Entrust New Direction Blog

10 Million Americans are enrolled in Health Savings Accounts as of January, 2010, according to a new poll released by America's Health Insurance Plans.  10 million Americans with an HSA represents an increase of 25% in one year, with big increases in large group coverage (33%) and small group coverage (22%).

According to the report, Colorado was among the highest percentage of HSA users by state with 9.2%.

Considering the economy, many small businesses are choosing HSAs to save on healthcare costs for employees and the compnay itself.  Any healthcare change can be difficult, but many employees have discovered their HSAs can be as good as, or better than, their previous health care.

Many of the 10 million have discovered that they can use an HSA to save for future health expenses after they retire. Self-directed HSAs can provide a unique investment opportunity in the healthcare arena. Anyone with a self-directed HSA can invest the funds in real estate, precious metals, or many other investment alternatives. If the HSA holder has investment success, the funds will be tax-free to pay for qualified medical expenses.

HSAs can be used as an investment tool, or just as a savings account and tax break.  Especially with the healthcare overhaul, HSAs will continue to provide many options for Americans in all tax brackets.

Some brokers argue that 401(k) holders need all the help they can get.  It's true that some people with 401(k) accounts have little knowledge of finances and little interest in stocks, bonds and mutual funds.  But this regulation was like the fox guarding the hen house. 

It's possible that the advisers would direct the 401(k) holder independent of the possible commissions earned by the adviser, but an independent adviser is more likely to provide independent advice.

Phyllis C. Borzi, assistant secretary of the Department of Labor's Employee Benefits Security Administration, said, "Today's workers will benefit from quality investment advice - advice that is both affordable and unbiased."

Maybe if this sort of common sense continues, there will be a provision allowing more choice among retirement investment providers.  Sure, the 401(k) is the best option for the company, but what if they're no longer matching?  In my opinion, the employee should have more choice.  Likely if the average 401(k) holder knew that had choices, they would be motivated to educate themselves so they wouldn't need any adviser, independent or affiliated.

Photo courtesy of skedonk

Like most Americans, Juan did his best.  He worked 50 hours a week, took his kids fishing in the summer and sledding in the winter, occasionally fit in some golf games with his pals.  Every day, Juan tried to be the best dad, best husband, best friend he could be.  Juan also wanted to provide for himself and his family as well as possible, for now and the future.   So Juan contributed to his 401(k).  He figured as long as they matched 3%, he should figure a way to get that free retirement money, even if it meant a little less income right now.  

Then the stock market sunk and his 401(k) dropped 40%.

Then Juan was laid off.

Talk about a flying drop kick to the stomach. 

While surfing the web, ostensibly looking for a new job, Juan ran across a press release targeting the newly unemployed.   "What? I can invest the retirement money however I want?  No way!  I can't believe it!"  Since Juan was screaming in the empty basement, his wife ran downstairs to make sure the idleness of unemployment wasn't atrophying his brains.

When Juan explained about DIY retirement investing, and the discount, Juan's wife, Jenny immediately thought it was a scam.  "I don't think so.  Why haven't we ever heard about this?  The government is going to let regular people decide what to do with their retirement money?  There must be a catch." 

Still, Jenny had a small hope that this self-directed IRA investing was true, because she knew exactly where to invest some of the money - in her friend's new start-up kitchen gadget company.

Juan continued researching and discovered that there is an entire industry of self-directed IRA custodians and administrators, and one was located right in town!  Juan and Jenny happily transferred the funds from their 401(k) into a new self-directed Roth IRA.  Juan and Jenny took the buy direction letter home, and Jenny called her friend the kitchen gadget start-up company CEO.

Her friend the CEO was so excited, she knew Jenny loved the idea.  But then she  remembered the words of her start-up lawyer, "Accredited investors only." 

"Um, Jenny, are you an accredited investor" the CEO asked, knowing the answer.

Jenny's investment dream was smashed.

Jenny and Juan's IRA was not an accredited investor.

Juan and Jenny were able to find some other investments - they put some money in real estate, some in gold and some in CDs, but Jenny watched her friend's gadget company double, triple and quadruple in size.

Has this happened to you?  Maybe you know of a great investment opportunity but you don't have the requirements of an accredited investor.  Questions?  Watch this blog for more information on accreditation and discussions and what the little person can do.  

Kick photo courtesy of mighty mighty bigmac.

Bottles photo courtesy of shkumbin.

Locavore, the Oxford American Dictionary word of the year, 2007, and now in Webster's Dictionary, is defined as "one who eats foods grown locally whenever possible."  You, dear self-directed IRA holder, could become a locavestor, i.e. "one who invests retirement funds locally whenever possible".

Of course, a locavore's ideal location is amongst agriculture, while the locavestor would have more options in an urban evironment, but even New York City has farmer's markets, and even Idaho has investment opportunities.

Some ideas for locavesting:

1) Loan money locally                                                                           Your IRA can lend money to your church, your kid's soccer coach, your next-door neighbor.  Many people are paying 15-30% or more for credit card debt.  Your IRA could swoop in, earn 10% interest and save someone you know thousands of dollars.  Don't know anyone in need?  You could put an ad in the local paper.  Plus, the money your lender saves will likely be spent locally, further strengthening your town or city.

