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“Save your money. You’re going to need twice as much money in your old age as you think.” — Michael Caine

If you’re self-employed and trying to boost your retirement savings, Solo 401(k) plans are a potential option.

Solo 401(k) plans are qualified retirement plans for self-employed professionals and business owners with no employees other than a spouse. These plans have gained popularity because of investor-friendly features and higher contribution limits than traditional retirement accounts.

The biggest limitation on a Solo 401(k) plan is its eligibility criteria. You must have some sort of partial or full-time self-employment, and you can’t have any full-time employees — except your spouse — working in the business. Having such eligibility criteria rules it out for business owners with employees.

Solo 401k for Business Owners: What are the plan benefits?

For an owner-only business, it presents an option for ensuring your savings are sufficient to fund your retirement years.

Is a Solo 401(k) is right for you? Here are four reasons to consider Solo 401k for business owners.

1. High contribution limits

Unlike individual retirement accounts, which limit contributions to $5,500 (or $6,500 for those age 50 and older), you can contribute up to $54,000 to a Solo 401(k) account in 2017 ($60,000 for 50 and older).

Related article:  How to achieve financial independence with your small business

2. More investment options

Relying on the stock market for retirement, as many retirement plans do, may not sit well with investors who prefer to have more flexibility and freedom to choose different types of investments. With a specific kind of Solo 401(k) called a self-directed Solo 401(k), you can invest in alternative assets including real estate, tax deeds, tax liens, mortgage notes, private equity, personal lending, precious metals and even regular stock-bond investments. Make sure to ask your Solo 401(k) provider about the availability of these investment options upfront.

3. Roth, minus the income limits

According to the current IRS regulations, if you’re a single filer earning more than $132,000 in a calendar year, you’re not eligible for Roth IRA contributions. The phasing out starts at $117,000, limiting your options for after-tax contributions. A Roth Solo 401(k), which doesn’t have income limits, allows you to make annual after-tax contributions of up to $18,000, or $24,000 if you’re over 50, giving your money an opportunity to grow tax-free.

Related article:  How to choose a self-directed retirement plan for your future?

4. Ability to borrow

The IRS allows borrowing from a Solo 401(k) plan, just as it allows borrowing from 401(k) plans. This means no one can turn you down and you can spend the money the way you want. Just make sure you follow IRS rules about repayment to avoid taxes and penalties. And loans from a Solo 401(k) hold one advantage over loans from a regular 401(k). With a 401(k), if you leave your current employment, the loan will become due in full. That kind of job change is not a factor with a Solo 401(k) loan.

This article was originally published on NerdWallet.com

“The beauty of diversification is it's about as close as you can get to a free lunch in investing.” Barry Ritholtz

How do you feel about staking your entire future on the stock market? Risky, right! Who would do that? Surprisingly enough, a lot of investors are putting their money in the stock market directly or indirectly. If you rather invested in bonds to minimize the risk, you’re unlikely to gain the returns necessary to fund your retirement. That along with the changing federal interest rates makes bonds an unattractive investment option. So, how do you invest for retirement while minimizing your risk and still pocketing handsome returns? Investing in alternative assets with a self-directed IRA is an option to look into.

Why invest in alternative assets?

The alternative investment strategies have helped smart investors gain competitive returns over the years. Here are some reasons to add them to your portfolio:

• True diversification & security: Investing in alternative assets allows you to achieve true diversification. You can minimize your risk profile by choosing different alternative asset classes. Real estate, precious metals, mortgage notes, tax liens, private equity, and real estate investment trusts (REITs).
• Competitive returns: Unlike security bonds, you can earn better returns by investing in alternative assets. If you’re a realtor, imagine the sort of returns you can achieve by using your expertise and industry knowledge.

For an average investor, investing in alternative assets might pose some challenges, especially in choosing assets classes that can achieve your retirement goals. It’s best to seek professional help and make sound financial decisions.

What is a self-directed IRA?

Since you are investing for retirement, you’ll require a retirement tool that can invest in alternative assets with minimal custodial red tape around it.

Self-directed IRA comes into picture.

A self-directed IRA is a retirement solution that offers investment discretion/control to the plan owner. Depending upon your plan custodian, you can access most of the asset classes discussed above. Some of the popular self-directed retirement options include self-directed IRAs, Solo 401k plans, and 401k plans.

