Tips to Avoid A Millennial Saving Crisis

Tips to Avoid a Millennial Saving Crisis

Student loan debt is at an all-time high of around 1.4 trillion dollars. The cost of going to college has dramatically outpaced the rise in wages. That figure is a combination of debt from getting a degree ranging from bachelor’s to doctorate. While higher education is vital in a competitive job market, the financial impact can be a burden when saving for a house or retirement. In this article, we cover five tips for saving money to avoid a Millennial saving crisis.

The Federal Reserve’s publications on student loans highlight the following key takeaways:

  1. Those with a bachelor’s degree tend to do better than those without a bachelor’s degree.
  2. The school you choose for higher education can play a huge role in how much debt you acquire. Private for-profit schools seem to carry the most considerable financial burden.
  3. The younger people are, the less confident they feel about having enough for retirement at this time.

With that said, let’s look at how we can take retirement savings to the next level. We’ll focus on positioning a Millennial to feel confident about retirement. Here are some suggestions to tackle student debt fast, while simultaneously saving for retirement to avoid a Millennial Saving Crisis later in life.

5 Tips to Avoid A Millennial Saving Crisis

1. Calculate a Budget for Yourself

You need to know how much you make after taxes, health insurance, and 401(k) contributions are taken out of your paycheck. Once you know how much you make per month, you will need to note essential payments. These essentials can include rent/mortgage, student loans, insurance, transportation, internet, utilities, and car payments. This calculation leaves you with your budget for food, fun, entertainment, and rainy day savings. Budgeting is the absolute first thing everyone should do to properly manage debt, savings, and retirement at the same time. You need to know the cost of your essentials to calculate how much you can save. Then, give yourself a budget on which to live. Stick to your budget! For more information on budgeting, view our article “Budgeting Made Simple for Millennials.”

2. Become (and Remain) Credit Card Debt-Free

If you have any credit card debt, make sure this is your top priority to pay off ASAP! After calculating your budget, pay more than the minimum payments, if possible. Cut costs where you can and eliminate credit card debt ASAP. Credit card debt has high-interest rates compared to other debts. Credit card interest rates range from 15-29%. This rate is in comparison to 5% or less on a student, home, and auto loan. Credit cards are not for everyone. Being in credit card debt means you are paying someone else hundreds or thousands of extra dollars for the luxury of buying something you cannot afford at the time. Pay off your credit card debt rapidly to begin paying off other debts, save, or invest more.

3. Live Within or Below Your Means

If you have ever read the book Rich Dad Poor Dad by Robert Kiyosaki, you would have learned wealthy people live below their means. We are not talking about the ultra-rich with money to burn. We are talking about those who start with little to nothing and amass wealth over time. Every little bit adds up. You don’t need to buy a brand new car and take on debt when your current car with 100K miles is still working fine. If you take on debt to buy a new car, you are losing money. You lose money by paying interest to the bank each year without a return as your car’s value decreases.

You don’t need to put 20% down on a $400K house, instead, try and find one for $250K. This type of person will think twice about splurging on the latest Jordan shoes, eating out multiple times a week, and getting expensive coffees daily. Kevin O’Leary from Shark Tank said it best, “Anytime I pick up something I’m going to buy, I say to myself, ‘Do I really need this?’ Because if I don’t buy it, the money is going to be invested and make money every year for me while I’m sleeping.” You can still live a great happy life without having the luxuries of a new car, dream home, and the latest fashion.

In the famous book, The Great Gatsby, all the world’s money could not buy Mr. Gatsby happiness. Despite having all the money needed, he was still unhappy. Happiness is what you make of it and is a whole conversation and article in itself. Stay tuned for the next article in our Millennial Financial Series.

4. Reduce or Eliminate Your Housing Costs

There are two ways to easily do this.

