Self-Directed Investing Overview. A guide to Equity Trust accounts

Transcription

1 Self-Directed Investing Overview A guide to Equity Trust accounts

2

3 Contents You Have Options for Investing in Your Future 4 Should You Consider an IRA? 5 Nearly Endless Investment Options 7 Individual Self-Directed IRAs 8 Small Business Retirement Plans 10 Reduce Healthcare and Education Costs 12 How a Self-Directed IRA Works 13 Knowing the Rules Helps Build a Foundation of Success 15 Additional Capital Sources 16 Why Equity Trust? 16 Beyond Custodian 17 What Clients are Saying about Equity Trust 18

4 You Have Options for Investing in Your Future Many investors are surprised to learn they are not limited to stocks, bonds and mutual funds when it comes to retirement investing. It is possible to use self-directed IRAs and other self-directed retirement accounts to invest in a variety of assets, in addition to stocks and bonds. Allowable investments include real estate, tax liens, promissory notes, private entities, and more. Many investors open self-directed accounts to diversify their portfolios with alternative investments, within a tax-advantaged environment. Though some investors have never heard of the concept, self-directed investing is nothing new. Since IRAs were introduced in 1974, the IRS has only listed a handful of items that are not permitted in an IRA (the entire list can be found in IRS Publication 590 at irs.gov). Read on to learn more about the wealth-building potential this investment vehicle provides. 4

5 Should You Consider an IRA? The government established the IRA to help you save for your future in a tax-advantaged environment. An IRA grows tax-free or tax-deferred and compounds over time to maximize the ability to grow wealth. 3 Ways an IRA Could Benefit You 1. Compound Interest Compound interest occurs when you not only earn interest on your original investment amount, but also on the interest earned on the original amount. For example, beginning at age 25, if you take the $4 you d spend each day for coffee and put it toward retirement., you would save $121 per month. If you received 9 percent in compounding interest each year, you would have $23,415 after 10 years. After 20 years, you d have $221,520 and after 30 years, when you are 55, you d have an amazing $566,440. Compound interest is the most powerful force on Earth. - Albert Einstein EFFECTS OF COMPOUND INTEREST $600,000 $500,000 $400,000 $300, YEARS $200,000 $100, YEARS $0 10 YEARS Source: Equity Trust Company,

6 The power of compounding interest is multiplied in tax-advantaged accounts such as IRAs. For example, if you were to contribute $4,000 1 a year to a tax-advantaged account (such as an IRA) and assume an 8-percent compound interest rate of return for 30 years, your selfdirected IRA would be worth $449,133 at the end of year 30. If you made the same investment in a non-tax-sheltered environment (such as a brokerage account), assuming a 31-percent tax rate, it would be worth $286,752 instead of $449,133. That is 43 percent less a difference of $162,381. As you can see, the effect of taxes on your savings can be dramatic. 2. Potential Tax Deductions Certain IRAs potentially allow you to reduce your taxable income today while saving for your future. For example, if you contribute $2,000 to a Traditional IRA during the year, you are eligible for a tax deduction of that same amount ($2,000) when filing your tax return for that same year (provided you meet all the requirements; consult a tax professional or visit for more information). 3. Wealth that Stays With You and Future Generations While earned income is required to open an IRA, the account is not tied to your employer. If you decide to change jobs, you don t have to worry about moving the account from your former workplace to your new one. Amount in Savings Account An IRA can also be transferred to your beneficiaries. Certain IRAs allow the passing of assets to beneficiaries after death without incurring taxes. INVESTING IN TAXED VS. NON-TAXED ENVIRONMENT $500,000 $400,000 $300,000 $200,000 $100,000 There are different types of IRAs and government-sponsored small business retirement plans that each possess unique tax advantages to help maximize your future wealth. Call today to learn more. $0 Taxed Investments Non-Taxed Investments Source: Equity Trust Company, Example is hypothetical. Past performance is not indicative of future results. Investing involves risk, including possible loss of pricipal. 6

