America Saves Week is Feb. 22-26. Are you Saving Enough for Retirement?
America Saves Week is an annual event, and a call for Americans to commit to saving successfully—as individuals and families, for reducing debt and for retirement, to have something for emergencies, and to create the habit of saving automatically. According to its website, America Saves encourages us all to set goals and make a plan to achieve better financial stability. The week’s daily focus changes; yesterday, Wednesday, February 24th was “save to retire.” We like that!
It’s no secret that most Americans need better overall financial habits, especially when it comes to saving for retirement. Between the Great Recession and the COVID-19 pandemic, it’s been tough for many people to stay on track (or get back on it) with their retirement savings. Moreover, the pandemic has led to many people retiring before they had planned to do so, for various reasons. However, there’s an interesting flip side to this issue: for some retirees or those nearing retirement, they are opting to work longer, even part-time, because they find working remotely to be a viable option or they are waiting for more of the economy to rebound. With nowhere to go, they might as well still work.
Whether you aren’t on Medicare yet and can still contribute to an HSA (which you can use later on for non-medical expenses without penalty), or you’re still contributing to your workplace retirement plan or your IRA, America Saves Week is the perfect time to educate yourself about wealth building..
Investing those funds through a self-directed IRA could get you to your retirement goals sooner.
Saving and Investing with a Self-Directed IRA
Self-directed retirement plans come in all types, with the same tax advantages as their traditional counterparts. However, unlike typical retirement plans, you are not limited to stocks, bonds, and mutual funds when you self-direct your investments. Instead, you can include a wide range of alternative assets—ones you may already be investing in outside of your existing retirement plan—and build a more diverse portfolio based on what you know and understand.
You can self-direct a Traditional or Roth IRA, a SEP IRA or SIMPLE IRA – as well as a health savings account or education savings account. If you are a small-business owner or sole proprietor with no common law employees, you may also open a Solo 401(k).
When you self-direct your investments, you can include alternative assets such as real estate, private equity, precious metals, notes/loans, impact investments, cryptocurrency (and more) and take advantage of diverse investment opportunities. As with all self-directed investing, you as the investor conduct your full due diligence on the alternative assets you wish to include, all income and expenses related to the assets flow through the retirement plan, and you must avoid prohibited transactions.
As you may know, the SECURE Act has made it possible for you to continue contributing to a Traditional IRA after you’ve retired, as long as you have earned income (similar to a Roth IRA). To continue contributing to a Roth IRA, you must also meet certain income criteria as set by the IRS. That is good news when it comes to saving for retirement.
Here’s more good news: the professionals at Next Generation are here to help you understand the many options and benefits of self-direction as a retirement wealth-building strategy. You may schedule a complimentary education session to get answers to your questions and learn more about getting started—whether you’re many years away from retiring, in your mid-level career, or wish to change the way you’ve been investing your retirement savings. You can also contact the Next Generation team by phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
Show Your Retirement Portfolio Some Love this Year
Whether you’ll be staring adoringly into your partner’s eyes on Valentine’s Day or celebrating with a Galentine’s/Malentine’s Day get-together with friends, February is the month of love and friendship—and your retirement plan also deserves some special attention.
The first way to give your retirement plan a loving boost is to open a self-directed IRA. Why a self-directed plan? Two words: alternative assets. And those non-publicly traded, alternative assets provide you with many ways to diversify your retirement portfolio with an array of investments you may already be “engaged” with outside of a retirement plan. In most IRAs held with a brokerage, those alternative investment options are not always available to you. Hence, the self-directed IRA.
Sure, you may love playing the stock market and enjoy the thrill ride of that roller coaster by way of its volatility. However, as a self-directed investor there’s no reason to limit your investing to stocks, bonds and mutual funds. In fact, most advisors may actually encourage diversification and alternative investing to allow you added control over your investment returns while providing a hedge against that volatility. Investment options include real estate, private equity, notes and loans, social causes, cryptocurrency, precious metals and more.