The first way is to live with your parents. Live with your parents. There is nothing wrong with living with your parents for a few years to eliminate your debt and save money. Doing this could be a huge deciding factor in paying off student loans in three years vs. ten years. Reducing or eliminating your housing costs could mean the difference of several thousand dollars. This saved money can be used as a down payment on a house of your own.

Second, get a roommate. If you rent or own and have room to spare, consider getting a roommate. A roommate will provide extra income to help lower the cost of rent and utilities each month. Use these savings to pay off your student loans or build up a safety net for emergencies.

5. Begin Saving for Retirement Now or Pay off Student Debt

If your student loan interest rate is 5%, then paying off more than the minimum is similar to getting a 5% return in the stock market. It is 5% less than you have to pay in interest on your loan. You can use the money saved by paying off student debt to invest.

On the flip side, you may receive a 401(k) match at work. If your employer matches 4%, congratulations, you just gained 4% in addition to your salary. Put the 401(k) contributions into investments, and you are well above the 5% return you would make per year by paying off student loan debts. At a minimum, especially while trying to eliminate student debt, you should be contributing to your 401(k) up to your employer match. The reason being is this is free money you would otherwise not receive from your regular paycheck. Can you say “no” to free money? And the compounding gains year over year will far outweigh the cost of paying off your student loans quicker.

What If My Employer Does Not Match 401(K)?

If your employer does not offer a 401(k), this may change your thinking. You may want to consider opening an IRA account to save money for retirement. While you will not get a match from your employer, IRAs offer tax-deferred growth on gains in the account. Traditional IRAs are tax-deductible up to a certain income level, which can mean money in your pocket via a tax refund. On the other hand, Roth IRAs offer no tax deductions but can be a great emergency fund as gains grow tax-deferred. With Roth IRAs, you can always take distributions tax and penalty-free. After five years of owning a Roth IRA, you can take out gains. You will only have to pay a 10% early-withdrawal penalty on the portion of the gains if you are under 59 ½.

Start Saving as Early as Possible

The key is to start as young as you can and be consistent. The later you start, the more you’ll have to contribute in the future to get to a comfortable retirement fund. Alternatively, you may have to work longer. It will be best if you arrange to have money automatically come out of your paycheck to your 401(k) or an IRA. Saving is much easier when it is automatically taken out of your paycheck. You will grow accustomed to the smaller paycheck much quicker, and it will make budgeting much less complicated.

How Much Should I Save for Retirement?

Inflation runs about 2% per year. $50K today will likely be worth $25K in 30 years. So again, the important things are to start as early as possible and be consistent. To be fully prepared to retire at 65, here are the recommended guidelines for retirement savings by age:

30: Have the equivalent of your annual salary saved. So, if you earn $50,000 a year, aim to have $50,000 in savings when you reach 30.

35: Twice your annual salary saved.

40: Three times your annual salary saved.

45: Four times your annual salary saved.

50: Five times your annual salary saved.

55: Six times your annual salary saved.

60: Seven times your annual salary saved.

65: Eight times your annual salary saved.

Remember, everyone’s situation is different. Please do not compare yourself to others; we all have to start somewhere. The key to avoiding a Millennial savings crisis is to live within or below your means while simultaneously paying off your debt and saving at the same time. It can be done, but will require discipline in setting a budget and sticking to it! If you are serious about your budgeting, you will likely feel some financial pain now but reap the rewards and come out ahead in the long run. This plan is not a get out of debt/get rich quick scheme and will take years before you see/feel the rewards.

Budgeting Tools That Millennials Love

Are you struggling with budgeting? Use an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills.

If you have any questions regarding your investment options or additional tips to avoid a Millennial saving crisis, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com. We would be happy to discuss our services with you and how you could incorporate self-directed IRAs into your investment portfolio.

Read the other articles within our Millennial Finance Series: “Budgeting Made Simple for Millennials,” and “Budgeting with the Goal to Save and Invest for Millennials” for additional tips.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Budgeting With the Goal to Save and Invest for Millennials

Budgeting With the Goal to Save and Invest for Millennials

Budgeting can be an essential tool for financial success. Many personal finance experts suggest creating a budget as the most important component for a successful financial plan. A budget gives you a roadmap of where you are in the moment and for planning for the future. Without a budget, it is much easier to get off track. Let’s take a look at some strategic ways to lower expenses, which allows for budgeting to save and invest.

Cut Back on Large Monthly Expenses

Addressing the largest expenses in your budget first can be an effective strategy to save money over time. Rent or mortgage payments, auto payments, and food tend to be the largest budget items. Below are a few ways to cut down on some of these large expenses:

Rent or Mortgage Expenses

Start by analyzing what you currently pay in rent or mortgage each month. Take that number and divide it by your gross monthly income. If that number exceeds 25% to 33% of your gross monthly income, the consensus is that you could be spending too much on housing. Here are some tips to lower your costs:

  • Rent spare bedrooms for extra income on sites such as Airbnb.
  • Refinance: You may be able to lower your mortgage if you are currently paying a high-interest rate. Speak with a lender and find out what your options are.
  • Consider moving to a smaller place or a more affordable area. Moving may take time if you are in a lease or must sell your house, but is a long-term option to lower your housing expense.

Auto Expenses

Auto expenses tend to be one of the costliest expenses in a budget. The average car payment in America is $550 for new, $393 for used, and $452 for leased vehicles. This payment does not include gas, insurance, or maintenance that the vehicle will need over its lifetime. Lowering this expense can lead to additional money for saving and investing. Below are a few ideas to lower transportation costs:

  • Sell your expensive new car for a more affordable, reliable used car.
  • Consider having only one vehicle if your situation permits.
  • Walk or bike to work, if possible, to save on gas and vehicle maintenance. Public transportation is also an option.
  • Buy a fuel-efficient or electric vehicle to save on the additional costs of operating a car.
  • Drive with Uber or Lyft to offset your vehicle’s cost or utilize apps such as Turo to rent out your car when you are not using it. These options are great for Millennials looking to earn additional income.

Food Costs

Food is a necessity. However, it is possible to lower your food costs by taking a few steps. Even if you have a family and the food costs add up quickly, here are a few tips to ensure you do not overspend at the grocery store:

  • Make a list and stick to it. Do not buy something that is not on your list just because it is on sale.
  • Buy in bulk for items that do not perish quickly or used frequently.
  • Shop lower-priced food stores.
  • Shop products that are in season, especially produce.
  • Utilize local farmer’s markets.
  • Make a fancy dinner at home instead of going out to an expensive restaurant.

Evaluate Your Insurance Options

Insurance is an essential component of a successful financial plan. If you have a family or are planning on starting a family in the future, this is especially true. Medical expenses can add up quickly, which is why insurance needs to be a key consideration for any age. Here are a few tips to make sure that you are getting the best value with your insurance:

  • Utilize a Health Savings Account (HSA) for healthcare costs. These plans can be a viable option for medical-related costs. HSAs offer a triple tax advantage. HSA advantages include tax-free contributions, tax-free growth, and tax-free withdrawals. It is important to note that a high deductible health insurance plan is needed to contribute to an HSA.
  • Shop around for insurance and get quotes from multiple insurance companies.
  • Consider bundling for more savings. Bundling home, auto, and life insurance could save quite a bit of money instead of getting individual policies with different companies.

Cut Back on Discretionary Spending

Discretionary spending can be characterized as extra expenses after meeting your basic needs. For example, this could include going out to the movies or a nice restaurant on the weekend. Whatever the case, cutting back on some of these expenses means more money to save and invest over time. Below are a few tips to cutting back on those discretionary expenses:

  • Instead of going to Starbucks or your favorite coffee shop, make coffee at home.
  • Make a nice meal at home instead of going to restaurants.
  • Find free events in your local area. Millennials have utilized social media platforms as an excellent way to connect with others and find events in their areas.
  • Wait 24 hours before purchasing something unnecessary. Then, if you decide that you want it, be sure that the purchase falls within your budget.

