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.

Many Realtors® and Real Estate Investors have been upset and up-in-arms this summer about bill HR1728, which passed in the House and is in process in the Senate.  This bill has admirable, if late, aspects aiming to prevent predatory lending.  That's not what makes many Realtors' stomachs churn.   The bill also takes on seller financing, which is increasingly utilized in a credit-desert environment like ours today.

Seller Financing allows the buyer and seller to work out a deal on payments, frequency of payments and interest rates, independent of banks or professional mortgage companies.  Seller Financing is what allows a self-directed IRA owner to lend money on real estate and create passive income for their IRA.  These deals happen thousands of times each year by real estate investors, IRAed or not.  Many real estate sales could not have happened in this credit-crunch environment without seller financing. Under this bill, an individual is only allowed one seller-financed deal every three years, or else register as a lender.  This is, to say the least, a complicated process.

The National Association of Realtors® initially supported the bill.  From their newsletter May 11, 2009: "NAR is supportive of this bill because it protects both the consumer and housing sector."

However, the NAR swung on this issue.  The latest "news" comes from correspondence from NAR clarifying their position.  The NAR reports that the Senate Banking Chairman, Chris Dodd, indicated that “this issue is not on his ‘mustdo list’".  

I would like you to take the following two messages from this e-mail and NAR. First, the bill looks like it will die due to inactivity in the Senate. Meaning, these requirements, which are not in effect, will not go into effect anytime soon. Second, if the bill begins to move in the Senate, NAR will work diligently to have a full exclusion for seller financing added to the Senate's version of the bill, or increase the limitation so it does limited harm to consumers that have to utilize this type of financing.

This is one case where congress's tortoise pace might be to our benefit as real estate investors and Americans.  

Photo courtesy of MiiiSH.

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. 

Healthcare costs rise every year for all Americans - employer, employee, self-employed, and their families.  The US government is working on this, but their track record on reform is not so good (or fast).  Meanwhile, Americans pay more and more for basic health care, at a time when many mortgages are going up and many people are unemployed or underemployed.

One solution that has worked for more and more families each year is the Health Savings Account.  10 reasons to consider an HSA:

1) HSA premiums are vastly cheaper than other healthcare plans.

You are immediately saving money.  The renewal costs are also much cheaper than an HMO, PPO or other plans.

2) HSA will cover peripheral medical costs.

With many HMOs or PPOs, dental care, eye glasses, and eye surgery are not covered.  HSAs can be used for this, and also acupuncture, psychiatric treatment,fertility treatment and more.  See IRS Publication 502.

3) You control your medical care with an HSA.  

There is no network. No one will force you to choose from a list of doctors or hospitals.  With an HSA, you play an active role in every healthcare decision. Even the best doctor may benefit from having to explain his or her recommendations when you ask the right questions about your healthcare.

4) HSAs are tax-deductible.

All the money you deposit into your HSA is tax-deferred.  Even if you spend it all on approved medical expenses, the money is still deductible. 

5) Money saved in an HSA never expires.

Unlike a flexible spending account, the money in your HSA can grow for years until you need it.

6) HSAs can be filled from an IRA.

You can pay for your health care from your retirement account - one time.  If you're short on cash, you can take a bit from your retirement and transfer to your HSA without a penalty.

7) With a self-directed HSA, your health care dollars can be an investment. 

Your HSA money can join with your self-directed retirement funds and invest in real estate, gold, private stock, or a loan. 

8) HSA investment earnings are tax-deferred.

If you make a good investment and earn thousands, that money will stay in your HSA until you need it, tax-deferred. 

9) HSA money earns interest when you're not using it.

If you can't find a good investment, or between investments, the money in your HSA earns tax-deferred interest. 

10) Contrary to common sense and popular belief, health care costs are not tax deductible for most Americans.

Healthcare costs must be 7.5% of your income to be tax deductible.  Most Americans do not qualify for this, even in a bad health year.  

For more information on HSA, see our Learning Center or ask a question.

Photo credit Brooks Elliot

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?

Behold the lever, first described in 260 B.C. (or so the historians say) by Greek mathemetician Archimedes.

The lever has helped people accomplish more than they thought possible. I imagine the first time a lever was used, it seemed magical.

Behold the lever, 2009:

Using a self-directed IRA, you can more than double your buying power if you use leverage to purchase real estate. More and more banks are learning about self-directed IRAs and offering loans for purchasing real estate. Because the loans are non-recourse (only secured by the asset), a loan to a self-directed IRA is the most secure option for a bank (and for the IRA).

Of course, some restrictions apply:

1) The loan must be non-recourse, which means your personal credit, and the rest of your IRA does not apply to the value of the loan - only the property does.  In the case of defaulting on the loan, the bank takes over the real estate.

2) In most cases, the property must be income-producing.

The down payment is usually in the neighborhood of 40% of the value of the property.  This means you more than double your buying power, which means you could increase the value of your retirement money (or make up for stock losses) faster.

Contact us if you have questions or view this helpful FAQ.  

The Denver Post reports that Denver metro foreclosures are down 46% in the first quarter 2009 compared to first quarter 2008.

This is good news and bad news for the savvy investor.  Good news if you have real estate already in your self-directed IRA or HSA since this likely indicates that prices are on the upswing.  The bad news is for those of you who wanted to pick up a (or another) foreclosure property - the pickings are slimming!

The Post article is based on a report released by RealtyTrac which details foreclosure rates around the country.   The front range Colorado is besting the national average by far - national rate is up 23%.

Boulder area is down 20%, Greeley down 23%.  Colorado Springs and Fort Collins had slight increases, but overall the front range seems to be standing strong.