What are your investment options through a self-directed IRA?

• Real estate: The IRS allows real estate investing within retirement accounts. The trick is that it is not mandatory for financial institutions to offer it as an asset class. However, with a self-directed IRA, you can invest in real estate starting with residential, commercial, and third-party real estate LLC investments
• Private equity: If you have experience in business, you can use your retirement accounts to purchase private equity. While it is an exciting proposition, make sure to test the basics of the company and take professional advice.
• Mortgage notes/tax liens: If you’re looking for passive growth/returns, mortgage notes, and tax liens are the perfect additions to your portfolio. You don’t have to fret about property maintenance and utility bills.
• Precious metals: Gold and most of the precious metals are cyclical. They allow investors to hedge their investments against inflation, stock market movements and any financial fiasco.
• Stock, bonds, mutual funds: Self-directed IRAs allow you to put your money in traditional investment options, including stocks, bonds, and mutual funds. With a self-directed IRA, you as the account owner can initiate transactions without going through custodians. This also minimizes transaction costs and fees. In order to retire with sufficient money, create a balanced portfolio and restructure it routinely.

Who should choose self-directed retirement accounts?

The financial goals of every individual vary and so does their investing strategies. If you have a limited understanding of the investment realm, you may want to use a professional’s help. A self-directed IRA is good for you if you are:

• Ready to take control of your retirement account.
• Tired of having brokers handle your money.
• Wanting to diversify your investments
• Tired of paying high custodian fees and transaction costs.

It is your retirement at stake, so take your time and make the right choice!

Among the available retirement options, Solo 401(k) plans are worth considering, due to their relatively high contribution limits, flexible investments and the ability to make after-tax Roth contributions.

Here are some reasons self-employed business owners should consider Solo 401(k) plans.

Higher limits

Because the self-employed professional wears the dual hat of the employer as well as the employee of the business, the contribution limits for a Solo 401(k) include both employee deferral (up to $18,000 annually, plus up to $6,000 in catch-up contributions for those over 50) and profit-sharing employer contributions (up to 25% of business income, depending upon the structure or type of business).

Combining these two, the Solo 401(k) limits for 2016 are $53,000, plus a $6,000 catch-up contribution for professionals 50 or older for a total of $59,000.

Under an alternative retirement savings plan for business owners, the Simplified Employee Pension (SEP) IRA, the contributions are limited to the lesser of 25% of the business income or $53,000 for 2016. The absence of elective salary deferrals or catch-up contributions restricts the overall contribution limits of a SEP-IRA when compared with a Solo 401(k) plan.

Here’s an example of how the Solo 401(k) leads to higher limits: Let’s say you had a business income of $100,000. With a Solo 401(k), you can make profit-sharing contributions of up to $25,000 along with employee-deferral contributions of $18,000, totaling $43,000. On the other hand, a SEP-IRA would allow you to make only a profit-sharing contribution of $25,000, hence limiting retirement savings.

Alternative investment options

A self-directed Solo 401(k) retirement plan offers alternative investments, including real estate, tax liens, tax deeds, mortgage notes, private equity, personal lending, precious metals, and the traditional stock or bond investments. These alternative investments help you diversify your portfolio while achieving competitive returns.

However, these investment vehicles and alternatives require an understanding of their core operating principles. Make sure to educate yourself before investing in them and, if necessary, get an expert opinion.

Tax-deferred growth

Like all 401(k) plans, with a Solo 401(k) plan your retirement savings enjoy tax-deferred growth. Thanks to compound interest and the steady rise of equities over time, this should be a solid investment. Compound interest is one of the key factors that decide the size of your retirement fund. In the purported words of Albert Einstein, “The strongest force in the universe is compound interest.”

Roth savings option

You can opt for the Roth feature in your self-directed Solo 401(k) retirement plan, which allows you to diversify your tax strategy with after-tax investments that will not be taxed when you withdraw your funds in retirement.

And unlike the regular Roth IRA, there are no income phaseout limits in a Roth Solo 401(k) plan. Under a Roth IRA, a single filer over 50 making less than $117,000 can contribute up to $6,500 in 2016 ($5,500 under 50), but as the salary grows, eligible contributions decrease proportionately. If you make $132,000 or more, you will be ineligible to contribute to a Roth IRA in 2016. A Roth Solo 401(k) has no such phaseout.

Last chance to set up a Solo 401k for 2016

If you want to benefit from the higher contribution limits of a Solo 401(k) plan in 2016, set up your retirement plan before Dec. 31, 2016. You can make actual contributions for 2016 until the regular tax-filing deadline, but an account has to be set up before the year’s end.

This article was originally published on NerdWallet.com

“It’s not how much money you make that makes you rich, it’s how you spend it.” —Charles Jaffe

With a little bit of research, you will find out that the same piece of wisdom has been coined time and again by several financial experts. While there are multiple factors that define as well as affect your financial wellness, we are going to target the most inescapable one – Taxation. When taken at its face value, taxation may appear as inevitable as possible or in the words of Benjamin Franklin, “In this world, nothing can be said to be certain, except death and taxes.”

However, there are some legitimate ways to lower your taxable income, and put that money to work for your future. If you are an owner-only business or highly paid self-employed professional, these strategies could uplift your financial health drastically.

Self-directed Solo 401 k

Solo 401k retirement plans have gathered a huge following over the past couple of years and rightly so. When used efficiently, it could help you increase your retirement savings by up to ten times of the regular IRA contributions.

Self-directed Solo 401 k: What is it?

It is a qualified retirement plan for owner-only businesses and self-employed professionals.

What do you need to know about it?

Contribution limits: Up to $59,000 in 2016 (including catch-up contributions of $6,000 for individuals above 50 years old).

Investment options: Real estate, tax liens, tax deeds, precious metals, private equity, personal financing, and stock/bond investments.

Participant loan: Flexibility to borrow up to 50% of the account balance to a maximum borrowing limit of $50,000.

Four Ways to Cut Your Taxable Income With a Self-Directed Solo 401 k

1. Ten Times Higher Annual Contributions

With an annual contribution limit of up to $59,000, a Solo 401k retirement plan surpasses regular IRA contributions several times. Further, it comprises of two different contribution types, including salary deferral and profit-sharing contributions, allowing you to achieve maximum contributions quickly.

Salary deferral contribution allows you to contribute up to $18,000 in 2016 along with a catch-up contribution of $6,000 for professionals above 50 years.

Profit-sharing contribution allows you to contribute 20 to 25% of your business income to the plan. The total salary deferral and profit sharing contributions are up to $59,000.

2. Deferred Taxation on Capital Gains

Much like its other counterparts, a self-directed Solo 401 k enjoys deferred taxation, allowing your investments to maximize compounding interests. Considering the vast majority of investment options available under self-directed Solo 401k plans, you can boost your wealth generating potential.

The key is to make sure that your Solo 401k provider offers alternative investments. When you invest with a retirement plan, always target long-term gains over short-term growth.

3. Power of Roth Contributions

High-income professionals are often deprived of Roth saving options in regular IRAs but not in a Solo 401k plan. For self-employed professionals, a Roth Solo 401k plan allows after-tax contributions regardless of the income levels. You can contribute up to $24,000 towards your Roth Solo 401k in 2016.

One of the key benefits of establishing a Roth Solo 401k is its ability to offer tax-free earnings. That’s right; all the compound interest generated by your investments goes directly into your account. There are no taxes on qualified withdrawals

4. Purchase Real Estate Under Solo 401k Plan and Forget Rental Income Taxation

If you are a big fan of real estate investing, a Solo 401k plan could introduce you to an entirely new level of profits/returns. Here’s what you need to do.

Purchase a rental property with a positive cash flow through your self-directed Solo 401 k. It’s entirely the same process apart from the fact that your retirement plan will hold the title of the property and all the expenses/profits will go directly from/to the plan.

By doing so, you’ve created an effective income stream, while saving taxes on the rental income. Make sure to:

• Only use a non-recourse loan for the purchase if needed.
• Pay maintenance cost from the plan only.
• Direct rental income to the plan.

In conclusion, we can positively say that a self-directed Solo 401 k allows you to unlock multiple asset options along with a tax-deferred growth of your investments. It is one of the best ways to create a retirement plan that outlasts you.

Image: https://pixabay.com/en/euro-money-finance-piggy-bank-save-870756

Recently, surveys show that there is a growing demand for upscale rental apartments. This presents a potential opportunity for real estate investors all over the country. Plan holders of Solo 401k accounts can also capitalize on this latest real estate trend, as it is also an opportunity to invest and grow their retirement funds.

Latest study shows that young professionals nowadays prefer renting to buying their homes. The reason is that credit market is now tightened and it is harder to qualify for a home loan. The shifting job market and the likelihood of changes in personal life such as marriage and divorce are also reasons for which young people are more hesitant to commit to a property purchase. Plus, upscale rental apartments can offer high-end amenities, such as a swimming pool or a gym. If a young professional were to buy her first home, it would be unlikely that she would be able to afford a property with such luxury.

Because of this growing trend, investors are now looking at this demand as a great investment opportunity. This demand can be capitalized by plan holders of Solo 401k accounts as well. A Solo 401k account, also known as an Individual 401k, is allowed to invest in real estate, including rental apartment buildings.

Investing in real estate with a Solo 401k, plan holders will enjoy many benefits over other retirement plan. The first benefit is the high Solo 401k contribution limit, which allows account holders to stash away up to $52,000 per year as of 2014. Plan holders who are over 50 years old can also make an additional catch-up contribution of $5,500 per year. The total annual limit for this group is $57,500. Since account holders can contribute more into this tax-deferred account, they can gather enough funds faster to invest in real estate.

If account holders do not have enough money in their retirement account even with the high contribution limit, they will still have other financing options. Unlike a traditional IRA account, a Solo 401k is allowed to use non-recourse financing for real estate purchases. If an IRA account obtains financing for their purchases, it will trigger an Unrelated Business Income Tax (UBIT). This doesn’t apply to a Solo 401k, however, and account holders can certainly leverage their investment. This is definitely a powerful advantage for upscale rental properties, which requires intensive capital up front.

Investing in rental properties is a good way to create steady passive income. The return is also more predictable, especially after the lease is signed. Not only that, with the introduction of the Solo 401k plan, now investors can use rental properties to diversify their retirement portfolio and capture the opportunities presented by this newest trend.

Americans seem to push back their retirement further and further, and sometimes not by choice. Especially for self employed small business owners and independent contractors, many dedicated all their wealth and effort to grow their business. At the end of the day, however, people still need to figure out a way to be able to retire. Self employment retirement plans and rental income can be a viable solution.

What are self employment retirement plans?

Self employment retirement plans, or often called Solo 401k plans, are created for self employed individuals. Unlike traditional retirement plans, a Solo 401k allows investments in assets other than stocks and bonds. That means rental properties, among many other options, are allowed.

Rental properties to provide income during retirement

Plan owners of self employment retirement plans can certainly look at rental properties as an income source during their retirement. Rental income is also known as a source of passive income, which means investors do not have to keep working on the investment to generate profit. This allows them to earn income when retired.

This long term investment offers good passive income that can also guard against inflation. As landlord, you can adjust the rent every year to overcome inflation rate.

To ensure a good return, here are a few things to look for in rental properties:

- Location: As true with properties, a good neighborhood will attract more buyers and renters. As a retirement investment, however, it is also wise to choose a place closer to where you live. This way, managing and maintaining the property is not too much of a hassle.

-Size and build: Decide if you would like to start with a single family home, a duplex, or larger. The size and layout of the properties need to fit with your needs. Also try to invest in newer houses, to avoid high repairing and maintaining cost and hassle.

How to finance a rental property

Start contributing to the self employment retirement plans as soon as possible. By doing so, you can take advantage of the high Solo 401k contribution limit, enjoy tax-deferred benefits, and to save up funds to finance the rental properties. Even if you don’t have enough in the Solo 401k account or do not want to pay cash up front, there are financing options available. With an IRA, the use of financing to fund a real estate purchase could trigger Unrelated Business Income Tax (UBIT). A Solo 401k, however, allows the use of non-recourse financing, tax-free.

Real estate investors are often drawn to this market by its earning potentials and security. Many investors have successfully built their wealth upon real estate, one property after another. But what about their retirement funds? Many investors assume that retirement funds can only be invested in stock and mutual funds, and they leave it all to their custodian to manage the portfolio. This, however, is not necessarily true, as now innovative retirement solutions such as Solo 401k Plans can help real estate investors take charge of their future.

Is real estate a wise choice for retirement funds?

Most real estate investors are in for the long haul, not expecting to cash out until years later. This actually makes real estate a perfect fit for retirement planning, which often holds investment for years until account holders make withdrawals. Many investors choose to add properties to their portfolio. With these, they can collect rental payments as a steady return, while waiting for the value to appreciate over the years.

Investors who prefer fast return can also attain that with real estate investments, by engaging in house flipping. In this case, investors would purchase a property, remodel it, and sell for a profit. It involves more risk and more effort from the investor, but can potentially generate much larger returns.

The biggest advantage of adding a property to any investment portfolio is its security. Investors can always recover their initial investment by selling the property itself, so they are less likely to lose everything.

Solo 401k Plans Allow Real Estate Investment

As much as real estate professionals know about the industry, why do they still have nothing but stocks and funds in their retirement accounts? The answer is simple: not a lot of people know that retirement plans can hold other assets.

For some traditional retirement plans, it is true that investment choices are limited. However, there are innovative solutions, such as Solo 401k plans, that allow virtually any legally available investment. Plan participants can invest in real estate, including commercial and residential properties, trust deeds and notes. The plan allows high contribution limit and self-directed option, giving plan participants even more control.

Self-directed Solo 401k plans give full control to plan participants as they can now act as the trustee of their accounts and make all the investment decisions. In order to succeed however, investors need to have a good understanding of the investments they choose.

For real estate investors, obviously, real estate is the best investment choices, as the account holders have the knowledge and experience required. In these cases, adding real estate to a retirement portfolio can potentially secure and grow the portfolio more effectively. 

What is a Self Directed Individual Retirement Account and Why Should You as a REO Professional Care?

First, you need to know what an individual retirement account is before you can truly appreciate what a self directed individual retirement account is.

Per the Internal Revenue Service, you basically have two types of individual retirement accounts. Those are Traditional IRA or Roth IRA.

A Traditional IRA is just a way for you to save money for retirement with tax advantages. Some of those advantages are tax deductions for contributions and the fact that generally speaking, you aren’t taxed on those earnings and gains till the money is distributed. For more information on IRA, please visit the IRS website here: http://www.irs.gov/Retirement-Plans/Traditional-IRAs

A Roth IRA is a IRA with a few exceptions. Some of those are…..

1. You can’t deduct contributions to a Roth IRA

2. You can contribute to your Roth IRA after age 70

3. You can leave amounts in your Roth IRA as long as you live

My list of exceptions above is not a complete list. For a complete list of exceptions, visit the IRS website link here: http://www.irs.gov/Retirement-Plans/Roth-IRAs

Now, the biggest single difference between a IRA and a SDIRA or Self Directed IRA is the fact that a IRA is set up with a bank, life insurance company, mutual fund or stock broker whereas with a SDIRA, they are set up with a Trustee. This difference is very important for you to understand because, this difference goes t the very nature of what makes a SDIRA so different than a IRA.

You see, with a Traditional IRA or Roth IRA, the bank or organization you set it up with manages the money for you. Your bank will have different funds that you can pick from and those funds have all kinds of disclosures, prospectus and degree of expectations on performance. Sure, no investment is ever 100% safe and anytime you invest, you really should know your risk however, my point is, you aren’t doing any leg work. The bank you set up your IRA is doing everything for you and all you had to do was pick the fund to put your money in. This is where a SDIRA is different.

As I said before, with a SDIRA, you set up your account with a Trustee. This Trustee is nothing more than a place to hold your money. They do not offer you investment advice and they don’t make investments on your behalf. They aren’t going to send you a list of funds you can choose from….because they don’t have any. You aren’t going to get a prospectus telling you what to expect when you invest because, they have nothing for you to invest directly in. Think of the Trustee as a holding house for your money. That is really all they are. There purpose is to be a middle man between you and your retirement money. The reason they exist is to provide transparency, accountability and to enforce regulations over your money.