7 Nearly Endless Investment Options A self-directed IRA broadens your investing possibilities. Here are just some of the many investment possibilities available to you with a self-directed retirement account. Real Estate Residential Property Commercial Property Developed Land Undeveloped Land Foreclosures Rehabs Mobile Homes Tax Liens/Tax Deeds Tax Lien Tax Deed Promissory Notes Mortgages/Deeds of Trust Secured Notes Unsecured Notes Car Paper Commercial Paper Entities Private Placements Limited Liability Companies Limited Partnerships Traditional Assets Stocks Bonds Mutual Funds Other Structured Settlements Accounts Receivable Foreign Currency Exchange Equipment Leasing Plus, many more... Equity Trust Clients Illustrate Flexibility of Self-Directed Investing As long as you follow IRS rules 2, you have the ability to invest your self-directed IRA into a variety of assets, even unique options. Equity Trust clients have illustrated what s possible with investments in livestock, dressage horses, oyster beds, self-storage facilities, medical equipment, Broadway productions and more

8 Individual Self-Directed IRAs Choose the Right Self-Directed IRA for You It is best to consult with your tax attorney, CPA or other financial professional to determine which account is best for you. Here are some factors to consider when making your decision. The Traditional IRA Do you want the possibility of an immediate tax deduction, your investments to grow taxdeferred, and only pay taxes when you withdraw funds? If so, a Traditional IRA may be the retirement account for you. Traditional IRA Advantages Contributions may be fully or partially deductible Taxes on investment earnings are deferred Many individuals are in a lower tax bracket during retirement when distributions are taken. Therefore, earnings may be taxed at a lower rate than at the time of the contributions Eligibility and Contributions You are eligible for a Traditional IRA if you receive taxable compensation and if you re not age 70½ by the end of the year in which you open the account. Your age determines how much you can contribute. Individuals 50 and older may contribute more to a Traditional IRA (known as a catch-up contribution). For information regarding contribution limits visit or contact a Senior Account Executive at Withdrawals You are eligible to begin making withdrawals at age 59½, but required minimum distributions from a Traditional IRA must begin at age 70½. The Roth IRA A Roth IRA may be your preferred retirement account. Roth IRA Advantages Qualified withdrawals are tax-free Investments compound tax-free No required withdrawals/required minimum distributions May be able to pass on earnings to beneficiaries tax-free 8

9 Eligibility and Contributions Anyone may have a Roth IRA, regardless of age 3, assuming his/her Modified Adjusted Gross Income (MAGI) is within allowable limits. Investors must meet income limits to invest and/ or contribute to a Roth IRA. Your age will determine how much you can contribute. If you are 50 or older you may contribute more to a Roth IRA (known as a catch-up contribution). For MAGI limits and contribution limits, please visit or contact a Senior Account Executive at Withdrawals Withdrawals are not required at any age Contributions can be withdrawn at any age, tax and penalty-free Earnings in the account may be withdrawn tax and penalty-free as long as it has been open at least five years and the owner is over the age of 59½ Accelerate Your Family s Wealth with Self-Directed IRAs You are not the only one who can take advantage of self-directed IRA tax saving opportunities. Your spouse, children and grandchildren could benefit too. Any individual that has earned income can open an IRA, and a spouse does not need to receive separate income if you file jointly. For more information on how your family could receive tax benefits from a self-directed account, contact a Senior Account Executive at If a minor, a parent/guardian is required to open and be the controlling party on the account. 9

10 Small Business Retirement Plans You May Qualify for Accounts with Higher Contribution Limits and Potentially Higher Tax Deductions You may be eligible for governmentsponsored small business retirement plans such as the SIMPLE, SEP, Solo 401(k) and Roth Solo 401(k). Being an investor may qualify you as self-employed, a sole proprietor or even as your own small business. You should consult with a qualified financial professional before making a decision, but one of the reasons to consider small business plans is that they have higher contribution limits and, if you qualify, potentially larger tax deductions than other retirement accounts. In addition, it may be possible to have both a self-directed IRA and a self-directed small business plan. You could benefit from the advantages each account offers. Small Business Retirement Plans at Equity Trust SIMPLE (Savings Incentive Match Plan for Employees) The SIMPLE is an incentive-match plan designed for small businesses with 100 or fewer employees who have earned income of $5,000 or more during the previous calendar year and currently have no other retirement plan. With a SIMPLE IRA, an employer contributes a percent-based salary (1-3 percent) match to its employees SIMPLE IRAs, while the employees make elective salary deferrals. SEP (Simplified Employee Pension) The SEP allows for contribution amounts of up to 25 percent of your salary. It enables you to make contributions toward your own retirement without getting involved in a more complex plan. Any type of business or employer (you, if you re self-employed or a sole proprietor) is eligible for the SEP. It s typically designed for business owners who employ 25 or fewer employees. 10

11 Solo 401(k) The Solo 401(k) is designed for owner-only businesses and spouses. It can be established by both incorporated and unincorporated businesses, sole proprietorships, partnerships and corporations. You can contribute annually through salary deferral, plus a profit-sharing portion of 0-25 percent of your salary. Roth Solo 401(k) The Roth Solo 401(k) has the same contribution limits as the Solo(k) but you can designate the salary deferral contributions you make as Roth contributions. The portion you contribute as Roth does not qualify for a tax deduction but the profits from these contributions grow tax free, plus all qualified distributions are tax-free. The profit-sharing portion (0-25 percent of your salary) of the Roth Solo 401(k) is just like the standard Solo 401(k) and is tax-deferred. For details on contribution limits and eligibility requirements for each of the account types, visit You can also speak with a Senior Account Executive at

12 Reduce Healthcare and Education Costs The Health Savings Account (HSA) If you want to take control of your healthcare costs, an HSA could be the right plan for you. The HSA could reduce your health insurance premiums, while you set aside funds to pay for current and future medical expenses. HSA contributions are tax-deductible (subject to limitations) and withdrawals are tax-free when used for qualifying medical expenses. To be eligible to establish an HSA, you must be covered by a High Deductible Health Plan (HDHP). HSA funds are controlled by you to pay expenses as they apply to your deductible. Unlike other medical savings accounts, they are not use-it-or-lose-it accounts. Both the contributions and earnings in an HSA carry over from year to year. Coverdell Education Savings Account (CESA) The cost to attend college is rapidly increasing. Equity Trust has an option to help you to pay for education costs and ease the burden of debt after college: a self-directed Coverdell Education Savings Account (CESA). A CESA is created for the purpose of paying qualified education expenses for the designated beneficiary of the account. A CESA can be opened for a beneficiary that is under the age of 18 or someone with special needs. Unlike other savings accounts that require earned income, you do not need income to open a CESA. 12

13 How a Self-Directed IRA Works A Self-Directed Investment in 5 Steps Once you establish and fund a self-directed retirement account, you can begin to make investments. Here s an overview of the self-directed investment process: 1. Identify an Investment and Perform Due Diligence The first step is finding an investment. With self-directed accounts, you can invest in a variety of assets as long as IRS rules are followed. Always consult with your tax, legal and financial advisor to determine whether an investment is right for you. 2. Request Funds and Direct Your Investment Complete a Direction of Investment form (DOI) and submit it with the necessary supporting documentation. The DOI provides Equity Trust instructions and details about the investment, such as: The amount to invest Where to send the funds If the documentation requires signing Note: Your investment, and all documents related to it, must be titled in the name of your IRA, not you personally. (Titling may vary slightly depending on the account used.) 3. Equity Trust Processes Your Investment Equity Trust processes your investment based on your direction on the DOI and sends the funds, per your instructions, to complete the investment purchase. After the purchase and closing are final, your IRA owns the asset. Note: It is your responsibility to ensure all final documentation is executed and recorded, if applicable, and sent to Equity Trust. 4. Manage the Investment within Your IRA Once your IRA owns the investment, all expenses and profits related to the investment must come from and return to the IRA. Expenses Related to Investment Your Equity Trust Account Your Investment Payments/ Profits from Investment 13

14 5. Act On Your Exit Strategy and Plan Your Next Steps Options include: Sell the asset Negotiate the sale of the investment with a buyer and complete a Sale DOI form to instruct Equity Trust to remove the asset from your IRA. Proceeds from the sale return to your IRA without being taxed. Take a distribution Assuming you meet eligibility requirements, you may be able take a distribution from income earned from the asset or distribute the asset in-kind. You would need to submit a Distribution Request form to Equity Trust to complete the distribution from your IRA. Additional paperwork may be needed if you are distributing an asset. Beneficiaries It s possible to leave your IRA/account to beneficiaries after death with little or no tax to create a tax-advantaged legacy for loved ones or charity. Please consult with a tax and/or legal professional for guidance. 14

15 Knowing the Rules Helps You Build a Foundation of Success Prohibited Transactions With a self-directed IRA, it s possible to invest in a variety of assets to help achieve your financial goals, but there are a few asset types that are prohibited by the IRS, including: Artwork Stamps Rugs Coins Antiques Gems Certain collectibles You can find out more about prohibited transactions in IRS Publication 590 at Disqualified Persons Your Equity Trust account cannot sell an investment to, or otherwise be involved with, disqualified persons (as deemed disqualified in IRS Publication 590 at Disqualified persons may include: You Your parents (and their spouses if re-married) Your grandparents (and their spouses if re-married) Your children (and their spouses) Your fiduciary, which may include a stockbroker, financial planner, tax professional, tax attorney etc. 15

