Oct 26

Here’s What You Need to Know About the 2018 IRA Contribution Limits

Last week, the IRS announced the new limits for retirement plans for 2018.  Here’s what you need to know about your IRA Contributions –

2018 IRA (including Self-Directed IRAs) Contribution Limit – Limits remain the same as 2017.  For individuals under age 50, the limit is $5,500.  For those 50 and older, you can make an additional $1,000 catch-up contribution, bringing the total limit to $6,500.

Here's What You Need to Know About the 2018 IRA Contribution Limits2018 Deductible IRA Phase-outs – If you participate in en employer-sponsored plan (such as a 401(k) plan), there are income restrictions for a deduction.  If you are single or head-of-household, you can get a full deduction if your adjusted gross income (AGI) is $63,000 or less.  It phases out until an AGI of $73,000.  An AGI above that means you cannot deduct your IRA contribution for the year.  If you are married filing jointly, you receive a full deduction if your AGI is $101,000 or less.  This phases out until an AGI of $121,000.  If you are married filing jointly and your spouse participates in an employer’s plan, the phase-out starts at $189,000 and you are not eligible for a deduction if your AGI is above $199,000.

2018 Roth IRA (including Self-Directed Roth IRAs) Contribution Limit – Again, these are the same as last year (and the same amount as traditional plans).  $5,500 if you are under age 50 and $6,500 if you are age 50+.

2018 Roth IRA Income Limits – You may only contribute directly to a Roth IRA if you are below the income limits.  If you are single or head-of-household, you may make a full contribution if your AGI is less than $120,000.  Your contribution limit phases out until $135,000, in which you may not contribute to a Roth directly.  If you are married filing jointly, an AGI of less than $189,000 allows for a full contribution.  This amount phases out until it reaches $199,000.

Note: You must have earned income in the year(s) in which you wish to contribute to an IRA.  The amount you may contribute is the lesser of the annual limit or your earned income for the year.

SEP IRA – Contribution limit increases $1,000 to $55,000 for 2018.

SIMPLE IRA – The limit remains the same as 2017 at $12,500 with a $3,000 catch-up for those age 50 and up.

For more information about the IRA Contribution limits, please contact us @ 800.472.0646.

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May 30

How Does a Small Business Owner Set Up a SEP IRA?

A SEP, or Simplified Employee Pension, 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.

How Does a Small Business Owner Set Up a SEP IRA?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.

Please contact one of our IRA Experts at 800-472-0646 for more information.

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Apr 23

Retirement And Educational Savings Tax Planning Tips To Lower Taxes In 2017

Here’s another article written by Adam Bergman for Forbes.com

Now that the tax filing deadline has passed for the 2016 tax year, this is a perfect time to start thinking about some simple ways to boost retirement savings and at the same time lower overall tax liability for 2017.

Start Thinking IRA: For 2017, the maximum IRA contribution is $5,500, or $6,500 if you are over the age of fifty. Contributions can generally be made in pre-tax, after-tax, or Roth.  A pre-tax IRA, also known as a traditional IRA, is one of the more popular ways to save for retirement that also offers tax advantages. Contributions made to a traditional IRA may be fully or partially deductible, depending on your circumstances, and, generally, amounts in a traditional IRA (including earnings and gains) are not taxed until distributed, which is not required until one reaches the age of 70 1/2.

Retirement And Educational Savings Tax Planning Tips To Lower Taxes In 2017An after-tax IRA, also known as a non-deductible IRA, is a traditional IRA that contains nondeductible contributions. Nondeductible contributions to traditional IRAs often occur when one makes too much to make a deductible contribution, or is limited because of employer 401(k) plan contributions. When one takes a distribution from an after-tax IRA, the portion of the distribution coming from nondeductible contributions is tax-free, although, any income and earnings generated from that after-tax contribution would be subject to tax, and a 10% early distribution penalty if the individual is under the age of 59 1/2.

