required documentation to submit in order to open a new self-directed retirement plan with us, and include a rollover form for Traditional, Roth, SEP, or SIMPLE IRAs (we have starter kits for other types of plans as well). Moreover, our helpful team of professionals are available to answer questions about opening a self-directed IRA or about the many types of non-publicly traded, alternative assets, these plans allow. You may schedule a complimentary education session; or you may contact Next Generation by phone at 888.857.8058 or by email at NewAccounts@NextGenerationTrust.com.
The SECURE Act and Self-Directed Retirement Plans
The SECURE Act, signed into law on December 20, 2019, is comprehensive legislation written to expand retirement savings, simplify existing rules, preserve retirement income, and improve plan administration. SECURE stands for Setting Every Community Up for Retirement Enhancement.
The bill mostly makes significant changes to workplace retirement plans; other provisions affect retirement plans in general, including self-directed IRAs. Here is a look at some of the changes, effective January 1, 2020.
For those who own a self-directed Traditional or Roth IRA:
- Increase in RMD age for Traditional IRAs – The required minimum distribution age is now 72. Individuals who turn 70½ in 2020 would not be required to take a minimum distribution until April 1st of the year in which they turn 72. This only applies to individuals who turn 72 in 2020 or later.
- Contribute to your Traditional IRA longer – Workers age 70½ and older with earned income may now continue contributing to a Traditional IRA—and continue building up retirement savings. This only applies to individuals who are turning 70½ in 2020 and later.
- Tax penalty exemption for birth or adoption of a child – For a qualified birth or adoption, the account holder can withdraw a total of $5,000 as an early distribution without the 10% penalty, when the distribution occurs within one year of the event. Income taxes still apply.
- Graduate student IRA contributions – Certain payments to graduate and postdoctoral students will be treated as earned income for IRA contribution purposes.
- No more stretch IRAs – The lifetime distribution option for certain non-spousal IRA beneficiaries is now eliminated and most non-spouse inheritors who are more than 10 years younger than the deceased IRA owner will be required to take all distributions within 10 years. Exceptions include beneficiaries who, at the time of the account owner’s death, are:
- Disabled or have certain chronic illnesses
- Within 10 years of the decedent’s age
- Minors (10-year payout period begins upon reaching the age of majority)
- Recipients of certain annuitized payments begun before enactment of the SECURE Act.
For business owners who have a SEP IRA, Solo 401k, or other qualified retirement plan:
- Longer deadline to establish a plan – Now employers may establish a qualified plan as late as their business tax filing deadline, including extensions, rather than the last day of the company’s business year. This extension will not apply to certain plan provisions.
- Increase in small-employer plan startup credit – Up to $5,000 per year, effective for 2020 and later taxable years, for employers with up to 100 employees over a three-year period beginning after December 31, 2019. The credit applies to SEP, SIMPLE, 401(k), and profit-sharing plans.
- Automatic enrollment credit – Employers that include an automatic enrollment feature in their new or existing small 401(k) plans or SIMPLE IRA plans will get a maximum annual tax credit of $500 for each of the first three years that the plan is maintained. (Effective for 2020 and later taxable years.)
- Participation by part-time employees – Employees who work at least 500 hours over three consecutive 12-month periods (and who satisfy the plan’s minimum age requirement) must be offered participation in the employer’s 401(k) plan.
All SECURE provisions have tax consequences for individuals and plan sponsors. As always, the team at Next Generation strongly recommends you consult your trusted advisor regarding how the SECURE Act provisions may affect your specific tax situation.
Secure a more diverse retirement portfolio through self-direction
In light of the recent changes, consider including alternative assets within a self-directed retirement plan. Those who are comfortable making their own investment decisions and who understand certain nontraditional investments can build up their retirement savings—and hedge against stock market volatility—with such assets as real estate, precious metals, private equity, hedge funds, private notes, and more.
At Next Generation, we’re here to answer your questions about self-direction as a retirement wealth-building strategy, or how certain provisions of SECURE may affect your self-directed retirement plan. You can arrange a complimentary educational session with one of our representatives, or contact us directly at 888.857.8058 or NewAccounts@NextGenerationTrust.com for more information.
Retirement Plan Contribution Limits for 2020
The 2020 contribution and benefit limits were announced in early November by the IRS. The annual limit for IRAs remains the same at $6,000 with the catch-up contribution for individuals aged 50+ also remaining at $1,000.
There are slight increases for other retirement plans, as follows:
For 401(k), 403(b) and most 457 plans, plus the federal government’s Thrift Savings Plan, the limit is bumped up $500, from $19,000 to $19,500 annually. For individuals aged 50+, the catch-up contribution also goes up $500, from $6,000 to $6,500.
In addition, SIMPLE retirement accounts now have an increased contribution limit of $13,500, up $500 from the current $13,000.
Retirement plan account holders should also be aware of annual limitations and income phase-outs for defined contribution and defined benefit plans in the workplace.