It is important to enjoy your free time and hobbies. However, cutting back on unnecessary costs can lead to more saving and investing over time. Budgeting allows you to spend money on the things that mean the most to you while ensuring your necessary expenses are covered.

BUDGETING TOOLS THAT MILLENNIALS LOVE

Are you struggling with budgeting? Use an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills.

If you have any questions regarding your investment options, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com. We would be happy to discuss our services with you and how you could incorporate self-directed IRAs into your investment portfolio.

Read our other budgeting article “Budgeting Made Simple for Millennials” for additional tips.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Budgeting Made Simple for Millennials

Budgeting Made Simple for Millennials

Adulting is a term Millennials like to use when life hits you hard, wishing you could relive the days of being a kid with few worries. Being an adult means no longer having someone making decisions for you or holding your hand through the process. Adulting means taking control of your budget, your health, your retirement, and your life. One of the areas of adulting most Millennials struggle with is budgeting. Between student loans, rent/mortgages, car payments, transportation expenses, food, fun, entertainment, and potential credit card debt, there is a lot to consider. If there is anything left, does it go towards saving for retirement or a rainy day fund? Where does one begin? For Millennials, budgeting is the most important step in saving for retirement while simultaneously paying off debt.

4 STEPS TO MAKE MILLENNIAL BUDGETING SIMPLE

1. Calculate Your Earnings Each Month

You need to know how much you make after taxes, health insurance, and 401(k) deductions. If possible, contribute to your 401(k) up to the maximum amount of what your employer matches. Saving for retirement is crucial, and the reason you want to contribute to your 401(k) is that your employer is essentially giving you free money. You would otherwise not receive this free money in your regular paycheck. Can you say “no” to free money? With compounding gains year over year, the earlier you begin saving for retirement, the better. Even a few years will make a considerable difference in thousands to tens of thousands of dollars in the long run.

Through our budgeting example, we are going to assume you are single with no credit card debt, earn $50,000, and set aside roughly 24% for federal taxes, FICA taxes, and medical insurance. We will also assume you set aside 4% for 401(k) contributions. These assumed costs leave roughly $36,000 in cash for the year or $3,000 per month. You can use this calculator tool for assistance. You can use this calculator tool for assistance.

*Please note: your salary, state taxes, and living expenses will vary greatly based on your geographical location and occupation.

2. Calculate the Essentials and Subtract Them From Your Earnings

You need to know how much money you have to spend on food, fun, entertainment, and savings. Before we can do this, we need to know the essentials that need to be paid each month. Take your monthly payment amount and subtract rent/home payment, real estate tax (if applicable), home/auto insurance, car payments, utility bills, phone bill, internet bill, subscription services, etc.

Earnings: $3,000 monthly

Deductions:

– $1,500 (includes rent/home insurance, property taxes, utilities, and HOA fees if applicable)

– $125 auto insurance

– $150 for electric bill

– $100 transportation cost

– $50 for utility bills (water, trash, recycling)

– $100 for cell phone bill

– $50 for internet bill

– $50 for subscription services (Netflix, Hulu, Amazon Prime, etc.)

– $400 a month for car

Total Deductions = $2,525

Calculation: $3,000 monthly budget – $2,525 = $475 per month

*Please note: these are estimates and will vary greatly by location, living situation and personal preferences.

3. Put Money Into an Emergency Fund for Savings

Doing this will make budgeting simple in the future if you have an emergency fund established to fall back on. Your car may break down, or you may lose your job one day. Life is full of surprises, and you need to prepare for them. Let’s set aside another $100 per month for savings/emergencies.

Putting savings into a bank account is fine, but banks provide little interest in savings accounts or CDs. This low interest will likely lose you money over time if it is less than the annual inflation rate (cost increase of goods per year). Instead, consider putting money into a Roth IRA to allow gains to grow tax-deferred. You can contribute up to $6,000 to a Roth IRA if you are under 50. Roth IRAs can be a powerful emergency fund, saving fund, and retirement fund. You can take Roth IRA distributions tax-free at any time. If you hold your Roth IRA for five years or more and are under 59 ½, you can withdraw your gains on investments and only pay a 10% early withdrawal penalty. Stocks are relatively easy to liquidate, and you should be able to receive Roth IRA distributions for emergencies within a week or two.

Yes, there is a risk of loss on investments. However, statistics show that if you invest for the long term in well-known stocks, the typical return is 8-10%. Would you rather work for money, or have your money work for you? By investing more, you are having your money work for you, and over time this can be the difference of thousands to tens or even hundreds of thousands of dollars in additional funds.

4. Stay Within Your Budget

Discipline is essential. Okay, so this step is not that simple, but it is needed if you want to manage your budget successfully. You can make budgeting much more complicated, but it can be simple if you stay within your budget. If you know you overspend with credit cards, consider shredding the card(s). Or, lock the card in a lock-box and give the key to a trusted friend or family member. Withdraw your budgeted “fun” money in cash each month. This way, you are only able to spend what is available to you in cash. Physically seeing your available cash in your wallet allows you to see how much you are spending and hopefully leads to you saving more. You may find yourself naturally looking to cut expenses, clip coupons, find cheaper alternatives, or find ways to generate additional income through a side hustle. Stay tuned to Midland Trust for our next article to learn about reducing your monthly budget. We will also discuss investments as a way to increase your “fun and entertainment” budget.

AVAILABLE BUDGETING TOOLS THAT MILLENNIALS LOVE

Are you struggling to set a budget? Consider using an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts (credit card, bank, investing accounts, etc.) into one and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Building Wealth With Private Lending Investments In Your IRA

Building Wealth With Private Lending Investments In Your IRA

A self-directed IRA opens the door to a variety of alternative investment possibilities to build retirement wealth. One strategy growing in popularity involves private lending investments an IRA. Successful transactions can potentially generate a healthy, tax-sheltered return in your retirement account, something we all seek and deserve.

Private lending as an investment in an IRA is classified as an alternative asset to the traditional stock, bond, or mutual fund. Other alternatives include real estate, private equity, crowdfunding, hedge funds, and much more.

Private loans are unique in that you can choose to extend funds to a stranger or a trusted friend. But, as with any investment, private lending is not without risk. For every credit-worthy borrower, there are unworthy borrowers, too. Protect yourself and your self-directed IRA by performing due diligence that can increase your chance of success.

How Private Lending Investments Work in an IRA

Many individuals and businesses are unable to secure conventional financing for one reason or another. Perhaps they simply prefer to seek private lending for their financing needs. For the IRA owner, private loans offer a great way to diversify retirement portfolios.

Essentially, your IRA becomes the bank. As the owner of the account, you have great flexibility and control in defining the terms.

IRA account owners:

  • Choose and vet the borrower
  • Determine the loan amount and term length
  • Decide the interest rate
  • Extend secured or unsecured loans

Secured loans are backed by collateral like real estate or a car. Your IRA earns income on the interest of the loan. In case of default, the IRA takes ownership of the collateral to sell and recoup the loan balance (and in some cases, more).

Unsecured loans are not backed by collateral and present greater risk in case of default. These transactions typically carry higher interest rates to minimize any loss as a result of non-payment of the loan.

Private lending investments are popular among savvy individuals who understand how to use retirement funds to invest in alternative assets. And, there are plenty of private lending and other options available as discussed in this article published by REIClub.

Successful Private Lending Investments Benefit the IRA and the Borrower

  • IRA owner earn tax-sheltered income for retirement
  • Borrowers receive capital without the hassle of conventional lending institution requirements

Choose a reputable and experienced self-directed plan administrator

Self-directed retirement plan administrators play a crucial role in serving these accounts. Midland IRA is a trusted resource for our clients who hold over $2 billion in assets. We do not give investing or financial advice. But, we ensure the administrative aspects of your investments comply with IRS standards. We file reports on your behalf and provide statements for your review, and help you follow prohibited transaction guidelines.

