What is a Self-Directed IRA?

A self-directed IRA is legally no different from any other IRA. The term “self-directed” simply indicates that you, the client, choose your IRA’s investments. Most brokerage houses and banks that offer “self-directed” IRAs limit clients to the scope of their own investment products. Non-Traditional Custodians do not need to impose the same restrictions. What this means for you is MORE CHOICES & MORE FLEXIBILITY for your retirement savings plan.

What can a Self-Directed IRA invest in?
The rules governing what an IRA CAN invest in are exclusive - not inclusive. That is, the rules only specify where you CANNOT invest. Therefore, there is a virtually unlimited array of possible investments that fall well within the permissible boundaries.

The IRS only defines the following assets as excluded (prohibited):
- Life insurance contracts (e.g., a life insurance policy on the life of the IRA owner);
- Collectibles (e.g., antique rugs, cars, stamps, furniture, etc.);
- Capital stock in an "S" corporation.

Examples of investments allowed (specialized assets) within self-directed IRAs
Self-directed IRAs offer you, the investor, tremendous flexibility in choosing investments for your retirement savings.

Investing in real estate through your self-directed IRA may be the key to turning those dreams into reality. While most self-directed custodians accommodate traditional investments such as mutual funds and stocks, specialized companies also allow clients to invest in all forms of real estate (e.g., raw land; rental properties; commercial properties; even real estate-related private entities, such as limited liability companies, that invest in real estate).
Additionally, investments called private placements, such as those associated with funding a startup company. Many people are shocked to learn that they can use the 401-k from a former employer to help start a new business.

Why hasn't the self-directed IRA business been publicized?
Because of their efficiency and profitability, traditional IRA providers control about 97% of the IRA industry. Their huge marketing budgets allow them to maintain a strong public presence, although recent guerilla marketing techniques through the national media are now giving much-needed exposure to the valuable self-directed service industry. The true self-directed industry has the remaining 3% - but rapidly growing - share of the IRA market.

Many feel that the cat has been let out of the bag for the IRA marketplace. The recent publicity surrounding possibilities within the self-directed industry has started a brush fire that will rapidly sweep across the U.S. A recent national publication suggested that all Americans should have 25% of their retirement savings in real estate. That would represent a growth of 1,150% over the current level of 2% of the $3.7 trillion in retirement savings that is currently in IRA assets. It is also estimated that overall, IRA assets will grow by as much as $2 trillion between 2004 and 2006 due to the retirement of the baby boomers. Clearly, the self-directed industry is on the rise. The time to join this growing movement is now.

For more information, please contact

Your Mortgage Planner - William Doom, CMPS.
www.MyEquityPro.com

The Pros and Cons Of Making A 401(k) Hardship Withdrawal

As household budgets get pinched and credit markets tighten, a growing number of Americans are making “hardship withdrawals” from their 401(k) plans.

One major fund group cites a 15 percent increase in activity from this time last year for various reasons including staving off foreclosure and medical emergency.

However, 401(k) loans should only be made with careful consideration.
On the positive side, 401(k) loans don’t require a credit check. This is helpful feature for people deep in debt, and who may have missed a payment or two to their creditors. With no credit score requirement, a poor payment history won’t disqualify a plan participant.
In addition, most 401(k) loans can be arranged with just a phone call and a small stack of paperwork. There’s no “qualification process” like applying for a credit card or a mortgage. Money can be available, therefore, in as little as a day.

But there are negatives to 401(k) loans and the biggest one relates to taxation.
If you take a 401(k) loan and can’t repay according to its terms, the IRS taxes the loan as ordinary income and slaps on a 10 percent penalty if you’re under 59 1/2. That can be very costly for a lot of people.

But, even if you do repay the loan on time, it’s still gets expensive. This is because 401(k) loan repayments are subject to double-taxation.

The first taxation occurs when the loan is repaid because the payback is made with post-tax paycheck dollars. A person in the 25% tax bracket, for example, would need a $1,333 paycheck to repay a $1,000 loan — the missing $333 goes to taxes. And the second taxation occurs at retirement when the funds are finally withdrawn. The IRS taxes that money as ordinary income.

Now, this isn’t to say that taking a loan against your 401(k) is bad, it just may not be the best possible route for a person in trouble. Especially because of the costs. If you’re planning to withdraw from your 401(k) for hardship, be sure to talk with a qualified financial professional first.

If you’d like a referral to a trusted professional, call or email me anytime.