A Roth IRA is an improved version of the after-tax nondeductible IRA.  Although one does not benefit from a tax deduction for contributions, all of the qualified distributions, including earnings, come out tax-free. To contribute to a Roth IRA, ones modified adjusted gross income must fall below the annual limits for your filing status (which is $196,000 if filing jointly for 2017). One can withdraw contributions any time, but must be 59 1/2 years old and you must have had a Roth IRA open for at least five tax years before one can withdraw income and gains without tax or penalty.

Business Owners Rejoice:  Owning a business in 2017 can have some significant retirement tax benefits, if one is aware of them. The scope of the benefits is somewhat dependent on whether the business has full-time employees other than the owners.  For example, a sole proprietor or a business entity with no full-time employees, may be eligible to contribute up to $54,000 ($60,000 if the participant is over the age of fifty), to a solo 401(k) plan in pre-tax, after-tax or Roth.  Whereas, if the business has non-owner full-time employees, the business owner’s total contribution may be limited due to the cost of offering maximum employer profit sharing contributions to all employees.  Nevertheless, business owners should consult with their tax advisor to examine how establishing an employer retirement plan, such as a 401(k) plan, SEP or SIMPLE IRA for their business could potentially help their retirement savings, as well as reduce their annual tax liability.

Get to Know the 529 Plan.  A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code. Nearly every state now has at least one 529 plan available, but the plan characteristics may differ by state.   529 plans are usually categorized as either prepaid or savings plans. In general, the tax advantages of establishing and funding a 529 plan is that earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board. Contributions to a 529 plan, however, are not deductible. One may make a contribution of $14,000 a year or less to a 529 plan qualifies for the annual federal gift tax exclusion. Under special rules unique to 529 plans, one can gift a lump sum of up to $70,000 ($140,000 for joint gifts) and avoid federal gift tax, provided one makes an election to spread the gift evenly over five years Thus, establishing and funding a 529 plan may will not offer you an immediate tax deduction, but it will allow you to help your children afford college by having the contributions and earnings grow without tax over time, thereby, potentially allowing one to spend their retirement savings on other expenses.

HSA Triple Tax Benefit: IRC Section 223 allows individuals who are covered by a compatible health plan, often referred to as a High Deductible Health Plan (HDHP), to set aside funds on a tax-free basis up to the contribution limit to pay for certain out-of-pocket medical expenses. Health Savings Accounts have a triple tax benefit—funds go into the account tax-free, funds grow tax-free and remain completely tax-free when used for eligible medical expenses.  The IRS imposes certain requirements in order to be eligible to contribute to an HSA, such as one cannot be covered by Medicare.  The maximum 2017 contribution is $6750 for families, with a $1000 catch-up for individuals over the age of fifty-five.

Planning and saving for retirement does not have to be painful.  Understanding the rules and employing a consistent approach can help increase retirement savings while simultaneously reducing ones tax liability. However, a few simple retirement planning moves can help make the difference when April 17, 2018 rolls around.

For more information, please contact an IRA Expert @ 800.472.0646.

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Mar 30

Do You Have to File a Form with the IRS if You Received Distributions from Your Roth IRA?

Yes. In general, File Form 8606 if you received distributions from a Roth IRA.
Use Form 8606, Nondeductible IRAs, to report:

Do You Have to File a Form with the IRS if You Received Distributions from Your Roth IRA?

  • Nondeductible contributions you made to traditional IRAs,
  • Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs,
  • Distributions from Roth IRAs, and
  • Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs.

Please contact one of our Roth IRA Experts at 800-472-0646 for more information.

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Mar 23

Tax Filing Tips To Save On Taxes And Boost IRA Savings

The following was written by Adam Bergman and first appeared on Forbes.com

With the individual tax-filing deadline date of April 18, 2017 for the 2016 taxable year quickly approaching, reviewing some of the ways one can save taxes as well as boost his or her retirement savings is always helpful.  Below are a few ways one can use the IRA contribution regime to help save taxes as well as enhance one’s retirement nest egg.

Tax Filing Tips To Save On Taxes And Boost IRA Savings

Still Time to Make IRA Contributions for 2016: The maximum IRA contribution is $5500 or $6500 if over the age of fifty and will remain the same for 2017 contributions. The deadline for making IRA or Roth IRA contributions for 2016 is April 18, 2017.  The contribution must be made by such date even if the taxpayer has filed an extension.  Contributions can be made in pre-tax, after-tax or Roth, if applicable.

Don’t Forget About Spousal IRA Contributions: Many married taxpayers are not aware that if one spouse is not working and the other spouse has earned sufficient income, the working spouse can make IRA contributions for the nonworking spouse.  In general, a nonworking spouse can make a deductible IRA contribution of up to $5,500 for 2016 ($6,500 if age 50 or older as of 12/31/16) as long as the couple files a joint return, and the working spouse has earned income that equals are exceeds the sum of the nonworking spouse’s contribution plus the working spouse’s contribution. However, if the working spouse is covered by a qualified retirement plan (via a job or self-employment), the deductibility of the nonworking spouse’s contribution is subject to phase-out based on joint adjusted gross income.

Be Aware of the Savers Tax Credit: Low- and moderate-income taxpayers are incentivized to save for retirement by becoming eligible to claim the saver’s credit, which can be worth up to $2,000 for individuals and $4,000 for couples. People age 18 and older who are not full-time students or dependents on someone else’s tax return can claim this tax credit until their adjusted gross income exceeds $62,000 for couples in 2016.

Not Too Late for Employer SEP IRA Contributions.  For sole proprietors or small business owners looking to make more substantial IRA contributions than $5500 or $6500, if over the age of 50, the SEP IRA could be your answer.  For 2016, an employer can make contributions to a SEP IRA up to the lessor of 25% (20% if sole proprietor or single member LLC) of the employee’s compensation or $53,000.  The limit increases to $54,000 for 2017.  SEP IRA contributions for the 2016 taxable year can be made by April 18, 2017 or up until the date of the tax filing extension date, if applicable.

Contributing to a pre-tax IRA or qualified retirement plan, such as a 401(k), can prove to be a great way of saving for retirement while at the same time reducing ones tax liability.  The IRA contribution regime was designed by Congress to incentivize Americans to save for retirement by granting a tax-deduction for the pre-tax IRA contribution as well as offering the ability to defer taxes on any IRA income/gains until a future date.  The good news is that there is still plenty of time for taxpayers to take advantage of these benefits.

For more information about IRA contributions, please contact us @ 800.472.0646.

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Jan 20

Understanding Your Options When Inheriting An IRA From A Non-Spouse

This article, written by our own Adam Bergman, appeared on Forbes.com

Unfortunately, the Internal Revenue Service (“IRS”) does not allow you to keep retirement funds in your account indefinitely. The required minimum distribution rules (“RMD”) were created in order to guarantee the flow of IRA funds into the federal income tax system as well as to encourage IRA owners to use their retirement funds during their retirement.

One generally has to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when reaching the age 70½ or as the beneficiary recipient of an inherited IRA. Of interest, Roth IRAs do not require withdrawals until after the death of the owner.

There are a number of distribution options available to a designated IRA beneficiary, generally dependent on whether the deceased IRA owner’s sole primary beneficiary is a spouse, and whether the deceased IRA owner has reach 70 1/2, the age for RMDs. Remember, a living IRA owner is not required to take an RMD until the IRA owner reaches the age of 70 1/2.

If an IRA holders dies and designates a non-spouse, such as a parent, child, sibling, friend, etc. as the primary beneficiary of his or her IRA, the non-spouse beneficiary will typically only have two options for taking RMDs with respect to the inherited IRA: (i) the life expectancy rule and (ii) the five-year rule.

Understanding Your Options When Inheriting An IRA From A Non-SpouseThe IRS allows a non-spouse beneficiary to use the life expectancy rules to calculate the IRA required distributions after the deceased IRA holder’s death. The IRA distributions must begin to be taken no later than December 31 of the year after the death of the deceased IRA holder’s death. There are no additional opportunities for delaying IRA distributions for non-spouse beneficiaries. If distributions are made under the life expectancy rule to a designated beneficiary non-spouse, the applicable distribution period for the calendar year immediately after the year of the IRA owner’s death is the beneficiary’s remaining life expectancy as of his or her birthday during that year and the applicable period is reduced by one for each subsequent distribution calendar year. Unlike in the case of a spouse beneficiary, which is required to use the life expectancy of the deceased IRA owner for purposes of calculating the annual RMD amount, a non-spouse beneficiary is required to use his or her life expectancy when calculating the annual required distribution amounts. For example, if Jane is designated as sole beneficiary of an IRA of her mother, who died during 2015, her first distribution calendar year is 2016. If Jane turned 60 years old during that year, the applicable distribution period would be based on the life expectancy of a 60-year-old. Conversely, the non-spouse beneficiary has the option to select a five-year distribution rule, which would required the non-spouse beneficiary to take the entire amount of the inherited IRA as a distribution over a five year period. Of note, a non-spouse IRA beneficiary does not have the option to convert the traditional inherited IRA to a Roth IRA.

The IRA custodian (the financial institution) is required to submit reports to the IRS and to the IRA owner regarding RMDs. If an RMD is required to be taken from an IRA for a calendar year and the IRA owner is alive at the beginning of the year, the IRA custodian that held the IRA as of December 31 of the prior year must provide a statement to the IRA owner to report the due date of the RMD and, in most cases, the amount that is due. The IRA custodian is required to send this report to the IRA owner by January 31 of the year for which the RMD is required.

The RMD rules and options for a non-spouse beneficiary can bring to bear some financial and tax implications.  Therefore, it is important that one consults a tax professional or financial advisor for further guidance.

For more information about options when inheriting an IRA, please contact an IRA Expert @ 800.472.0646.

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Oct 14

IRA Financial Group Proud To Offer Self-Directed SEP IRA with No Transaction fees or Account Value Fees

Checkbook control self-directed SEP IRA is an open architecture trustee directed retirement plan for the self-employed and 2015 Contribution Deadline is October 15, 2016

IRA Financial Group, the leading provider of self-directed IRA and Solo 401(k) plans, is proud to offer one of the nation’s only self-directed SEP IRA plans that does not include any transaction fees or account value fees. With IRA Financial Group’ self-directed SEP IRA plan, one will have checkbook control over the plan assets and will be able to make traditional as well as alternative asset investments, such as areal estate from a local bank. Unlike a Solo 401(k) where contributions have to be made by April 15, one can make SEP IRA contributions for the 2015 taxable year up until October 17, 2016. “The self-directed SEP IRA is a great retirement plan that allows one to make high annual contributions of up to $53,000 up to October 17, 2016 and make traditional as well as alternative assets, such as real estate”, stated Adam Bergman, a partner with the IRA Financial Group.

 IRA Financial Group Proud To Offer Self-Directed SEP IRA with No Transaction fees or Account Value FeesA SEP is a simplified employee pension plan. Any employer can establish a SEP. An employer can maintain both a SEP and another plan. Annual contributions an employer makes to an employee’s SEP-IRA cannot exceed the lesser of (i) 25% of compensation, or $53,000 for 2016. However, special rules apply when figuring out the maximum deductible contribution for a self-employed individual (typically 20% of compensation). With a Self-Directed SEP IRA LLC, one will be able to invest in almost any type of investment opportunity that you discover, including: real estate (rentals, foreclosures, raw land, tax liens etc.), private businesses, precious metals, hard money & peer to peer lending as well as stock and mutual funds; you’re only limit is your imagination. The income and gains from these investments will flow back into your SEP IRA tax-free. “With IRA Financial Group’s self-directed SEP IRA, there are no transaction and asset value fees when buying real estate or other alternative asset investments,” stated Mr. Bergman.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the leading provider of self-directed IRA and Solo 401(k) plan. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate and private business investments without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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Jul 29

The Self-Directed SEP IRA

A Self-Directed IRA is a type of IRA structure that allows the IRA holder (you) to have more control over your retirement funds. Unknown to some, not all Self-Directed IRAs are the same. It is well known that the IRS allows you to use your IRA to make traditional investments, such as stocks and mutual funds. It is not as well known that the IRS also allows you to use IRA funds to make investments such as real estate, precious metals, tax liens, private business and much more tax-free and penalty free!