What do you already love?
Think about the investments you already know and understand—the ones you already love investing in, like real estate, precious metals, or private equity. As explained before, the list of possible investments through self-direction is long and enables individuals to take advantage of market opportunities and apply what they know to their tax-advantaged retirement account. For example:
- If you’re already doing fix & flip real estate investing, you can do so through your self-directed IRA.
- A friend is starting up a company and needs angel investors; your self-directed retirement plan can make that early-stage investment.
- You enjoy investing in energy-related assets like oil and gas; you can do so through your self-directed retirement plan.
Many types of retirement plans can be self-directed—a Traditional or Roth IRA, SIMPLE or SEP IRA, or solo 401(k), even health savings accounts (HSAs) and education savings accounts (ESAs). Depending on your goals and situation, you have plenty of options in terms of the type of plan to open. That flexibility may come in handy when you do retire and want a combination of tax-free and tax-deferred income, for example, or if you are self-employed or own a small business with employees.
Here’s more to love: opening a new self-directed IRA is easy and you can fund the new account the same way as you would any other plan—with a transfer from a like account, a rollover, or a personal contribution. At Next Generation, we simplify the process with our electronic starter kits that walk you through every step from opening the account through sending your instructions to our transaction specialists. As a third-party administrator and custodian of self-directed IRAs and other plans, we will review and execute investment transactions, custody asset(s) for our clients, provide recordkeeping and complete all necessary tax reporting.
If you are comfortable making your own investment decisions and conducting your full due diligence on the investments you wish to include, we invite you to learn more about this retirement strategy by scheduling a complimentary education session with one of our knowledgeable representatives. You may also contact our team directly via phone at 888-857-8058 or via email at NewAccounts@NextGenerationTrust.com.
What’s Your Retirement Planning Strategy?
If you’re a younger worker, it’s easy to think you have your whole life ahead of you to plan for retirement. And if you are nearing retirement, you may think you’ve got it covered through your employer’s retirement plan or other means. But with so much uncertainty swirling around us right now and with the cost of living rising, a proactive approach to your retirement planning strategy is always wise.
Plan ahead to be less dependent on Social Security or someone else’s bank account. Many older adults may feel that Social Security benefits will keep them financially secure or their adult children will help them out. But with real concerns about the Social Security Trust Fund’s sustainability and Generations X and Y facing their own savings issues, there are no givens. Besides, Social Security was meant to be a supplement to retirement income, not a main source of income.
Plan ahead for how (or if) the sale of your home will fund your lifestyle. Those who own a home may feel confident about living off the proceeds of the home’s sale, especially if the house is paid off already—but a lingering mortgage cuts into proceeds, capital gains may be a factor to consider, and if you’re thinking of moving into a retirement community, the rents can be quite high.
Plan ahead for possible early retirement. The pandemic has wreaked havoc on employers nationwide. Businesses are closing or tightening their financial belts in response to market conditions; extended furloughs may become permanent, and this may motivate some people to consider an early retirement.
Plan ahead for a smaller pension plan. Part of the corporate belt tightening has been the steady disappearance of traditional pension plans. Plus, many pension plans are in distress and may have to reduce distribution levels due to various factors such as poor ROI on investments, lower participant rates, and economic factors brought on by COVID-19.
Plan ahead for “I’m that old already?!” When getting our careers in gear, many of us think we have “forever” to get started on saving for retirement. Then suddenly, 20 years have passed and that time horizon for putting money away is much shorter.
Plan ahead for retirement through self-direction
Self-directed retirement plans offer an alternative strategy to traditional investing, by including non-traditional assets that brokerage accounts do not allow. For seasoned investors who are comfortable making their own investment decisions and are confident about conducting their own full due diligence on those investments, a self-directed IRA can be a great way to build retirement income with a powerful hedge against stock market volatility. Self-directed IRAs also allow for retirement portfolio diversification and greater control over your investment returns.
