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Planning a Comfortable Retirement for Generation X – Pipe Dream or Possibility?

Date: June 5, 2013  Author: NGTgene Comments Off

Are Self-Directed Retirement Plans Right for Gen Xers?

self directed IRAs for Gen Xers

Younger baby boomers and the citizens of Generation X right behind have some serious planning to do for their retirement, and we aren’t talking about where to vacation. These people are still working and some of them will be working for several more decades. That’s a good thing in terms of saving for their retirement, as studies show they are woefully unprepared to finance their retirement years in the style they are now living.

Although all those of the baby boom generation were hurt by the Great Recession by losing a significant chunk of their retirement savings (about a quarter of assets), older baby boomers have had ample time to save for retirement (or so the theory goes), enjoyed many decades of favorable markets and growing assets, and many sold their homes at peak prices before the real estate market tumbled in 2008. Younger boomers have had less time to build up retirement savings and were hurt by the dot com meltdown and sagging stock market after 9/11 as well as the Great Recession of recent years.

But Gen Xers—those born between 1965 and 1975 to 1980 (depending on whose figures you use) has been hit very hard, having started their investment lives during economic downturns, near-record unemployment, and a busted housing bubble—just as they were establishing careers and starting their retirement plans. In many cases, they have also been establishing home ownership and starting families.

  • Gen X members lost approximately 45% of their retirement account values and also are carrying, as a group, more debt than their elders.
  • A Pew Research Center study revealed that people in their mid-30s are the least confident about their ability to finance their retirement.
  • Pew also found that households age 35-44 are now 44% poorer than their counterparts of the same age in 1984.
  • This age group also saw a 59% decline in median household net worth between 2005 and 2010, the largest drop of all age groups.

Yikes!

Attention Gen Xers: Take Control of Your Future through Self-Direction

Although there are many factors affecting household wealth that none of us can control—the world economy, our company’s benefits program, interest rates, etc.— there are factors we can control when it comes to saving for retirement. With a self-directed retirement plan, investors make all their own investment decisions and are not restricted to the stocks, bonds, and mutual funds of typical bank or brokerage accounts.

If you are someone who understands investing in alternative assets, a self-direction retirement plan could be right for you. There are myriad ways to build an eclectic retirement portfolio through self-direction: real estate, commodities, investing in startup companies, precious metals—the list goes on. You might even be investing in some of these nontraditional assets outside of your existing IRA, in which case you should take a look at how a self-directed IRA can boost your retirement savings by diversifying your portfolio—a lot.

If you are a member of Generation X you have time on your side to branch out and make a comfortable retirement a reality. Even baby boomers may consider opening a self-directed IRA—there are no age limits for these types of retirement accounts. You can roll over an existing 401(k) or open a SIMPLE or SEP IRA if you are self-employed. All the same types of retirement plans that you find through your broker are available as self-directed plans.

Click HERE to read more about the Pew Charitable Trusts findings on Gen Xers and their retirement savings.

Self-Directed IRAs

Date: April 17, 2011  Author: NextGenerationTrust Comments Off

WHAT YOU SHOULD KNOW ABOUT A SELF-DIRECTED IRA

For investors who are comfortable controlling their own retirement accounts — and those savvy investors who are already dealing in real estate or investing in certain instruments outside of their existing IRAs — there is an option that allows for more diversified, tax-advantaged portfolios than in traditional IRAs or 401(k) plans: the self-directed IRA.

What is a Self-Directed IRA?

A self-directed IRA is a nontraditional retirement account that allows individuals to invest in what they already know and understand… with alternative investment options not allowed within typical retirement plans. A self-directed IRA includes: What is a Self Directed IRA?

  • Real estate – residential and commercial properties, land, renovation or new construction, passive rental income
  • Mortgages and other loans
  • Private hedge funds
  • Precious metals
  • Limited partnerships
  • Commercial paper and notes
  • And many more

A broader selection of allowable investments in a self-directed IRA means informed consumers can develop a more eclectic portfolio that they control; the self-directed IRA allows them to respond to economic downturns or take advantage of opportunistic (and tax-advantaged) investments in a more nimble way than going through a conventional IRA custodian.

If you have had experience before with these kinds of investments outside of your retirement plan, a self-directed IRA could be a smart way to grow your savings more aggressively.

Who Should Open a Self-Directed IRA?

What is a Self Directed IRA?
If you are someone who understands certain markets and investments and perhaps is already investing in those as part of your retirement plan, consider applying what you know to this new investment strategy with a self-directed IRA.