2) Buy shares in a local private company.                                                            

While this may not be the best time to start a company, many people who were laid off are doing just that.  They need start-up cash, and your IRA could contribute now, and look forward to a bug payout later.   There are likely local established companies which aren't ready to go public, and they may be looking for a cash infusion to help them along until the economy steadies.  Your IRA could buy into the next Microsoft or McDonald's, before they grow gargantuan. 

3) Buy a foreclosed home in your neighborhood.

Your IRA can vastly improve the neighborhood if you buy a foreclosed home and rent it.  Your IRA gets fat with rental income, and the neighborhood's home values improve.  Or if you don't want to deal with renters, your IRA could buy and hold the home, until the local real estate market improves. 

4)Buy the farm.                                                                                       To combine the best of eating and investing locally, you could find a small agricultural operation and your IRA could become a partner.  Not only could your IRA grow like the rutabagas, your retirement investment could contribute to the health of your community, literally.

If you see my new bumper sticker: "Think Globally, Invest Locally", please wave.  I'll wave back. 

It's not news that banks these days are about as popular as a thundercloud at a solar car race. And why should banks be popular now (or ever)? The one good thing banks ever did for the regular Joe and Jolene was loan money. When you wanted a new car but couldn't afford it, or a bigger barn for your dairy cattle, or a new addition for the new addition in the family, or, these days, a home of your own at all, detached or not - the bank lent you the money, with interest. I always thought that this was how banks made their money. Boy was I wrong.

How Banks Make (Made) Money

Sure, banks may take some interest money in, but their major source of revenue is investment. You've heard the adage, "It takes money to make money". Well, banks had money, all right - our money. And they made money on all sorts of investments that may have been listed grade A, but clearly were grade F or G. In meat quality grading terms, you wouldn't feed that to the racoons (unless you really don't like racoons).

The Credit Snipe

Now, when banks could be making interest money on business, home and car loans, they're too scared to provide credit. This is where you and your self-directed IRA fly into the scene, your cape waving in the wind, a big blue B on your chest.

Your self-directed IRA can save the day! Three scenarios where your retirement fund can be a better bank.

1)After a close loss, the first baseman from your softball team confides that he's paying 15% interest on his Giganto TV loan. Happily, you confide in him that you can pay off his loan and lower his payments. Your IRA will earn 10% interest tax-deferred or tax-free.

2)Your next door neighbor was trying to get ahead of the game with fix 'n' flips, but his last fixer-upper didn't flip. He tells you that he doesn't want to foreclose and he can't rent it for as much as he needs. What he needs is a bridge loan from your IRA, just until the housing market picks up a bit. He's happy to pay less than his current ballon loan, and you're happy that your IRA will earn 8% returns.

3) The sweet older lady who owns your neighborhood craft shop confides in you that The Kraft Nook may not be providing knitting needles and painted pine cones for long. Why? Her business relies on monthly loans so her shelves can be full of popular hobby helpers, but not brimming with the flourescent orange yarn that nobody wants. Your IRA can save the day.

Think about who you know and what they're paying interest on.  Most likely, you know someone who needs your IRA to be a better bank. 

Learn more by registering for these free webinars, Learn the Secrets the Bank Doesn't Want You to Know From a 15 Year Veteran and Overcoming the Top 5 Fears of Private Lending.

The basics:

Health Savings Account (HSA) is a savings account you can fill tax-free. You can use the account to partner with your self-directed IRA to invest, earning tax-free funds, which you can use to pay for future medical expenses tax-free.

Why I love my HSA:

1) tax shelter (up to $5,000 for family in 2009)

2) can be invested like a self-directed IRA

3) earnings are tax-free

4) never expires (can reimburse you for medical expenses from the moment you open the account until the day you expire).

5) can be filled with a one-time IRA rollover

An HSA can only be used with a High-Deductible Health Care Plan (HDHP), which is also referred to as a catastrophic plan. To me, that's what health insurance is for - catastrophes. Of course, like car or life insurance, the higher deductible, the lower the premium. This can be a good thing, depending on your situation.

The anecdotal evidence:

When I was covered by a standard health insurance plan by my old employer, I paid my $300 every month and my family's $20 doctor visit copays and my family's $20 prescriptions. We went to the doctor with almost every cough and rash and throat ache; we filled and took the prescriptions.

Then, I changed jobs and began the HSA/HDHP plan. At first, I was very unhappy about the change. I thought about how much the doctor costs, how much our numerous monthly prescriptions cost, and I was not happy.

But as the first year as a so-called "under-insured family" progressed, we began to notice a change. We went to the doctor less. We discovered in a couple cases that our medical problems could be solved by nutrition and habit changes. We started to feel better than we had before. We still visited the doctor when we wanted to, we still had monthly prescriptions, but less in both cases.

Slowly, as we examined the bills, we noticed another change. We were actually paying less for health care than with the standard health insurance! Plus, the money in our HSA, combined with our self-directed IRA, was growing steadily, which helps my worried mind.