If you have an employer-sponsored plan, it is likely limited to stocks, bonds and mutual funds that are susceptible to the ups and downs of the market. You may also have an IRA (or brokerage account) that offers a “self-directed” option; however, it is not truly self-directed. The true definition of a self-directed IRA is a tax-advantaged retirement account that allows you to invest in non-publicly traded assets. These non-publicly traded assets, also known as alternative assets, can include real estate, private equity, social/impact investments, cryptocurrency, notes/loans, and more.
As a custodian and administrator for these self-directed retirement plans, the team at Next Generation is here to help. You can schedule a complimentary educational session to learn more about self-direction; or you may contact the Next Generation team directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
It’s a New Year – Do You Have a New Outlook on Your Retirement?
The new year often brings promises and resolutions to create new habits, get back to something we enjoy, or try something new. Why not apply the “new year, new you” mindset to your retirement planning as well?
Do any of these scenarios sound like you?
- You’ve been inattentive in the past when it came to contributing to your retirement plan on a regular basis. Now you might be falling behind on your retirement savings goals.
- As a younger millennial, you’ve been thinking you don’t need to open an IRA yet, but you have some cash sitting in a 401(k) from a previous employer.
- You are semi-retired and are looking around for a side gig to stay busy, but you don’t need the money for living expenses.
- You enjoy investing in alternative assets outside of your existing retirement plan and are curious about how you could make those nontraditional investments through a tax-advantaged retirement account.
Get a new plan for your retirement in the new year with a self-directed IRA
Self-directed investors are those who are comfortable making their own investment decisions (that’s where the “self-directed” part comes into play), and who are knowledgeable about (and often experienced in) investing in various alternative assets. For example, you:
- Already invest in real estate (residential, commercial, industrial, raw land, etc.)
- Understand how to make a secured or unsecured loan with interest and terms
- Are involved in private equity funding
- Trade in agricultural or energy commodities
- Buy and sell cryptocurrency
- Are passionate about investing in social causes
The list goes on and is as diverse as the investors who self-directed their retirement plans.
Open a new self-directed IRA at Next Generation
Whether you’re just starting out with your self-directed IRA or have one that needs some catchup contributions, Next Generation is here to help. As a self-directed retirement plan custodian and administrator, we work with investors who wish to include alternative assets in their self-directed IRAs. Our clients understand that this strategy enables them to diversify their retirement portfolios with investments they already know and understand, while also providing a hedge against stock market volatility and the same tax advantages as regular retirement plans.
The turn of the calendar page is a great time to consider opening a new self-directed retirement account and start putting your investing expertise to work through a tax-advantaged plan. We offer client education through webinars, on our blog, and complimentary education sessions to help you evaluate if self-direction is the right direction for your retirement goals. If you have a specific question or want to know more, you may also contact the Next Generation team by phone at 888.857.8058 or by email at NewAccounts@NextGenerationTrust.com.
Retirement Plan Contribution Limits for 2021
The IRS has announced 2021 contribution limits in its Notice 2020-79, which covers various types of retirement plans, including workplace retirement plans and individual retirement arrangements (IRAs). These figures apply to regular and self-directed retirement plans. The deadline to contribute to your retirement plan for the 2020 tax year is April 15, 2021.
Contribution limits remain the same. Note that once again, there is no change for Traditional and Roth IRA contribution limits, which remain at $6,000 per account holder per year. Note that taxpayers may be limited in their contribution limits to a Roth IRA, or be prohibited from contributing at all, based on modified adjusted gross income (for single filers and/or those filing jointly), as detailed by the IRS.
