There is no doubt that the landscape of retirement and retirement planning in the U.S has transformed significantly in the last decade. Projected life expectancy is getting longer, healthcare is becoming more expensive, and today’s retirees are more active than previous generations. Not to mention the older generation now outnumbers the younger, and according to the U.S Census Bureau there are currently more than 54 million residents 65 years and older and this is projected to nearly double by 2060. It has already been projected that this shift in demographics will significantly impact Social Security benefits. This means that, now more than ever before, Americans are on their own to build a nest egg big enough to last them through their golden years.
This turn of events raises a couple important questions: Will simply saving in a 401k or an IRA be enough to achieve the financial independence you need for retirement? Are there other tools that you can use to help you build long-term wealth? It may be time to consider revamping your investment strategy by adding a Self-Directed IRA to boost your retirement savings with alternative investments. In this article we go into more detail on what a Self-Directed IRA is, what the benefits are, what the role of a Self-Directed IRA custodian is, and how to choose a custodian that is aligned with your interests.
What is a Self-Directed IRA?
A Self-Directed IRA provides the same tax sheltering benefits as your conventional IRA but empowers you to invest in alternative assets. For example, at Preferred Trust Company, you can invest with a Roth IRA account to reap the benefit of tax-free returns, or you can invest with a Traditional, SEP or SIMPLE IRA account to grow tax-deferred returns. Alternative investments include assets such as real estate, precious metals, cryptocurrency, private equity, and so much more.
What are the benefits?
While the initial benefit is the tax-sheltered returns (dependent on the type of account), the primary benefit is that you have complete control over selecting and directing the investments in your retirement account. You have the ability to select investments that you may understand better than stocks, bonds, and mutual funds. Diversifying your portfolio with alternative investments can also help create a balance of assets that can be pivotal during market fluctuations.
Another attribute that some alternative assets possess that you lack with stock shares is capital preservation. For example, even during market fluctuations, real estate and precious metals have the potential to retain value, while if the business your stock shares are in goes bankrupt, you are at risk of losing your original investment. Alternative investments have also been known to produce historically higher returns.
It is important to note that this access to more investment options and greater flexibility does come with more responsibility on you, the IRA account owner. The IRS maintains a list of prohibited transactions and investment types that, even if done unintentionally, can cause your account to lose its qualified tax-protected status. It is also important that you evaluate your tolerance for risk before engaging in any investment opportunity.
What is the role of the custodian?
It is the responsibility of the custodian to hold your funds in a qualified account and administer the investment transactions at your direction. Preferred Trust Company is a Retail Trust company licensed in the state of Nevada and facilitates both custodial and administrator roles for your IRA.
One significant misconception is that custodians provide clients with investment advice. Custodians may provide education on the IRS rules and regulations, but they are not licensed to provide clients with financial advice or steer clients toward a particular investment. It is entirely up to you to select and direct the investments in your account and ensure that you are not engaging in any prohibited transactions. If you need assistance in managing your account, you should refer to a financial advisor and/or a tax professional depending on the type of assistance you need.
How to choose a custodian that is aligned with your interests.
You are probably thinking that selecting a Self-Directed IRA custodian will be straight forward, like choosing between a Charles Schwab, Vanguard, or TD Ameritrade, right? That could not be further from the truth. The administration of alternative assets is not automated like buying shares of stocks online, so the ability of your custodian to administer your account and investments is important. Below are a few questions that can help guide you on certain company attributes and best practices that you should not compromise on:
Are they a licensed custodian? You will find that not all Self-Directed IRA companies are actually licensed custodians and that some are administrators or facilitators, only. Administrators and facilitators do not have the same regulatory oversight and standards that custodians are required to follow. Not understanding the difference can be detrimental to the security of your retirement funds (Click Here to learn more). If you cannot find this information on their website, a phone call or email should answer this question.
Do they have limits on certain types of investments? You will find that custodians will have varying company-imposed limitations on the types of investments they will facilitate. For example, Preferred Trust Company is one of very few custodians that will facilitate investments in digital currency and marijuana related investments (not in the plant, but in real estate, the business, etc. in relation to the industry). The company-imposed limitations of custodians will hinder the diversification possibilities of client IRA accounts.
What is the level of ease and the quality of administration? Custodians also come in different sizes, have different fee schedules, and transaction processing times, all of which influence the quality of service the custodian can provide. For example, the speed of your custodian could mean the difference between being able to purchase a property at auction or losing the property if the custodian is unable to process funds in a short time period.
Preferred Trust Company maintains high standards for monitoring the entire transaction process of client investments. For example, if a client chooses to invest in precious metals with their IRA, Preferred Trust Company goes so far as to verify that the metals were in fact purchased and delivered to the depository. Preferred Trust Company does this for every client regardless of the amount or history with the client. You would be surprised at how many custodians do not implement this practice for their clients.
When is a good time to open a Self-Directed IRA?
As you should already know, time is of the essence when it comes to retirement savings. The sooner you can begin investing in alternative investments with a Self-Directed IRA, the more your tax-deferred or tax-free returns (depending on the type of account) have time to compound and grow.
If you are interested in learning more about Self-Directed IRA custodians and accounts, Click Here to download our most popular whitepaper “Self-Directed IRA Misconceptions: Fact or Fake” for FREE. If you are ready to add a Self-Directed IRA to your retirement strategy, Click Here to schedule a no obligation consultation at your convenience. Now until December 31st, 2021, Preferred Trust Company will waive the establishment fee and first year administration fee for all new accounts. Give us a call at 888.990.7982 or visit our website and apply online to take advantage of this offer today!
PREFERRED TRUST COMPANY, LLC (“Preferred Trust”) | 2140 E Pebble Road | Suite 140 | Las Vegas, NV 89123 | 702.990.7892 | www. preferredtrustcompany.com | Financial Institutions Division of Nevada License No. TR1002. Preferred Trust performs duties of a custodian and as such, does not sell investments or provide investment, tax, or legal advice. Preferred Trust is committed to safeguarding all non-public personal information provided to us by our customers. Preferred Trust collects, retains, and uses customer information where we reasonably believe that it will help administer our business or provide services to our customers. We collect and retain customer information only for specific business purposes and upon request will inform customers why we are collecting and retaining the information. We use information to protect and administer records, accounts, and funds; to comply with certain laws and regulations; to help us design or improve our services; and to understand the financial needs of our customers. Preferred Trust is an accredited member of the Better Business Bureau.
Members of the editorial and news staff of the Las Vegas Review-Journal were not involved in the creation of this content.