People who open a self-directed IRA may:

  • Be an angel investor in a company
  • Purchase real estate or own rental property as an investment
  • Invest in certain commodities
  • Make unsecured personal loans to friends or certain relatives and earn tax-free interest on the loan

You can do all this within a self-directed IRA and enjoy the tax advantages of these plans.

Are you self-employed? You may open a self-directed SEP (simplified employee pension plan) IRA . Individuals can roll over the funds from a traditional IRA or an old 401(k) plan. You can even choose to keep your existing IRA account for stock and bond transactions and open a self-directed account for your other investments. And you can start with an initial investment of just a few thousand dollars.

The bottom line is you must want to make the investment decisions for your account or have a trusted advisor who’s knowledgeable about the options available for these accounts who will work with you.

How Do I Open a Self-Directed IRA?

Although you control your investment strategy, self-directed IRAs are administered by neutral third-party professionals, such as Next Generation Trust Services, who serve as custodians of the assets in these accounts. The custodians offer knowledge and insights to help you make informed decisions when you purchase, maintain, or sell your investments, and will ensure those transactions are properly expedited.
What is a Self Directed IRA?
Custodians of self-directed IRAs understand the special processes, documentation, and regulations these accounts are subject to, and handle all the necessary paperwork so that you invest safely and securely. When you open your account, ask about phone support for when questions arise and educational seminars for you and/or your advisor so that you receive the knowledge you need to control your self-directed IRA wisely.

RESOURCES LINKS

Roth IRA versus a traditional IRA

Date: April 15, 2011  Author: NextGenerationTrust Leave a comment

Roth IRA versus a traditional IRA New YorkNot sure which IRA is right for you and your family? Deciding the benefits of a Roth IRA versus a traditional IRA? Well, if you’re looking for answers that compare a Roth IRA versus a traditional IRA, you’ve come to the right place. Click here to learn “What is a traditional IRA?”

When comparing a Roth IRA versus a traditional IRA it’s important to understand that when money is first invested in a Roth IRA, it is federally taxed based on the tax bracket one currently inhabits. When money is taken out of the Roth IRA, however, funds up to the amount put into it are always federal-tax free, and often the entirety of the funds are free from federal taxes. That’s one of the biggest differences between a Roth IRA versus a traditional IRA – the funds are taxed going in but not when they are withdrawn. That’s why it’s important to consult with a retirement planning expert who can advise you the best tax implications for you based on your individual circumstances when considering the benefits of a Roth IRA versus a traditional IRA.

HOW DOES A ROTH IRA DIFFER FROM A TRADITIONAL IRA?

Roth IRA versus a traditional IRA New Jersey
A Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. It is an individual retirement arrangement. However, when comparing a Roth IRA versus a traditional IRA, it’s important to understand that a Roth IRA differs from traditional IRAs in that contributions are not deductible. For information on contributions and the limitations please refer to Chapter 2 of the Publication 590, Individual Retirement Arrangements.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. To be eligible to contribute to a Roth IRA versus a traditional IRA, you must meet IRS designated income limits, which are adjusted periodically. For more information on current Roth income limitations please visit the IRS website at www.irs.gov.

If you satisfy the IRS regulated requirements (which include a five year holding period), qualified distributions are tax free. Additionally, you may take tax free and penalty free distributions of basis (the amount you originally contributed) at any time. Contributions can be made to your Roth IRA after you reach age 70½, and you can leave amounts in your Roth IRA as long as you live, as the Roth IRA is not subject to the Required Minimum Distribution rule.

RESOURCES LINKS

Traditional IRA or Roth IRA

What is a Roth IRA?

Date: March 30, 2011  Author: NextGenerationTrust Leave a comment

When money is first invested in a Roth IRA, it is federally taxed based on the tax bracket one currently inhabits. When money is taken out of the Roth IRA, however, funds up to the amount put into it are always federal-tax free, and often the entirety of the funds are free from federal taxes.

Source: www.irs.gov

A Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. It is an individual retirement arrangement. However, it differs from traditional IRAs in that contributions are not deductible. For information on contributions and the limitations please refer to Chapter 2 of the Publication 590, Individual Retirement Arrangements.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.

Source: www.irs.gov

What is a SEP IRA ?

Date: March 30, 2011  Author: NextGenerationTrust Leave a comment

Source: IRS.gov

A SEP is a simplified employee pension plan. A SEP plan provides employers with a simplified method to make contributions toward their employees’ retirement and, if self-employed, their own retirement. Contributions are made directly to an Individual Retirement Account or Annuity (IRA) set up for each employee (a SEP-IRA). See Publication 560 for detailed SEP information for employers and employees.