Catch-up contributions—the additional retirement plan contributions allowed for taxpayers ages 50 and over–will also remain unchanged:
- For IRAs (Traditional, Roth) – $1,000
- For SIMPLE IRA and SIMPLE 401(k) plans – $3,000
- For 401(k), 403(b), and 457(b) plans – $6,500
Deductibility phase-outs. Depending on income levels and types of retirement plans, taxpayers may be eligible to take a yearly tax deduction for the money they contribute to an IRA each year (this does not apply to a Roth IRA, which is treated differently for tax purposes), but there are criteria for this. Contributions to a SEP or SIMPLE IRA are also deductible but you should consult your tax professional for guidance about those.
For taxpayers who participate in employer retirement plans, there is an IRA deductibility phase-out based on modified adjusted gross income (MAGI); for 2021 this will rise slightly in each category as follows:
- Single taxpayers – $66,000 to $76,000 (up from $65,000 to $75,000)
- Married joint filing taxpayers – $105,000 to $125,000 (was $104,000 to $124,000)
- Married with a spouse who is an active participant in employer plan – $198,000 to $208,000 (formerly $196,000 to $206,000)
Roth IRA eligibility ranges will increase. Because Roth IRA contributions are made on an after-tax basis, the rules are different in terms of eligibility to contribute, based on MAGI:
- For determining the maximum contribution for married joint filers, the phase-out range will be $198,000 to $208,000 (up from $196,000 to $206,000).
- For determining the maximum contribution for single filers and heads-of-households, the phase-out range rises to $125,000 to $140,000 (up from $124,000 to $139,000)
Employer-sponsored plans. Most but not all workplace retirement plans will not see a change in annual additions, deferral limits, and other criteria. For example, defined contribution plan additions increase to $58,000 (up $1,000 from 2020) but there is no change for defined benefit pension plans. Certain income thresholds will go up. Your employer plan administrator should have that information available to you.
Potential tax credits. Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a special income tax credit, referred to as the “saver’s credit.” Depending on modified adjusted gross income, it could be 10, 20, or 50 percent of the amount contributed, and differs for joint filers, heads of households, and singles.
Potential retirement wealth boosters—self-directed IRAs
Whether you’ve already contributed your maximum allowed amount for 2020 or you are still making contributions to your retirement plan, you can boost your retirement savings with a self-directed IRA. Whether Traditional or Roth, SEP or SIMPLE, self-directed retirement plans put you in control of your investments by allowing you to include a broad range of alternative assets in your account. For individuals who are comfortable making all their own investment decisions, are able to conduct full due diligence about nontraditional investments, and want to create a hedge against stock market volatility, a self-directed IRA can be a powerful tool to build a more diverse retirement portfolio.
Read more about the many options and benefits of self-direction on our FAQs page. If you have questions about this retirement strategy, you can arrange a complimentary educational session; or contact our team directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.
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.
Has the Pandemic Affected Your Retirement Confidence?
The Transamerica Center for Retirement Studies issued its 20th annual survey of retirees last month, titled “Retirees and Retirement Amid COVID-19.” The report focuses on financial stability and readiness in retirement amid the pandemic. Findings are based on a survey done in November/December 2019 and again in June 2020; it polled people 50+ years of age who consider themselves fully or semi-retired, and who worked for a for-profit company for the majority of their careers.
The study reported that among those retirees surveyed:
- The majority (76%) stated their confidence in being able to maintain a comfortable lifestyle has not been altered by the pandemic. Among that group, 29% are “very confident” and 47% are “somewhat confident.”
- A smaller group, 15%, cited a decline in confidence in light of COVID-19 while 4% reported increased confidence in financial stability.
- Social Security will be/is the primary source of income for 69% of respondents, but 40% have other savings and investments (such as checking and savings accounts, retirement plans, credit cards).
- Approximately 35% of retirees said they expect income streams from IRAs and workplace retirement plans with another 30% of retirees saying they have company-funded pension plans.
However, eating into the financial security for nearly half of those surveyed is household debt (student loans, car loans, credit cards, medical bills) and nearly a quarter of respondents are paying off mortgages.
