For those of you who have already set your financial resolutions for 2019, congratulations! You have taken an important step towards a fruitful financial year and future. I’m hoping that at least one of those resolutions was to save for your retirement!
For those of you who haven’t yet set your financial resolutions for 2019, you should start now because writing down a set of financial goals and resolutions is a great way to plan for the future. If you do work with a financial advisor, you may want to go over your list with them, to make sure you didn’t forget anything. Below is my own list, geared toward retirement and self-directed IRA savers:
Make a list of financial resolutions. The best way to accomplish financial goals and financial planning is to write them down. A New Year’s Resolutions list is a great way to start. Of those who were successful at keeping their financial resolution in 2018, 54% also said they were in a better financial situation than last year, compared to 28% of those who didn’t, according to the Fidelity Financial Resolutions study.
Save for retirement. Just 3 in 5 households between the ages of 45 and 54 have a retirement account, while 13% of those in their 40s own no retirement savings whatsoever. It’s not too late to start saving, and one of the best ways to save for retirement is by opening a self-directed IRA, which can allow you to invest your own funds in the type of investments of your choice—even real estate and private investments in an IRA!
Maximize tax advantages. A rollover to an IRA is generally tax free, and will preserve your savings for retirement. You can avoid the temptation to spend your savings and can continue on a path towards growth by making additional retirement savings contributions. If you elect to open a Roth IRA, contributions are generally after-tax but provide tax-free investment earnings for life. Individuals who have many years to grow their savings before they expect to take distributions can take full advantage of Roth’s tax-free growth. If you want even more detail, see a recent whitepaper on the topic, Rolling Over Retirement Savings.
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Review your asset mix. Are you invested solely in stocks and/or bonds? If so, consider expanding into alternative investments such as real estate, private equity, precious metals and private debt. Self-directed IRAs can be a great vehicle for alternative investments, providing tax advantages that other retirement accounts do not offer.
Consider being an angel investor. Ever thought about what it would be like to be a private investor in a start-up firm? Ask former presidential candidate Mitt Romney and PayPal co-founder Max Levchin how they amassed such wealth early on, and they will likely tell you they both had the foresight to use their IRAs to make some of their original investments in startup companies as angel investors.
Review your investments and your liquidity. Make a list of all your investments, making sure to note the deadlines or maturities for taking cash out. Are any of them in taxable accounts? Consider switching them to a retirement account or other tax-advantage account. Then, determine your liquidity by adding up what cash is available to you now or will be available within the next six months. Make sure you set aside emergency funds to cover your expenses within the next three to six months. If there’s enough leftover, consider saving these funds for retirement, with a self-directed IRA as one of your potential options.
Manage your taxes. It’s not enough to make sure your investments are in tax advantaged accounts, but also to make sure you manage your taxes and your tax brackets efficiently. It’s important to stay on top of taxes and tax deadlines, such as your required minimum distributions (RMD). Also, consider the potential that your tax rates may be higher in the future. If they are, consider converting retirement assets into a Roth IRA. Savers who want to create a mix of pre-tax and after-tax assets in retirement may want a Roth IRA.
Review your estate and beneficiaries. Estate planning isn’t just for the old or rich. A concrete plan includes a will, a review of account beneficiaries and instructions for what happens if you become incapacitated. Naming a power of attorney can help your loved ones understand your wishes. Adding or updating beneficiaries on your IRAs or other retirement accounts is important because these accounts transfer directly to the beneficiaries outside of the estate and probate process. Note that Roth IRAs have become a key component of wealth transfer strategies for two reasons: (i) Roth IRA assets are not subject to the age 70½ required minimum distribution rules, enabling Roth savings to continue to grow tax-free without being depleted by annual payments, and (ii) Roth IRA assets have already been taxed and will be paid out tax-free to heirs upon the IRA owner’s death.
So, there’s my list of New Year’s Resolutions. Keep in mind that simply writing them down doesn’t do much good unless you stick to them. Also, it’s important to plan for contingencies so that you can be prepared for unexpected retirement costs such as health care. And by all means, consider speaking with a financial advisor.
STRATA Trust is a self-directed IRA custodian, specialized in holding alternative assets within IRAs.