For more information on self-directed retirement plans and the benefits of private lending investments, contact Midland today.

What Is a Self-Directed IRA?

What Is a Self-Directed IRA

Most people understand traditional and Roth IRAs, 401(k)s, and even SEP and SIMPLE plans for small business owners. But, one question we hear frequently is, “What is a self-directed IRA?”

The answer is easy: It is a powerful tool individuals use to reach their retirement planning goals. Self-directed plan owners control their funds and the type of investments their plans purchase. So, If that describes you, it’s also time that you learn about self-directed IRAs.

Why should you learn about a Self-Directed IRA?

Self-directed plan and a retirement plan housed with a bank or a typical custodian differ in two ways. First of all, self-directed plan owners invest in alternative assets rather than stocks, bonds, and mutual funds. Additionally, plan owners choose their own investments; they do not rely on a third-party to do so. These differences are especially relevant to those who want control of their investing funds and decisions.

Alternative assets (like real estate or hedge funds) grow income in the plan just as any traditional asset does on a tax-sheltered basis. And, the account owners choose investments based on their own knowledge and experience. Alternative assets have the potential to earn better returns in a shorter length of time than traditional assets. Individuals choose rentals, land, private equity, gold, private lending options, and much more to achieve their goals.

Midland IRA is a self-directed retirement plan administrator serving clients across the nation. Our clients have the Freedom to Invest™ in what they know best. Our clients use many alternative assets to earn tax-sheltered income. To retire successfully, diversity is key. Understand your options. Make your own decisions. Open a self-directed IRA with Midland today.

Naming a Trust vs. Your Spouse as Beneficiary of Your IRA

Naming a Trust vs Yout Spouse as Beneficiary of Your IRA

Deciding whether to name a trust as a primary beneficiary for your IRA over your spouse is not an uncommon concern and is very important to look into when planning your estate. With IRAs, naming a spouse as primary beneficiary and a trust as a contingent beneficiary may be more beneficial than you think (no pun intended). With this option your spouse gains several ways to take over those funds, in ways that fit his or her needs best once you’re gone. A spouse can decide to rollover the inherited assets or disclaim their position within a nine-month period. Spouses also have the freedom to treat the IRA as if it were their own, which might mean deciding to convert the IRA to a Roth down the road. If the passing of a spouse occurs before his/her required beginning date (RBD), the surviving spouse can choose to delay life expectancy payments until the year the IRA holder would have turned 70 ½.

Not married? Even with a non-spouse named beneficiary there may be more payout options available than with a non-individual beneficiary (depending on whether the death of the IRA holder occurred before or after the RBD). Leaving your inheritance primarily to a trust is something you may want to do if your intended beneficiaries are minors, or if you are concerned how your intended beneficiaries will spend the money.

A few other beneficiary tips when opening and maintaining an IRA:

  1. Remember to name both primary and contingent beneficiaries. The primary beneficiary can choose to disclaim assets, passing them along to the contingent(s)
  2. Not naming an IRA beneficiary or forgetting to list a contingent (in the off chance that the sole primary beneficiary and IRA holder both pass) will end up with the account going to probate. The IRA wouldn’t be able to distributable to heirs until the probate process concludes, which can take more than a year.
  3. Remember to reevaluate your designation of beneficiary for your IRA after every major life event.
  4. Keep a copy of your beneficiary designation and/or trust in a secure location and make sure your loved ones know where to find it.

Top 10 Facts About Self-Directed IRAs

Top 10 Facts About Self-Directed IRAs

Self-directed IRAs and other plans are popular tools savvy investors use to create diversity by investing in alternative assets to build retirement income. These are the top 10 facts about self-directed IRAs.