Note: The IRS has a system of correction programs for sponsors of retirement plans, including SEPs, which are intended to satisfy Internal Revenue Code requirements but have not met the requirements for a period of time. This system, the Employee Plans Compliance Resolution System (EPCRS), permits employers to correct plan failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis.

How is a SEP established?

A SEP is established by adopting a SEP agreement and having eligible employees establish SEP-IRAs. There are three basic steps in setting up a SEP, all of which must be satisfied.

  • A formal written agreement must be executed. This written agreement may be satisfied by adopting an Internal Revenue Service (IRS) model SEP using Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement. A prototype SEP that was approved by the IRS may also be used. Approved prototype SEPs are offered by banks, insurance companies, and other qualified financial institutions. Finally, an individually designed SEP may be adopted.
  • Each eligible employee must be given certain information about the SEP. If the SEP was established using the Form 5305-SEP, the information must include a copy of the Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. If a prototype SEP or individually designed SEP was used, similar information must be provided.
  • A SEP-IRA must be set up for each eligible employee. SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. The SEP-IRA is owned and controlled by the employee and the employer sends the SEP contributions to the financial institution where the SEP-IRA is maintained.

What is a SIMPLE IRA?

Date: March 30, 2011  Author: NextGenerationTrust Leave a comment

Source: www.irs.gov

A SIMPLE IRA plan is a Savings Incentive Match PLan for Employees. Because this is a simplified plan, the administrative costs should be lower than for other, more complex plans. Under a SIMPLE IRA plan, employees and employers make contributions to traditional Individual Retirement Arrangements (IRAs) set up for employees (including self-employed individuals), subject to certain limits. It is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan.

Advantages:

  • Easy to set up and run – usually just a phone call to a financial institution gets things started.
  • Administrative costs are low.
  • Employees can contribute, on a tax-deferred basis, through convenient payroll deductions.
  • You can choose either to match the employee contributions of those who decide to participate or to contribute a fixed percentage of all eligible employees’ pay.

Under a SIMPLE IRA plan, you, the employer, make contributions to traditional IRAs (SIMPLE IRAs) set up for each of your eligible employees. In addition, this type of plan allows your employees to defer a part of their salaries into the plan for retirement. A SIMPLE IRA Plan is funded both by employer and employee contributions. Each employee is always 100% vested in (or, has ownership of) all money in his or her SIMPLE IRA.

How does a SIMPLE IRA plan work?

Example 1:

Elizabeth works for the Rockland Quarry Company, a small business with 50 employees. Rockland has decided to establish a SIMPLE IRA plan for its employees and will match its employees’ contributions dollar-for-dollar up to 3% of each employee’s salary. Under this option, if a Rockland employee does not contribute to his or her SIMPLE IRA, then that employee does not receive any matching employer contribution from Rockland.

Elizabeth has a yearly salary of $50,000 and decides to contribute 5% of her salary to her SIMPLE IRA. Elizabeth’s yearly contribution is $2,500 (5% of $50,000). The Rockland matching contribution is $1,500 (3% of $50,000). Therefore, the total contribution to Elizabeth’s SIMPLE IRA that year is $4,000 (her $2,500 contribution plus the $1,500 contribution from Rockland). The financial institution partnering with Rockland on the SIMPLE IRA plan has several investment choices and Elizabeth is free to pick and choose which ones suit her best.

Example 2:

Austin works for the Skidmore Tire Company, a small business with 75 employees. Skidmore has decided to establish a SIMPLE IRA plan for all its employees and will make a 2% nonelective contribution for each of its employees. Under this option, even if a Skidmore employee does not contribute to his or her SIMPLE IRA, that employee would still receive an employer contribution to his or her SIMPLE IRA equal to 2% of salary.

Austin has a yearly salary of $40,000 and has decided that this year, he simply cannot make a contribution to his SIMPLE IRA. Even though Austin does not make a contribution this year, Skidmore must make a contribution of $800 (2% of $40,000). The financial institution partnering with Skidmore on the SIMPLE IRA plan has several investment choices and Austin has the same investment options as the other plan participants.

Contact Us

If you have any questions or need any assistance at all please call us!

Next Generation Trust Services
75 Livingston Avenue, 3rd Floor
Roseland, NJ 07068

Info@NextGenerationTrust.com
Toll Free Number (888) 857-8058
Phone Number (973) 533-1880
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