Finally, with a SDIRA, you don’t make money unless you get out there and invest it. Like I said, the Trustee is nothing more than a holding house, they don’t make investment on your behalf so, if you don’t get out there and find opportunities to invest in, your money will not make gains, it won’t grow. This is the attraction for many because it gives the owner of the money much more control of what gets invested in and likewise, the possibility for much greater gains……with much greater risk.

For many who decide to get a SDIRA, the typically already have substantial experience in one of the areas of allowed investments. For example, I am a Realtor and I have access to many different tools and substantial experience that allows me to assess value on real property pretty accurately. I can use my tools and experience to invest my SDIRA funds into real estate. That’s right, real estate is just one of the many SDIRA investment options. As a Realtor, naturally I would be drawn to invest my retirement in real estate that will create gains and grow my retirement funds, using my own knowledge and experience. The reason I do this is because, I realized I can use my expertise in my career field and create gains for my retirement much more substantially than some bank, insurance company, mutual fund or stock broker every could.

Granted, some people don’t have any experience in one of the approved investment areas however, those people partner with experienced investors in the field of interest they want to invest in. For example, maybe the only experience you have in real estate is buying and selling your own home however, you would like to invest in real estate. What you would need to do is find a real estate investor who has a proven track record of success and let them teach you. Maybe you know a Realtor who has a proven track record of success that would be happy to get out there and find you money making opportunities to invest in? My point is, just because you may not have experience in a particular investment opportunity, don’t let good opportunities pass you by. You can always find the expertise you need, just stand up and look around.

Finally, it’s important to know that I am not an Investment Advisor, Attorney or Tax Professionals. I am a Realtor who has used my own SDIRA to invest in real estate. What you have read above is my own experience and opinion and you should not consider it Investment, Legal or Tax advice because, it’s not. If you need Investment, Legal or Tax advice, go seek out licensed and insured professionals in your state.

To join a social network of other like minded investors, visit www.MatherNetwork.com

How to Buy Investment Properties with an IRA - Step by Step (Part 4 of 4)

Using a self-directed IRA to buy real estate is a sound investment strategy for many people. The ability to buy assets that can provide strong returns is appealing to a wide range of people. Listed below are the basic steps necessary to buy a property in compliance with the IRS rules governing the use of an IRA account.

1. Contact a financial firm that has experience with self-directed IRA’s. Working with a firm that is familiar with these accounts and the real estate transactions is the most important step.

2. Understand the IRS rules. A property bought via the IRA must be an investment home. Second homes, vacation homes and primary residences are strictly prohibited. Furthermore, distributions from the account are not allowed until the owner of the IRA is at least 59 ½

3. Deposit funds into the account. One of the important rules about buying property with an IRA is that all funds for the purchase as well as any other expenses has to come directly from the IRA. The owner cannot chip in extra money to help cover property tax or replacing the roof, in example.

4. All revenue received on the property must be deposited to the IRA account. The revenue cannot be given to the IRA owner or relatives.

5. Take time to preview multiple properties. It is wise to enlist the assistance of a real estate agent who has knowledge with these types of transactions. An agent can recommend properties in areas that have strong rental history. Furthermore, the agent can help calculate the return on investment based on average rent payments for the area.

6. Once you have picked out an investment property it is time to put down an offer. Contact the custodian for your IRA account and tell them you want to buy a property. The custodian will then fill out the necessary forms and sign all real estate documents on the behalf of your IRA account.

7. It is a wise idea to get a contract with a property manager to handle the finances of the property. This will prevent you from collecting the rent payments and making any necessary repairs yourself. A property manager can keep all the transactions clean and legal and free you from the headache of property management.

It is important to understand the rules concerning using an IRA to buy and manage real estate investments. Failing to follow the rules can lead to penalties and possibly loss of the tax advantages associated with an IRA account. When in doubt consult a tax professional before making any decision or transaction with the IRA funds.

This is Part 4 of a 4 Part Series.

Part 1: How a Realtor® can help you invest in your IRA

Part 2: Purchasing Investment Properties for your IRA

Part 3: How to invest in real estate using an IRA

Part 4: Step by Step Guide to Buying Homes with your IRA