  1. Self-directed plans give you the freedom to choose your own investments as well as control of your own retirement funds.
  2. Type of accounts that can be self-directed: traditional, Roth, SEP, and SIMPLE IRAs, and individual 401(k) plans. Health and education savings accounts can be self-directed, as well.
  3. Alternative investments allowed in self-directed plans include: real estate, notes and mortgages, crowdfunding opportunities, single-member LLCs, hedge funds, precious metals, energy options, and much more.
  4. The IRA prohibits these investments within IRAs: life insurance and collectibles (works of art, antiques, jewelry).
  5. Income flows directly into the IRA on a tax-sheltered basis.
  6. All expenses incurred for the IRA must be paid with funds from the IRA.
  7. Prohibited transactions (personally using vacation rental property) and transactions with disqualified persons (IRA owner and spouse; lineal descendants and ascendants of IRA owner and spouse) can cause penalties, taxation, and/or disqualification of your IRA. See IRC Section 4975 for explicit details.
  8. IRAs can partner with others to pool investment funds. For example, Sam Jordan’s IRA can own 60% of a condo and Susan Smith can personally own 40%. Income and expenses are split at an ownership ratio of 60/40. Sam’s IRA gains tax-sheltered income; Susan’s personal investment gains are taxed at a rate appropriate for her income bracket.
  9. IRAs can borrow money in the form of non-recourse loans. Most banks require 35% down and a minimum loan amount of $100,000. A portion of gains relevant to the leverage may be subject to Unrelated Business Income Tax (UBIT) and/or Unrelated Debt Financed Income (UDFI). Individual(k) plans are not subject to the taxes of leveraged assets.
  10. Qualified plans from previous employers, such as 401(k), 457(b) and 403(b) plans, can be rolled into self-directed IRAs. Individuals can have multiple custodians and in these cases partial transfers are allowed.

Self-directed retirement plans give you the freedom and flexibility to choose investments best suited for you based on your knowledge of assets you acquire. Now that you know the top 10 facts about self-directed IRAs and other accounts, contact us to get started investing in alternative assets today.

If you have questions about self-directed retirement plans and alternative investments allowed in these accounts, please contact Midland Trust today.

Financial Advisors Gain Access to Private Equity Using Alternative Investment Platforms

Financial Advisors Gain Access to Private Equity Using Alternative Investment Platforms

Alternative investment platforms are giving financial advisors access to private equity investments. Typically, this requires large sums of money and a three to five-year lock-up period.

Private placements are not advertised or purchased on the open market. They often consist of accredited and institutional investors. Alternative investment platforms make it easier for advisors to offer private equity investments. These platforms negotiate which private equity funds get added to the platform. They are able to offer access to a menu of private funds and negotiate lower investment minimums. This is all done while integrating custodial reporting and electronic subscription processing. Furthermore, these platforms conduct due diligence on the investment. They link to custodians, allowing advisors to include private investments in client portfolios.

Private equity investments may be an unfamiliar marketplace for advisors. So, investment platforms are likely to help advisors better navigate the investment. These platforms introduce independent research on the funds offered. This leads to more private equity fund offerings.

Since the 1970s the size of the private equity market has steadily grown. It is becoming a more popular investment every year. In 2014, the Cambridge Associates U.S. Private Equity Index returned 11.25%, net of all expenses and fees. That’s in comparison to the 13.69% gain in the S&P 500 Index.

Investments in a self directed IRA add retirement income on a tax-deferred basis. If using a Roth IRA, income is tax-free. Alternative investments offer clients diversity in investment portfolios. Portfolio diversification is essential to the growing success of retirement planning. To learn more or to start investing in private equity, call Midland at 239-333-1032. Or, visit the Midland Trust website.

Sources: http://www.investopedia.com/terms/p/privateequity.asp?version=v1, 2015, Investopedia, LLC.

www.investmentnews.com, Private-equity investing made easy for financial advisors, 6/18/2015