Entrust New Direction Blog

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.

401(k)s, developed in 1980 and popularized in the mid 80s, have been a mixed bag.  On the good, 401(k)s encouraged people to invest in their future self by saving money for retirement (and sometimes getting free matching payments from the company).  On the bad, because the 401(k) holder had little or no choice, they also encouraged holders to forget about where their money was going.  In addition, many companies (Enron is the blackest example) highly recommended investment in the company's stock, which is a great idea if you happen to work for Berkshire Hathaway.  

Of course, 401(k)s and how people think about them has changed recently with the death of the stock market.  Now, people know they don't want to invest in the stock market, but they don't know what to invest in.  We're here to help.  We never offer financial advice or take any commission on any investment - you decide what, when, why, where how much.  First step, move your 401(k) into a self-directed IRA.  Next step, decide what to invest in.  No ideas?  Take a look at some of these examples:

1) Real Estate IRA

Investing retirement money in real estate can take many forms - a rental apartment which pays your IRA monthly, a house which is held in an IRA until you decide to sell, even your dream home, which you can live in after you retire.  This real estate can even be in a foreign country, which opens your options greatly.

2)Land

Raw land can be purchased and held until the time is right to sell or build, purchased and leased for farm land or oil or cell towers - the possibilites are limited by your imagination.  As someone famous said, they're not making any more.

3)Gold and other precious metals

Your IRA can purchase gold coins, gold bars, electronic shares of gold.  Buy now, sell when the time is right, and you'll never have to worry about or pay for storage.

4)Loan

Your IRA can provide loans for friends, businesses, or non-profit associations.  If someone you know is paying 20% interest on a credit card, your IRA can loan them the money for 15%!  As long as a person is not a direct lineal decendent(or yourself), your IRA can loan them money. 

5)Private Stock

Find the next Microsoft, Apple or fill in your own successful business, and your IRA can buy some shares in them before they go public.  Nanotechnology, biotechnology, or your next door neighbor's fledgling cookie business, your IRA gets in before the world knows the true value of a start-up company.

Don't limit yourself or your future when you can take the DIY approach and direct your own retirement investment.  Ask a question or open an account. 

Employer healthcare costs are projected to jump 9% in 2010, and employees' costs will likely grow to double digits, according to a report from consulting company PricewaterhouseCoopers.

42% of the 500 employers surveyed reported that they would increase their employees' part of the cost burden.  41% indicated they would increase the cost share through plan re-design.

20% of employers expect to add a high-deductible health care plan as an option in the next two years.  PricewaterhouseCoopers reports that HDHPs are expected to lower health care utilization.   HDHPs also have the added benefit, when combined with a self-directed Health Savings Account, of becoming an investment vehicle.

Those employees who don't have an HDHP are expected to increase their usage of the health care plan, PricewaterhouseCoopers speculates, because many are worried about a potential layoff and want to utilize their health care before that may happen.  Unemployment is adding to the higher cost, as less people are members of commercial health care plans.

Wondering about your options as an employer?  Learn more about Health Savings accounts from the employer's perspective.

Not sure if an HSA is a good idea for you or your family?  Read one person's perspective on HSAs from the employee point of view.

Everyone's favorite government organization, the Internal Revenue Service, recently released their annual "'Dirty Dozen' Tax Scams", and some aspects of retirement arrangements did not slip by un-noticed. In this case, the IRS is looking out for your (and your IRA's) best interest.

To summarize and generalize, this quote is from IRS Commissioner Doug Shulman: "Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times. There is no secret trick that can eliminate a person's tax obligations."

The IRS is paying attention to IRAs, and is learning more and more about cheaters each year. The 2007 and 2008 Dirty Dozen both mentioned retirement arrangements; specifically, "Taxpayers should be wary of advisers who encourage them to shift appreciated assets into Roth IRAs or companies owned by their Roth IRAs at less than fair market value. In one variation of the scheme, a promoter has the taxpayer move a highly appreciated asset into a Roth IRA at cost value, which is below annual contribution limits even though the fair market value far exceeds the amount allowed."

This year's list includes a specific reference to LLCs.

Abusive Retirement Plans
The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited. (emphasis mine)

If you are considering an IRA LLC, please be aware of the legality and limitations. Don't trust just anyone you find on the internet (including us). Call the company, see how much they know about IRAs, the IRS, IRA LLCs.

For more information on the care and feeding of an IRA LLC (Checkbook Control IRA).

View full list on IRS website.

A small study was released last week detailing how well (or badly) couples talk to each other about money, investments, budgeting, retirement. The results from the 500 couple study (by Fidelity) indicate what we probably already know - couples don't necessarily agree, and don't necessarily communicate about their retirement future or other financial topics.

* only 38% decide on retirement investments together

* 60% disagree on what age they will retire

* 42% differ on planned retirement lifestyle (how much they'll spend on what)

Perhaps none of these results are surprising, but one stat that I found very surprising:

* 85% of couples don't feel confident that either one could assume responsibility of the finances.

This indicates:

1) only 15% of couples share the financial load (or agree on their capability to share the load)

or

2) more than 15% share the financial work, but each person secretly thinks the other is a financial ignoramus

Maybe number 2 is correct, since:

39% don't agree on whether they own an annuity

While the study purports to be a cross-section of society, it's not as if the respondents had no requirements. The couples had to be married, 45-72 years old, with at least $75k income and at least $100k investable assets.

The study doesn't indicate gender, but I'd be interested to know which gender (in heterosexual couples) does more money-work. I'd also like to see if the person who makes more money takes more money responsibility, or if the person who works more hours takes more or less money responsibility.

Perhaps I should solicit a study....

I just got off the phone with a person who has a self-directed IRA and their custodian has terminated their self-directed IRA program. In this particular case the custodian was TD Ameritrade and the holding in the IRA was a private stock investment. We have had quite a number of individuals call with the same issue from IRA custodians ranging from large organizations such as Charles Schwab to small local bank trust departments. These companies have decided that the intricacies and rules related to recordkeeping and reporting for self directed accounts doesn't fit in with their growth plans and/or skill set of their staff. Unfortunately, the resigning custodian generally doesn't provide much assistance with helping find a new custodian.

Entrust New Direction specializes in providing just those services, plus education on how the plans work. If you find yourself in receipt of a letter giving you 30 days to find a new custodian, call us! We are happy to provide assistance for individuals who have IRAs that the current custodian has resigned from. We will help you establish a new account and help work with the old custodian to get the assets transferred over. We focus on making sure you don't end up with a taxable distribution of your valuable retirement assets.

When working with your new self directed IRA, be sure to take advantage of our extensive educational offerings. Entrust New Direction provides live classes in our Lafayette, Colorado learning center, continuing education classes through the University of Denver School of Law, and at other sites around the country, plus we offer many classes via the internet. 

The investment power of self directed IRAs and other plans is the perfect tool in this economy to allow you to make investments in the micro economy that you or your network of friends and colleagues live and work in. Choices include start up companies, real estate, private lending, private company stock, gold, oil wells and more. The choice is as varied as your life experience. However, to understand the rules and process be sure to work with a company with a solid background in education and willingness to help explain the rules.

For more information: Broker dropped the ball?