By James L. Maxfield, Jr.
Let’s face it. The 20th century concept embodied in the 1957 film, “The Man in the Gray Flannel Suit,” of working at one company and retiring with a pension, already was on its way out of favor by the end of the 1960s. In just a few major financial publications, on average, a dozen articles are written every day on retirement and pension issues. By now, most of us realize that even if our government can preserve Social Security, we cannot afford to live, let alone retire, on those small payments. The trend of shifting the burden of retirement planning from the government and employers to the employees likely will not be reversed. Instead, tools concerning real estate investments are available to do retirement planning — the same ones used by Mitt Romney and others in the top tax brackets — that don’t require someone to be wealthy.
Alternative investments with retirement accounts have been available for some time, but few traditional brokerage companies, pension plan administrators or most IRA custodial firms offer real estate investments for retirement plans. In 1998, Congress and the IRS created the Roth IRA for individual and self-directed retirement planning, which provides additional opportunities to invest tax-free for retirement apart from any other retirement plans. Whatever custodian is used to administer a self-directed IRA benefit program, all custodians function as the required neutral third party to manage the account, provide no investment advice and can offer tax-deferred or tax-free types of plans or accounts.
The recent growth and interest in self-directed retirement accounts also has resulted from the general lack of retirement planning preparation by the government, employers and employees. When combined with unreliable investment returns from traditional stock and fund investments with little diversification and control over the outcomes, many individuals and businesses seek alternatives.
Instead of just being able to have personal IRAs and retirement payroll deductions invested in approved plans featuring stocks, bonds and mutual funds, self-directed accounts can be invested in alternatives for greater diversity, flexibility and control over money and its growth in tax-deferred or tax-free investments.
At least ten types of self-directed IRAs are available for business owners, employees and individuals or their spouses. The most popular plans that can be used by small business owners for themselves or their employees as part of a benefits package are 401(k), Simple IRA and SEP IRA (simplified employee pension) plans.
Although self-directed 401(k), Simple IRA and SEP IRA plans can be used by any company, the types of businesses that can benefit the most include:
- Single owner/self-employed
- Sole proprietors
- Family-operated businesses
- Businesses with “excludable” employees
Even small companies and start-up business can attract better employees by offering a simple benefit program that is much less expensive, easier to set up, and provides more flexibility for the employees to direct and grow their retirement account faster than traditional methods of buying and holding stocks and mutual funds for the long haul. There are plans for any business. Pick the best one for your company and employees.
Real Estate Investments
While self-directed IRA retirement accounts can be invested in any of these traditional options, additional investments are available. All types of real estate, including rental houses, land, commercial property and apartments can be used for investment. You can also purchase notes, mortgages and tax liens or finance mobile homes on land contract. Investing in business ventures, unsecured loans, gold and precious metals, and much more to grow retirement accounts at a faster rate with more diversity is also an option. This allows you to take better advantage of the ups and downs in traditional markets and to earn better returns. Be advised that the majority of companies that provide IRA investment services are not set up to do alternative investments and real estate. While they may say that you can self-direct your investments, they only will allow you to invest in the products and investments that they sell or ones that were pre-determined by your employer when the plan was set up.
At first, there were only a few companies set up and approved to handle real estate and other investments in self-directed IRA plans. These IRA custodial companies, which are regulated by the IRS code, are growing and expanding rapidly to help individuals and small business owners plan and grow their retirement accounts. Most of the IRA companies offer many on-demand Internet articles about how to get started at self-directed investing for retirement. They also provide many weekly, free instructional online webinars and seminars about how to invest in the various alternative investments.
Setting Up The Program
If your business does not have an employee retirement benefit program in place, it is worth looking at the various options that can be offered to employees through your company. Simply setting up a program at little cost and getting them started on a retirement plan that they can take with them is an employee benefit in itself, even if your business is not strong enough yet to make a contribution every year for the employees. If your business already has a traditional retirement plan, it’s often possible to convert it or roll it over into a self-directed plan for greater flexibility, lower administrative costs and more control over investment options. Getting your employees to think about retirement now, providing an opportunity for them to learn how to direct their investments and investing along with them will provide benefits to employer and employee.
Disclaimer: Information, ideas, or opinions in this article are not intended as legal or tax advice. Please consult your legal or tax adviser as well as your IRA custodian for specific questions about your intended transactions.
James Maxfield is a mentor-based regional marketing consultant and representative for CamaPlan Self-Directed IRA. He can be contacted at email@example.com,jmaxfield@CamaPlan.com or 440-229-7454.