There are new income ranges for determining eligibility to contribute to a Roth IRA and to claim the Saver’s Credit, which all increased for 2020. The income phase-out in 2020 for individuals contributing to a Roth IRA went up for singles, heads of households, and married couples filing jointly. Additionally, taxpayers may be able to deduct contributions from a Traditional IRA if they meet certain criteria. A list of those figures is available in IRS Notice 2019-59.
As always, this new information is strictly for one’s own knowledge, and we encourage individuals to consult their trusted advisors regarding their specific financial situations to determine what works best for them.
Boost your retirement savings with alternative assets
Whether you’re already in the real estate market, invest in precious metals, or are interested in putting private equity in your retirement plan, nontraditional investments are a powerful way to build a more diverse retirement portfolio that provides a hedge against stock market volatility. What many people don’t know is that there are many different types of accounts that can be self-directed to include those nontraditional investments within them. So, if you’ve reached your annual contribution limit on an employer sponsored plan, or an IRA with a brokerage firm, you can still open and fund an account with Next Generation through a transfer or a rollover. Our self-directed IRA specialists are happy to review your options with you.
The deadline to contribute to your retirement plan for the 2019 tax year* is April 15, 2020, but it’s always the right time to contact Next Generation to open your self-directed IRA. You can arrange a complimentary educational session if you have questions about self-direction as a retirement strategy. Alternatively, you can contact our helpful team of professionals directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com. You can always read more about the many options and benefits of self-direction on our FAQs page.
*Please visit our website for 2019 contribution limits.
Generation Y’s Guide to Saving for RetirementStack your pennies today for use tomorrow.
Generation Y (The Millenials), by broad definition, is comprised of those born in the 80s through early 2000s—and the very thought of retirement plan savings at our age can be daunting. Right off the bat, the same fears are dug up, time and time again; fear of money loss, fear of misdirection, pushing away tomorrow’s retirement in lieu of today’s excitement.
We’re a part of a generation that challenges the status quo and asks questions. We’re part of a generation that demands equality regardless of tenure. We’re also part of a generation that watched the economy drop out from beneath us. We’re a generation that cannot afford to ignore retirement planning.
So how can we move forward, and still balance fun spending with saving for our golden years? These easy tips will get you started on the road to investment.
A Little Goes a Long Way There are no rules that say you have to move a huge amount monthly, or per paycheck into savings. You can automate your payments per check—even if it’s just $25 per paycheck. Whatever you can manage is better than nothing. As for Next Generation Trust Services’ part, we expect to have incoming direct deposits functional during our first quarter, so that you can make your contributions with relative ease.
Pay Yourself First It’s easy to find yourself without any savings if you make it the last priority. It’s amazing what you can learn to do without (or not even notice is missing) if you put savings away first, instead of trying to put “extra” into savings.
Bank Your Bonuses Any extra earnings that flow your way, whether it’s a company bonus, a few bucks from a scratch-off, your tax refund or some unexpected birthday money—bank it. Even if you can’t put away all of it, put away half; you weren’t counting on it, so you won’t miss it.
Open a Roth IRA Tax free earnings is not just a buzzword, it’s a money saver, and the income limitation is over $100,000, so most people are eligible. Not to mention, that anything that you put in (out of pocket contributions) you can take back out without penalty or tax. Whereas it’s preferable to keep it in the plan where it makes tax free money, it’s truly an emergency fund.
Budget, Budget, Budget—Reward Plain and simple, if you want to save money, you have to spend less than you earn and there is no way to know that if you don’t track. Writing out a budget can seem like a major downer as you watch where your money actually goes, but by setting yourself budgeting goals, you can control your spending and reward yourself for a job well done. For example: Your weekly grocery budget is $80. If you come in under $70, you get a $5 splurge from the bakery. Total cost is still below budget; you save at least $5 and treat yourself at the same time. Win-win.
Take Advantage of Social Media Use Twitter, Facebook and LinkedIn to follow and like professionals that have done it all before. People are chock full of information for you; use the internet as the learning tool to get a grip on learning how to invest and find reliable information. You can follow @NextGenTrust on Twitter for tips and updates. OnlineSchools.com has a list of 100 Best Twitter Feeds for your Financial Intelligence, and there are plenty more resources for you out there.
These are just a few tips for the Boomer’s Babies on getting started in the financial world that seems to be filled with pitfalls and snags and mountains to climb—but what is life without a sense of adventure?
2010 Contribution Deadline Looms
2010 Contribution Deadline
As many of you know, the tax deadline and contribution deadline for 2010 has been extended until Monday, 4/18/11. As it is quickly approaching, it is imperative you make arrangements now if you wish to make an IRA contribution for 2010.
For our existing clients, those whose account has already been opened, we can accept contribution checks up until 4:00 PM on Monday, 4/18/11.
For those who have been considering opening an account, if we have your completed account documents and all required information as well as your contribution check before 2:00 PM on Friday, we can still get your account opened and process your contribution for 2010.
For all those looking to really jump start their investing, please note you may also make your contributions for 2011 as well as 2010.
As always, contact any of our staff members for questions at 888-857-8058.
To find forms to open an account:
Forms to make a contribution: