Welcome To The Retirement Planning FAQ’S!
Below You Will Find FAQ’S That We Have Compiled To Help You Understand What Our Retirement Planning Looks Like And How It Can Benefit You And Your Business!
What Is Retirement Planning?
Retirement planning is the process of which you get with your wealth advisor or wealth advocate to devise a plan of building out as many different types of profitable retirement plans that are available to you as a business owner.
For example, as a business owner, there are several tax-advantaged retirements that you can use as a tax deduction for your business. Those funds can be invested into other cash-flowing assets that build that one or few retirement streams.
Others would be tax-advantaged growth retirements that allow you to grow the after-tax dollars tax-free. Think of paying taxes on the seed and not the harvest.
I Dont Know What Questions I Should Ask About Retirement?
This is all part of why you want a retirement plan and why you want to go through our FAQ’s.
Many people are living longer, which means your retirement could last for decades. But that doesn’t mean you should start planning later. Developing a thoughtful plan can help you have a positive experience in retirement.
Here are seven questions to ask yourself before you retire:
- When do you want to retire?
- Have you saved enough to retire?
- How will you maintain your standard of living?
- Are your investments appropriate for a long life in retirement?
- Are your affairs in order?
- Do you want to leave a legacy?
- How will you spend the extra time in retirement?
As you will see in our other FAQ’s we will be asking these and providing answers.
When Do I Want To Retire?
You might get to decide when to leave the workforce, or you could be forced into retirement ahead of schedule. As a business owner you may want to sell off your business earlier than regular retirement years which also takes a plan of action.
If you have an unforeseen circumstance, would you be able to retire sooner than that goal date? Because a lot of times things happen, health issues arise and your circumstances change. You might not make it to your goal retirement date before you need to actually retire.
Other times you may be a person that loves what they do and want to semi retire. All of these have to build a plan around them so they can be executed correctly so that there are ZERO surprises.
How Do I Know If I Have Saved Enough?
This is a fairly personal question that you must get real with yourself on. How much do you need annually to live a very comfortable non stressful life that you can enjoy and do the things you love? This answer is different for everyone.
The key as an entrepreneur is to build multiple streams of income with your business that feed your retirement and that you can eventually sell tax-free which puts more money back into your pockets. Assets such as Real Estate and Businesses.
You also have quite a few options to build your own retirements that allow you to have multiple streams of income in your retirement years as well.
We encourage you to sit down and figure out how much money it would take annually for however many years you expect to be alive and half that number so if its 20, build your numbers off of 30 years in retirement. The best part is you can always add to it if you choose. You also must take into consideration inflation as well.
At DoWhatTheWealthyDo.com we help business owners build multiple revenue streams and multiple retirements so they have the true freedom and flexibility to do what they want, when they want.
How Can I Maintain My Standard Of Living?
Many people assume that their expenses will decrease in retirement, and there could be some costs you can eliminate.
However, many of your expenses will stay the same and some may even increase. You might want to spend more in retirement, perhaps to travel and do things you couldn’t do when you were working. You also cant forget inflation which will occur no matter what.
As an entreprenuer and business owner the best thing to do is to max out your retirement options such as Self Directed IRA and SD Roth IRA, along with A Solo Self Directed 401k (if you dont have any employees) or a Defined Pension Plan so you can drastically reduce your tax liabilities, max out your traditional self directed retirements that allow you to invest those funds into things such as real estate, business, crypto ect.
The other thing you should absolutely do is invest in a Legacy Wealth Account which should be one of the first things you do. This is guaranteed tax-free retirement or tax-free cash flow in as little as 11 years. Be sure to check it out under our services page.
Are Your Affairs In Order?
Make sure you have important financial documents in place including a will or trust, living will and a medical or health care power of attorney.
Dying without a will can burden your loved ones, who, while suffering through grief, may also have to figure out how to pay bills, find financial and legal documents and hire an estate attorney.
This is why at DoWhatTheWealthyDo.com we always encourage clients to obtain Asset Protection with Estate Planning. This way all your assets are highly protected while you are alive, and can remain protected and for the benefit of your beneficiaries after you pass this making it super easy for your beneficiaries to receive benefits from your estate and asset protection.
Do You Want To Leave A Legacy?
Some retirees want to spend and enjoy the money they have accumulated, while others intend to leave funds to their children and grandchildren or to charity.
Some people are going to spend every penny, and for some people it’s really important to make sure that they’re passing something on to the next generation. That’s going to change how you put money away and the way that you put money away.
Again it all boils down to your current situation and what you want your retirement to look like. We can assist you in making sure retirement planning is happening and we will do our best to make sure that retirement is not an issue for you.
What Types Of Retirement Options Do I Have?
Well, that entirely depends on what you want. There are traditional retirement plans such as 401ks that are purely run by a 3rd party, that invests in stocks, bonds and mutual funds which go up and down and can cause some folks early heart attacks.
Then you have non-traditional such as Self Directed IRAs and Self Directed 401ks which we are more fans of because you can use those funds to buy businesses or shares of businesses, you can buy cash-flowing real estate, you can use it to trade crypto or buy crypto mining equipment and mine cryptocurrency or you can use it to buy precious metals.
CLICK HERE to go to our retirement planning page and learn more about the options there and what steps to take.
How Will I Pay For Medical Expenses In Retirement?
Medicare health care coverage begins at age 65, but on average, it will only cover about 50% of your total health care expenses in retirement.
You will have out-of-pocket expenses for eye care, dental, hearing, co-pays, Medicare Part B premiums, and premiums for other supplemental insurance policies you may purchase, such as a Medigap policy or long-term care insurance. That is where building up an HSA account depending on your medical coverage when operating your business helps out greatly.
NOTE: Medical expenses can vary widely by geographic location, but on average, expect to spend about $5,000 to $10,000 per year, per person. Fidelity projects that an average couple age 65 retiring in 2020 will need $295,000 to cover their retirement health care expenses.
This is where living benefits come in handy with your Legacy Leveraged Wealth Account “LWA”. The LWA has so many benefits but one that truly makes a difference besides the tax-free income is the living benefits that come with it incase something happens to you and you need cash for medical expenses.
SELF DIRECTED IRA’S FAQS
What Is A Self Directed IRA?
A self-directed IRA is an IRA (Roth, Traditional, SEP, Inherited IRA, SIMPLE) where the custodian of the account allows the IRA to invest into any investment allowed by law.
These investments typically include: Rentals, Fix and Flips, Notes/Loans, Private Real Estate Funds, Real Estate Syndications, LLC’s or Businesses, Cryptocurrencies, Cypto mining, Crypto Staking, and Precious Metals to name a few.
The typical reaction we hear from investors is, “Why haven’t I ever heard of self-directed IRAs before, and why can I only invest my current retirement plan into mutual funds or stocks?”
The reason is that large financial institutions that administer most U.S. retirement accounts don’t find it administratively feasible to hold real estate or non-publicly traded assets in retirement plans.
Can I Roll Over Or Transfer My Existing Retirement Account To A Self Directed IRA?
This all depends on the type of retirement account you have.
- I have a 401k with a former employer. If this is you then yes you can roll over to a SD IRA. If it’s a tradtional 401k, it will be a self-directed 401k, if its a Roth 401k, then it will be a self-directed Roth IRA.
- I have a 403(b) account with a former employer. If this you, then yes you can roll-over to a traditional self-directed IRA.
- I have a Tradtional IRA with a bank or brokerage. If this is you then YES, you can transfer to a self-directed IRA.
- I have a Roth IRA with a bank or brokerage. If this is you then YES you can transfer to a self-directed Roth IRA.
- I dont have any retirement accounts but want to establish a new self-directed IRA. If this is you then yes, you can establish a new Traditional or Roth self-directed IRA, and can make new contributions according to the contribution limits and rules found in IRS publication 590.
- I have a 401(k) or other company plan with a current employer. If this is you then NO. In most cases, your current employer’s plan will restrict you from rolling funds out of that plan. However, some plans do allow for an in-service withdrawal if you are at retirement age.
How Can I Grow My Self Directed IRA?
The great thing about Self Directed IRA’s is that you can invest into what you love and know.
Under current law, a retirement account is only restricted from investing in the following:
- Collectibles such as: Art, stamps, coins, alcoholic beverages, or antiques (IRC 408(m));
- Life insurance (IRC 408(a)(3));
- S-corporation stock, (IRS Letter Ruling 199929029, April 27, 1999, IRC § 1361 (b)(1)(B));
And, any investment that constitutes a prohibited transaction pursuant to ERISA and/or IRC 4975 (e.g. purchase of any investment from a disqualified person such as a close family member to the retirement account owner).
The most popular self-directed retirement account investments include:
- Rental real estate;
- Secured loans to others for real estate (trust deed lending);
- Private small business stock or LLC interest; and
- Precious metals, such as gold or silver.
These investments are all allowed by law and can be great assets for investors with experience in these areas.
What Is Checkbook Control Or An IRA LLC?
Many self-directed retirement account owners, particularly those buying real estate, use an IRA/LLC (aka “checkbook-control IRA”) as the vehicle to hold their retirement account assets.
An IRA/LLC is a special type of LLC, which consists of an IRA (or other retirement account) investing its cash into a newly created LLC.
The IRA/LLC is managed by the IRA owner, and the IRA owner then directs the LLC investments and the LLC to take title to the assets, pay the expenses to the investment, and receive the income from the investment.
There are many restrictions against the IRA owner being the manager (such as not receiving compensation or personal benefit) and many laws to consider, so please ensure you consult an attorney before establishing an IRA/LLC. For more details on the IRA/LLC structure, including cases and structuring options, please let us guide you to our partnering lawfirm.
At DoWhatTheWealthyDo.com we have a department that looks to acquiring both businesses and rental real estate. We also are lining up various FUNDS to invest in that have promising and sizeable returns. We offer these to our clients in a Joint Venture capacity.
This means you can use money from your business to JV with us or you can use money from your IRA LLC to joint venture with us on real estate or a business you or a family member doesnt personally have any ownership interest in and all that equity and cash flow goes right back into growing your Self Directed IRA.
What Restrictions Are There On Using A Self Directed IRA?
