Tax Liens

It happens to me almost every presentation. Someone from the audience raises their hand during a seminar on self-directed IRAs and asks, “What is the likelihood that the government is going to take away my IRA?” Or, “will my Roth IRA indeed never be taxed again, or will Congress change their mind later when they are desperate for more revenue?”

Until this past week, I dismissed those conjectures as needless concerns from conspiracy theorists. Until the headline “Obama wants to put $3 Million Cap on IRAs” was found on the front page of the local paper. Maybe there is something going on that we need to pay attention to…

Now, of course, the political approach of making such a drastic move is first to reassure everyone that this will only target the rich, not you or I. And there is a slight inference that no one can gather such a large IRA together without some unfair advantage and extreme good fortune. In the article, recently failed GOP Presidential candidate Mitt Romney’s $100M IRA was trumpeted as the perfect example of how a large IRA is created based on insider knowledge and understanding tax law nuances.

Regardless, the rest of us in much lower tax brackets should be a bit uneasy. IRAs were created to help individuals have a shot at creating a retirement for themselves that industry and government had no stomach or ability to provide. Now over 47 million households have them, with almost $5 Trillion saved for retirement. It’s not unexpected that the government is eyeing those accounts with a great deal of interest, impatient for the tax revenues that will only come upon personal distribution of those largely pre-tax assets.

But wait, this won’t affect me – or anyone I’m likely to know. $3M is a huge IRA and not likely to be amassed by an ordinary person. Not true. For example, a person can, through a SEP IRA, contribute up to $51,000 annually. Through consistent savings and wise investing – many choosing a self-directed IRA, it is not impossible or even improbable of achieving a large balance in your IRA. We certainly have clients that would be taxed under this potential plan.

The concept of charging a tax on an IRA account which was created in the first place to provide a tax shelter to encourage savings is flawed policy. A bad idea is equally as bad regardless of whether or not it affects you or I.

Balancing the budget is something that both sides of the political aisle proclaim to be important for the future of our country. Doing it by taking it directly from retirement plans that were pledged never to be taxed is wrong.

Who knows, are Roth IRAs next?

Glen Mather is President of NuView IRA, Inc., a leading self-directed IRA administrator in Orlando, Florida. He can be contacted at 407-367-3472 or gmather@nuviewira.com.

According to a study by Fidelity Investments, 62 percent of consumers said they stuck with their financial New Year’s resolutions in the past year, compared with only 40 percent who kept other resolutions. When you think about it, a financial resolution may be easier to keep than others regarding eating better or giving back to the community because for many people, taking control of their finances seems like a more pressing, dire need in their life.

Research shows that when people have a measurable goal, they are more likely to succeed with their resolution. Therefore, if your New Year’s Resolution is to take control of your finances, create a measurable goal for your financial health. If you don’t know where to start, consider these three main areas of financial health: zero consumer debt, adequate emergency reserve funds, and maximization of IRA contributions.

According to The Investment Company Institute (ICI), only 39% of US families even have an IRA. In addition, many people who have IRAs are only contributing up to the level at which their employer matches, which is often 6 percent. However, for most people, 6 percent will not be sufficient in the long term. Chances are, you will probably need to put away 15 percent (or more) of your salary to hit your financial goals.

A self-directed IRA is a great way to unlock your IRA and take control of your retirement plan. Self-direction significantly expands your investment options to a wide variety of investments including real estate, tax liens, stocks, bonds, mortgages, notes, precious metals, and other investments. There is a myth that you have to have a lot of money to get started with self-direction, but we debunked this myth in our blog entitled “How to Take Advantage of a Self-Directed IRA with Just $5,000”.

Consider these ideas as you work to improve your financial health in 2013. As always, NuView IRA is here to provide you with the professional service you deserve. Call our company of experienced self-directed IRA administrators in Florida at 407-367-3472 to discuss your investment choices within a self-directed IRA and to start building momentum toward your financial goals for this year.

Don’t let the little issue of RMDs or required minimum distributions get lost in the blur of the holiday season.  The IRS makes it painfully clear that they are envious of those of you that are over the age of 70.5 and have an IRA or other retirement plans.  Interestingly, the Roth IRA holders are spared the indignity of the government telling them how to manage their finances, but more about that later.

If you hold a non-Roth IRA and had your 70th birthday before July 1 of 2012, you must take a minimum distribution from your plan.  In other words, make what was tax deferred, now taxable.  How much must you take out?  It is based on an IRS provided table that calculates your estimated life expectancy.  How much is it?  Well, if you turned 70.5 this year, you will be forced to take a distribution of a little over 3.6% of your holding.  My mother, age 92, is required to take out 9.8%. For those of you yearning to know more, consult IRS publication 590 for the rules and tables.

All non-Roth IRAs are added together to calculate the RMD, and distributions can be made out of any of the held IRAs to meet the distribution requirements.

IRA holders that are in or near their RMD years should plan for sufficient liquidity in their plans to permit the easy withdrawal of funds as required.  This withdrawal can take place anytime during the calendar year – but if not done by December 31st, a penalty of 50% of the undistributed amount will accrue to the IRA holder.

Those that have contributed or converted to a Roth IRA are not forced to take any distribution during their lifetime, as all taxes have already been paid.

So, two end-of year reminders:  If you are nearing or over seventy years of age and have pre-tax IRAs, get prepared, and take the distributions as required.  If you wish to convert to a Roth this year, you must do so before December 31st.  Talk to your tax professional before the end of the year so you make all the best moves.

As always, all the best in your investments,

Glen