Even though many retirees are not feeling shaken financially by COVID-19’s economic ramifications, Transamerica noted that relatively few were “very confident” before the pandemic. The study concluded that many retirees are in danger of outliving their financial resources or lack income to cover healthcare expenses or pay for long-term care. Another sobering revelation: the lack of a financial strategy for retirement. Of those who said they have a plan (58%), only 18% have it in writing. That leaves 42% without a financial strategy amid the pandemic.
Self-directed retirement plans—an effective financial strategy at any time
Self-directed IRAs are ideal for investors who are confident in making all of their own investment decisions, and those who may already be investing in alternative assets outside of a retirement plan. Whether you are in your early- or mid-career phase, nearing retirement, or already retired, you have the option to use the many different nontraditional investments allowed through self-direction to build retirement wealth.
Self-directed IRAs enable investors to include a wide range of non-publicly traded alternative assets that typical plans do not allow, such as real estate, private equity, social causes, precious metals, secured and unsecured loans, and many more. In short, while the pandemic and politics can create instability in the stock market, self-directed IRAs provide a valuable hedge against that volatility, with a more diverse retirement portfolio and better control on investment returns.
If you’re thinking of diversifying the investments in your retirement plan, are comfortable conducting your own due diligence and research about those investments, Next Generation has the tools you need to get started. Please considering registering for a complimentary educational session. Alternatively, you may also contact our team directly via phone at 888.857.8058 or email at 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.
Could Your IRA Use More Love Next Year Due to the Pandemic?
In late July, Republican senators introduced legislation that would allow people to make catch-up contributions to their IRA, 401(k) and similar retirement accounts in 2021 and 2022, should they be unable to make full contributions this year. The bill, called the “Addressing Missed-savings Opportunities for Retirement due to an Epidemic Act” (AMORE Act) was introduced by Senators Ted Cruz, Thom Tillis, David Perdue, and Kelly Loeffler. It is designed to help individuals facing financial challenges resulting from COVID-19.
Usually, catch-up contributions are for workers age 50+ who wish to contribute more than the standard limit to their qualified retirement account; for 2020, the standard Traditional/Roth IRA contribution limit is $6,000 a year and the catch-up limit for individuals aged 55 and older is $7,000. However, with millions of Americans unexpectedly unemployed or working at reduced hours and/or wages due to the COVID-19 pandemic, the AMORE Act recognizes the challenges in maintaining their retirement savings goals.
The legislation will allow Americans with IRAs and other qualified retirement plans to catch up on their savings as the economy—and their financial situation—recover. Individuals would be allowed to make the catch-up contributions in 2021 and 2022 equal to the difference between their actual contributions for 2020 and current federal limits on these accounts.
For example, Judy is 45 years old and has contributed $5,000 so far to her IRA this year; she won’t be able to contribute any more in 2020 due to being furloughed. However, under the AMORE Act, she would be able to make a catch-up contribution in 2021 and 2022 for any unused contribution in 2020 – in Judy’s case, an additional $1,000.
Here’s another way to catch up: self-direct your IRA
Self-directed investors—that is, individuals with a self-directed IRA—have the ability to include many nontraditional investments within their retirement plans, such as real estate, private equity, notes/loans, social causes, and more. Self-direction provides a hedge against stock market volatility, allows individuals to diversify their retirement portfolios, and gives way for better control over their earnings – which could be seen as another form of a “catch up.”
These types of accounts are ideal for investors who already know and understand alternative assets and might already be investing in them outside of their existing retirement plan. Self-directed IRAs come with the same tax advantages as their regular counterparts, so investors can grow their retirement savings either tax-deferred or tax-free, depending on the type of plan.
If you’d like to learn more about self-direction and its benefits, we encourage you to schedule a complimentary educational session with one of our knowledgeable representatives. Alternatively, you can contact our team directly for answers to your questions about self-direction as a retirement strategy. You can reach us via phone at 888.857.8058 or via email to NewAccounts@NextGenerationTrust.com.