When self-directing your retirement account, you must be aware of the prohibited transaction rules found in IRC 4975.
These rules don’t restrict what your account can invest in, but rather, whom your IRA may transact with. In short, the prohibited transaction rules restrict your retirement account from engaging in a transaction with someone who is a disqualified person to your account.
A disqualified person to a retirement account includes: The account owner, their spouse, children, parents, and certain business partners. So, for example, your retirement account could not buy a rental property that is owned by your father since a purchase of the property would be a transaction with someone who is disqualified to the retirement account (e.g. father).
On the other hand, your retirement account could buy a rental property from your cousin, friend, sister, or a random third-party, as these parties are not disqualified persons under the rules.
Can My Self Directed IRA Invest In My Personal Business, Company Or Deal?
No, it would violate the prohibited transaction rules if your IRA transacted with you personally (or with a company you own). In addition, your IRA cannot transact with or benefit anyone who is a disqualified person (e.g. IRA owner, spouse, children, parents, spouses of children, etc.)
Can My Self Directed IRA Invest Cash And I Can Get A Loan To Buy Real Estate With My IRA?
Your IRA can buy real estate using its own cash and a loan/mortgage to acquire the property. Whenever you leverage your IRA with debt, however, you must be aware of two things. First, the loan your IRA obtains must be a non-recourse loan. A non-recourse loan is made by the lender against the asset, and in the event of default the sole recourse of the lender is to foreclose and take back the asset. The lender cannot pursue the IRA or the IRA owner for any deficiency. Second, your IRA may be subject to a tax known as unrelated debt financed income tax (UDFI/UBIT).
Are There Any Tax Traps? What About UBIT/UBTI?
The tax UBIT applies when your IRA receives “unrelated business income.”
However, if your IRA receives investment income, then that income is exempt from UBIT tax. Investment income exempt from UBIT includes the following.
- Real Estate Rental Income (IRC 512(b)(3)) – Rent from real estate is investment income, and is exempt from UBIT
- Interest Income (IRC 512(b)(1)) – Interest and points made from the money lending is investment income, and is exempt from UBIT.
- Capital Gain Income (IRC 512(b)(5)) – The sale, exchange, or disposition of assets is investment income, and is exempt from UBIT
- Dividend Income (IRC 512(b)(1)) – Dividend income from a C-Corp where the company paid corporate tax is investment income, and exempt from UBIT
- Royalty Income (IRC 512(b)(2)) – Royalty income derived from intangible property rights, such as intellectual property, and from oil/gas and mineral leasing activities is investment income, and is exempt from UBIT.
So, make sure your IRA receives investment income as opposed to “business income”
There are two common areas where self-directed IRA investors run into UBIT issues and are outside of the exemptions outlined above. The first occurs when an IRA invests and buys LLC ownership in an operating business (e.g. sells goods or services) that is structured as a pass-thru entity for taxes (e.g. partnership), and does not pay corporate taxes. The income from the LLC flows to its owners and would be ordinary income. If the company has net taxable income, it will flow down to the IRA as ordinary income on the K-1, and this will cause tax to the IRA as this will be business income and it does not fit into one of the investment income exemptions.
If your IRA has UBIT income, it must file it’s own tax return using IRS Form 990-T. The second instance occurs when the IRA invests into real estate activities whereby the IRA is deemed to be in the business of real estate as opposed to investing in real estate (e.g. real estate development, construction, significant short-term real estate flips).
What Is Unrelated Debt Financed Income (UDFI)?
If an IRA uses debt to buy an investment, then the income attributable to the debt is subject to UBIT.
This income is referred to as “unrelated debt financed income” (UDFI), and it causes UBIT. The most common situation occurs when an IRA buys real estate with a non-recourse loan. For example, let’s say an IRA buys a rental property for $100,000, and that $40,000 came from the IRA and $60,000 came from a non-recourse loan.
The property is thus 60% leveraged, and as a result, 60% of the income is not a result of the IRAs investment, but the result of the debt invested. Because of this debt, which is not retirement plan money, the IRS requires tax to be paid on 60% of the income. So, if there is $10K of net rental income on the property then $6K would be UDFI and would be subject to UBIT taxes.
Should I Use A Solo 401(k) Instead Of A Self Directed IRA?
A solo 401(k) is a great self-directed account option, and can be used instead of an IRA for persons who are self-employed with no other employees (other than business owners and spouses). If you are not self-employed, then the solo K will not work in your situation.
A solo 401(k) is generally a better option for someone who is self-employed and still trying to maximize contributions, as the solo 401(k) has much higher contribution amounts ($57,000 annually versus $6,000 annually for an IRA).
On the other hand, a self-directed IRA is a better option for someone who has already saved for retirement and who has enough funds in their retirement accounts which can be rolled over and invested via a self-directed IRA as the self-directed IRA is easier and cheaper to establish.
Another major consideration in deciding between a solo 401(k) and a Self Directed IRA is whether there will be debt on real estate investments. If there is debt and the account owner is self-employed, they are much better off choosing a solo 401(k) over an IRA as solo 401(k)s are exempt from UDFI tax on leveraged real estate.