The SEP IRA in a Nutshell

A Simplified Employee Pension (SEP) plan provides business owners with a simplified method to contribute toward their employees’ retirement, as well as their own retirement savings. A SEP is essentially an employer-sponsored profit-sharing plan. Contributions are made to a retirement account or annuity set up for each plan participant.

A SEP IRA account is a traditional IRA and follows the same investment, distribution, and rollover rules as traditional IRAs. Employees must be included in the SEP plan if they have

  • attained age twenty-one,
  • received at least $550 in compensation from your business for the year, and
  • worked for your business for at least three of the past five years.

The three-of-five eligibility rule means you must include any employee in your plan who has worked for you in any three of the past five years as long as the employee has satisfied the other plan eligibility requirements. This is the most restrictive eligibility requirement allowable. You can choose to use less restrictive participation rules in your plan, such as allowing employees to participate immediately after they start work or after a shorter period of employment. If you use the three-of-five rule, you must count any work, no matter how little, in each of the prior five years. Use plan years (often the calendar year), not years based on the date the employee started working for you.

The contributions you make to each employee’s SEP IRA each year cannot exceed the lesser of

  • 25 percent of compensation; or
  • $53,000 for 2015.

There are no catch-up contributions for a SEP IRA as there are for a 401(k) plan. These limits apply to contributions you make for your employees to all defined contribution plans, which includes SEPs. Up to $265,000 in 2015 of an employee’s compensation may be considered. Also, contributions must be made in cash, and you cannot contribute property.

Types of Self-Directed SEP IRA Accounts

There are essentially three types of Self-Directed SEP IRAs:

1. Financial Institution Offered Self-Directed SEP IRA

The most popular Self-Directed SEP IRA account offered is the financial institution Self-Directed SEP IRA. The reason that this type of Self-Directed SEP IRA is so popular is because it is generally offered by the major financial institutions, such as Bank of America, Wells Fargo, Fidelity, Vanguard, etc. With this type of Self-Directed SEP IRA, the SEP IRA holder is generally able to only make SEP IRA investments offered by the financial institution which typically only includes financial related investments, such as stocks, mutual funds, and ETFs. Even though these types of IRA accounts are called “Self-Directed IRA” accounts that are very limited in their investment scope and do not allow IRA investors to make any non-traditional investments, such as real estate.

Why do the financial institutions limit the investment options available?

A financial institution that offers IRA accounts is not required to offer its IRA investors with the opportunity to make all allowable types of IRA investments. For example, even though real estate is an IRS approved investment, an IRA custodian is not required or obligated to offer that investment option. Accordingly, most financial institutions offering SEP IRA accounts will restrict the SEP IRA investment option to financial products offered by the financial institution. The reason behind this is quite clear – a financial institution earns fees from the sale of financial products, not by allowing its clients to pull money out of the IRA account to buy real estate from a third-party.

2. Custodian Controlled Self-Directed SEP IRA

IRA Financial Trust Company offers Self-Directed SEP IRA investors full IRA custodial services for traditional and alternative asset investments, such as real estate. All IRA funds will be held with Northern Trust, an FDIC insured global banking leader for over 125 years, before the client directs the funds for investment.

Until a 1996 court case, the custodian controlled Self-Directed SEP IRA was the only way one was able to use IRA funds to make a non-traditional investment, such as real estate. In essence, with a custodian controlled Self-Directed SEP IRA, every step a SEP IRA holder wanted to make had to be carried out through a custodian, such as IRA Financial Trust Company. In other words, the SEP IRA holder directs the IRA custodian, IRA Financial Trust, to make the investment directly. All transaction related activity, such as paying expenses or depositing checks, must be paid by the IRA custodian.

3. “Checkbook Control” Self-Directed SEP IRA LLC

IRA Financial Trust is proud to offer Checkbook IRA custodial services along with its full service IRA administration services, all for one low price without any transaction or asset valuation fees. IRA Trust Company is one of the few full-service IRA custodians who specialize in establishing Checkbook Control IRA LLC accounts.