16 Additional Capital Sources Think You Don t Have Enough to Invest? You d Be Surprised A self-directed IRA could provide sources of capital you didn t realize were available. If you still don t have the capital to complete an investment, here s more good news: Investment funding doesn t have to be limited to your own retirement account. It may be possible to con-invest your IRA. Co-investment possibilities include: Other retirement accounts (yours or someone else s) Other investors Other businesses Why Equity Trust? Equity Trust Provides Custody Experience with True Value Equity Trust Company and its affiliates are at the forefront of the self-directed retirement plan industry, specializing in the custody of self-directed IRAs and qualified business retirement plans. Since 1974, Equity Trust and our affiliates have provided services to individuals and the financial services industry. Equity Trust Company currently holds nearly 300,000 accounts. As a retirement account custodian, Equity Trust has met specific IRS requirements that allow it to hold assets, investments or property, and to issue funds (write checks, issue wires, etc.). Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. Any information communicated by Equity Trust is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with legal, tax, and accounting professionals. 16

17 Beyond Custodian Supporting Your Investing with Services and Education Equity Trust goes beyond just being a custodian to provide you with services and education to help educate you through your investment process. Equity Trust s benefits include: Online account management: Quickly check account balances, initiate investments and pay invoices related to your investments virtually any time with our online account management system. Networking. Once you become a client, you can access myequity, a community of Equity Trust clients. You can browse the threads already created about various investment topics, start your own thread or join a virtual group that fits your region or investment interests. Learning at your fingertips. Increase your wealth-building knowledge with our robust library of education. No matter your experience level, there are resources for everyone, in a variety of formats, from DVDs and books, to online courses. Check out what s available at Virtual events. Equity Trust s education affiliate, Equity University, provides fresh learning opportunities in the form of webinars each month. Just as the market and your needs are constantly evolving, so are our educational offerings. In-person events. Do you prefer live education? Through our Wealth Building Workshops, Equity University travels the country each year educating investors on the possibilities of self-directed IRA investing. News and education in your inbox. Equity Trust delivers a bi-monthly e-newsletter with only the most relevant and valuable investing news, education and account maintenance tips. 17

18 What Clients are Saying about Equity Trust After conducting our research, both my husband and I moved our IRAs over to Equity Trust Company. That was three real estate transactions ago! Throughout the years, we have been thoroughly impressed with the level of exemplary service and attention to detail when it comes to real estate transactions. Equity Trust exceeds expectations! If you have any concerns about how the process works, there are several webinars and resources to take advantage of. The online payment and administrative services are simple and easy to navigate. My husband and I are so pleased we learned about Equity Trust. -Deanna, North Carolina I found this company through a web search and I m so happy I did. I have rental property and they helped me through all the required paperwork. They are very knowledgeable on the phone and the transactions are processed in a timely fashion. The website is easy to navigate. This new venture would have been difficult, if not impossible, without their help. I would highly recommend. -Becky, Florida My wife and I have been interacting with Equity Trust for less than two years and we truly appreciate their professionalism and knowledge. They have responded quickly and accurately to our concerns and have no problem recommending them to anyone. -Doug, California I have an IRA and a Roth IRA with Equity Trust Company and my first investing experience has been in buying tax liens. Not having done anything like this before, the hands-on approach and additional steps required to keep everything according to guidelines was uncomfortable initially. The one thing I really appreciate is their willingness to spend as much time on the phone with me as I need in to ensure that I understand. As a real estate agent, I have recommended Equity Trust to all the agents in our office as a resource for their investor clients. I wish I knew about Equity Trust earlier. I would have viewed my IRAs much differently. -Richard, Kansas Equity Trust is a passive custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney, CPA, or financial professional. The above testimonials are for educational purposes only. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. Information included in the above testimonials were provided by the investors and included with permission. Equity Trust Company does not independently verify all information provided by third parties. 18

19 Get Started Today Call a Senior Account Executive to get more information about Equity Trust Self-Directed IRAs or to open your account

20 1 Equity Way, Westlake, OH ET Equity Trust. All Rights Reserved.