You probably don't get a health care tax deduction

One more reason to consider an HSA-  you cannot deduct health
costs from your income unless 

    1) health care is 7.5% of total income and

    2) you itemize all your health care expenses

HSA works for us, it may work for you.  For more information, read What is an HSA?

Here at Entrust New Direction, our clients are constantly making interesting investments that range the gambit from front-loading tractors to foreign real estate to gold bullion. Perhaps as a result of investment scandals like Enron and Madoff, a growing number of investors are looking for investments that work not only for them, but also for the greater good. So it made sense to us to celebrate Earth Day this year by featuring an IRS-permitted green investment that potentially combats global warming, rebuilds rainforests, and builds your retirement savings at the same time.

Watch the webinar now. 

Socially Responsible Investments can be on a global scale like this example of rebuilding rainforests, but they also can be simple local solutions. Even purchasing and renovating a foreclosure in your local neighborhood can make a difference in your community. Do you have a favorite non-profit organization? Did you know that you can use your IRA or 401k funds to lend them money for important projects? Or perhaps the growing market of micro-loans has captured your interest? IRA and 401k funds are perfectly acceptable sources of capital for those as well. So next time you read the news and it raises your blood pressure to the point where you really want to do something, think about how you can get money you already have involved in your favorite cause and earn a decent return at the same time. Many of our clients are already doing it and so can you! 

Sound intriguing? Watch the recording of the webinar by following this link. Or learn more about the Socially Responsible Investing movement by visiting this area of our website. And Happy Belated Earth Day!

More about Socially Responsible Investing.

The modern day gold rush is ON! Commercials, neighbors and famous financial advisors tell you to buy gold. Especially in the past six months, many clients and prospective clients have asked us if they can use their retirement funds to buy gold and other metals. The answer is YES, if you have a self-directed retirement plan, your IRA may invest in precious metals. Part 1 and Part 2 of "How to Buy Gold and Other Precious Metals in your (Self-Directed) IRA" will help you answer the next question- what kind of gold and what other metals?

With so many coins and metal choices on the market, making a decision can be confusing. Following is a simple step-by-step way to determine if the metal of your choice is acceptable for an IRA investment. Note that whatever your choice, the IRS will not allow you to hold the metal personally. The IRA custodian or depository will hold the metals for your IRA.

Let's get the basics out of the way first. Your self-directed IRA can only invest in Gold, Silver, Platinum and Palladium. Note that the key word here is invest. Your IRA cannot buy collectibles - your IRA is only investing in the metal itself, not rare or attractive coins. The metal must be in a certain form (usually coins or bars) and/or of a certain purity. The purity or fineness of the metal is how the quality of the metal will be measured for your IRA.

When most of us hear about gold investment we picture the 400 ounce gold bars we have seen in movies. Extremely heavy (25 pounds), those bars are also very expensive items, particularly with the recent price increases in gold. IRAs are often priced out of the gold bar market, but, fortunately, other options exist. One option is smaller units of bullion, provided they meet the fineness, or purity level, requirement. Another option is coins.

We will provide more detail on specific coins in Part II.

Welcome to the nitty gritty details of investing in gold and other precious metals with your self-directed IRA. If you missed Part 1, check it out first.

First, some history. The IRS initially said that all coins are collectible and therefore, not a legal IRA investment. In the mid 1990’s, after realizing that a 400 ounce gold bullion bar would be too expensive for most IRAs, Congress allowed certain coins in addition to bullion.

Generally these IRA allowable coins fall into two categories:

1.Coins specifically listed in the Internal Revenue Code and minted by the US. . These include:

2. Some coins meet the minimum fineness requirements but are not rare enough to receive collector attention.

* Gold Coins - .995+
* Silver Coins - .999+
* Platinum - .9995+
* Palladium - .9995+

In addition to these American options, there are some coins issued by mints of other nations that do meet the fineness requirements. See more detail on specific coins in our coin report. If you’re not sure about the fineness, ask your self-directed IRA custodian or metals dealer.

Coins that were issued for commerce are not going to qualify for IRAs. Also, coins issued for special occasions like Olympic games or national celebrations, and those issued in small quantities, are desired by collectors and their price is generally higher than the value of the raw metal. They are not allowed in IRAs.

When you are researching a particular coin, check two things:

1) Make sure the fineness of the coin meets the required amount from the table above. If not, then it does not qualify.

2) Compare the price of the coin to that of an equivalent weight coin of the same metal and to global spot price of the metal. If you find the price for your coin of choice significantly higher than one or both of the other prices, pass it up for your IRA, as it is likely a collectible.

Your IRA’s investment in gold is just an investment in the raw metal; attractiveness of the coin should not come into play in your investment decision. In other words, consider the value of the coin melted down – not as art.

Also remember that you will not be holding the coins personally when your IRA invests. The IRA custodian will require the coins be held in a depository and you will likely never see them unless you take them as a distribution when you retire.

Now that you’re armed with good information on what kinds of precious metals your retirement account can invest in, you can join the gold rush. Thankfully, you won’t need to climb mountains with a pick and shovel and freeze your knees in mountain streams to diversify your retirement portfolio with precious metals.

For more information, check out our Precious Metals page or our page on some specific coins.