IRA Financial Trust Company is a regulated, non-banking financial institution that is made up of retirement tax specialists committed to helping you make Self-Directed retirement investments quickly while minimizing annual fees. IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law form in the world, including White & Case LLP and Dewey and LeBoeuf LLP and have helped over 12000 clients self-direct their retirement funds through their ownership in the IRA Financial Group LLC. Our experience working with Checkbook Control IRA LLC structures is unmatched in the industry.

In the 1996 case of Swanson vs. Commissioner, 106 T.C. 76 (1996), the tax court gave its blessing to a new type of Self-Directed IRA structure — the Self-Directed SEP IRA LLC also known as the Checkbook SEP IRA— that is much simpler than investing through a regular custodial controlled Self-Directed IRA account.

The Self-Directed SEP IRAWith a “Checkbook Control” Self-Directed SEP IRA, the SEP IRA holder (you) will have total control over your SEP IRA funds. You will no longer have to get each investment approved by the IRA custodian of your account like in a custodian controlled Self-Directed SEP IRA. Instead, with IRA Financial Trust Company’s Checkbook Control SEP IRA account, all decisions are truly yours. When you find an investment that you want to make with your SEP IRA funds, simply write a check or wire the funds straight from your Self-Directed SEP IRA LLC bank account to make the investment.

Under the Checkbook SEP IRA format, the Checkbook Control SEP IRA is set up as a Self-Directed account with IRA Financial Trust that’s capitalized by funds rolled over from your current retirement account. The funds are deposited with Northern Trust who serves as IRA Financial Trust Company’s banking partner. Then, a Limited Liability Company (“LLC”) is created in which your new SEP IRA purchases all the membership units/interests. Now, your money is held in an LLC and you are ready to invest at your discretion. A “Checkbook Control” Self-Directed SEP IRA allows you to eliminate the delays, IRA custodian transaction fees, and IRA account annual valuation fees, enabling you to act quickly when the right investment opportunity presents itself.

With a Self-Directed SEP IRA, when you find an investment that you want to make with your SEP IRA funds, simply write a check or wire the funds straight from your Self-Directed SEP IRA LLC bank account to make the investment. The Self-Directed SEP IRA allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

IRA Financial Trust offers one low, flat fee IRA Custodian fee without any transaction fees and annual account valuation fees. We believe that Self-Directed SEP IRA investing should be affordable and simple. IRA Financial Trust is committed to helping all our clients build their retirement wealth through Self-Directed IRA investments without the high costs and complexities.

To learn more about what type of Self-Directed SEP IRA account will best suit your retirement and investment needs, please contact a Self-Directed retirement expert at 1-800-472-1043.

May 17

Selecting a Great IRA

Here’s another great article from usnews.com about selecting an IRA:

Outside of saving for retirement through employer plans, which include pensions, 401(k)s, 403(b)s and 457 plans, individual retirement accounts are your most effective tax-advantaged savings tool. These accounts were created in 1974, and designed to allow individuals who do not have access to pensions to save for retirement.

IRAs started out simple. You could contribute up to 15 percent of your pay (or a maximum of $1,500 per year), receive a deduction on your tax return and allow the account to grow without incurring annual taxes. Then, when you pulled money out of the account in the future, you would pay ordinary income tax on the withdrawals.

But a lot has changed with IRAs. Since the 1970s, the IRA has evolved in complexity, and deciding which version is the best fit for your retirement savings plan has become more complex. Here’s a guide to the different IRAs, and how to maximize their benefits.

Traditional IRA. As the name implies, the traditional IRA is the most similar to the original design. Depending on your income, you may qualify for a tax deduction. For 2016, if you are covered under a workplace retirement plan, the deduction phases out for couples whose modified adjusted gross income is between $98,000 and $118,000 ($61,000 to $71,000 for individuals). If you are not covered, but your spouse is, the income limit increases to $184,000 to $194,000 in 2016.

Planning opportunity. IRAs can be used by people who don’t have a workplace retirement account or individuals who have maxed out all their other tax-advantaged savings opportunities. Traditional IRAs can also be used by individuals hoping to fund Roth IRAs, even though their income exceeds the Roth contribution limits, via a Roth conversion strategy.

Limits. The current funding limit for a traditional IRA is $5,500 for those under 50 and $6,500 for people age 50 and over.

Rollover IRA. The average baby boomer held nearly 12 jobs by age 50, according to the Bureau of Labor Statistics. This means you are likely to participate in quite a few retirement accounts at various employers. A rollover IRA is a traditional IRA that is used to consolidate old retirement accounts.

Planning opportunity. Not all retirement plans are created equally. You may have left assets in an old employer plan that has high fees, expensive funds and limited investment options. Once you have a separation in service you can take those assets and invest them with a low cost IRA provider. It also makes your financial life easier to consolidate accounts.

Inherited IRA. If you are the beneficiary of an IRA and not the spouse of the deceased person, you will need to open an inherited IRA. This allows the assets of the person who died to pass to you while maintaining their tax-advantaged status. Inherited IRAs operate differently than regular IRAs, and the passing of the assets usually triggers (or continues) the processing of required minimum distributions.

Planning opportunity. These IRAs provide the opportunity to stretch out the benefit of tax deferred growth since required minimum distributions can now be based upon the life expectancy of the beneficiary rather than that of the deceased. It may be beneficial to seek professional guidance from either a financial advisor or accountant to make sure the required distributions are correctly processed moving forward.

Roth IRA. The Roth IRA came about in 1997. Rather than getting a tax deduction on your current return, contributions made to a Roth IRA go in after-tax. But the account grows tax-deferred, just like a traditional IRA. And, assuming certain requirements are met – you must be age 59 1/2 and have an account that is at least 5 years old – the money can be withdrawn tax free.

Planning opportunity. Roth IRAs are a tremendous saving opportunity for younger individuals and individuals in low tax brackets. If you feel you will be in a higher tax bracket in retirement than you are now, growing Roth assets is likely to be a smart strategy. Roth IRAs are not subject to required minimum distributions, which can provide for additional tax savings and estate planning opportunities later in life.

Limits. The current funding limits for a Roth IRA are $5,500 for those under 50 and $6,500 for those 50 and over. The ability to contribute to Roth IRAs phases out for single tax filers with a modified adjusted gross income of $117,000 to $132,000 and married filers with between $184,000 and $194,000 in 2016.

Honorable Mentions:

SEP IRA. A simplified employee pension IRA is an employer-sponsored plan that can be set up for businesses of any size, including sole-proprietors, partnerships or companies with a number of employees. All contributions to the plan are made by the employer. These plans usually make the most sense for self-employed business owners.

SIMPLE IRA. A savings incentive match plan for employees is an employer-sponsored retirement plan that allows both employees and employers to contribute on the employee’s behalf. This plan is most suitable for small businesses with fewer than 100 employees. The current limit an employee may contribute through salary deferral contributions is $12,500 for those under 50 years old and $15,500 for those over 50.

Coverdell education savings account. This is a tax-advantaged plan that can be established for individuals under age 18 that allows parents to save for qualified primary and secondary education expenses. The maximum amount that can be contributed to an ESA is $2,000 per year. You can’t deduct contributions to a Coverdell ESA on you tax return, but the money grows without taxation until you withdraw it and is tax-free when used to pay for qualifying education costs. There are two benefits that Coverdell ESAs offer over 529 college savings plans: ESAs can be used for private kindergarten through grade 12 education, and they have less restricted investment opportunities.

Retirement savers have many types of IRAs to choose from. Understanding the benefits each type of IRA provides allows you to select the retirement account that will help you to best reach your financial goals.

If you have any questions or are looking to open an IRA, please contact an IRA Expert at the IRA Financial Group @ 800.472.0646.

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Feb 02

How Do You Set up a SEP IRA?

A Simplified Employee Pension, or 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.

How Do You Set up a SEP IRA?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.

Please contact one of our IRA Experts at 800-472-0646 for more information.

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