This Issue: Supercharge Your Retirement

Compound Interest + IRAs = A Great Retirement

We all have different visions for our retirement years. Whether you plan to travel the world, pursue a hobby, donate time to your favorite cause, or spend more time with friends and family, it takes a plan to provide the income necessary to pursue your dreams. With the decrease of company-sponsored pension plans and the lack of confidence in an under-funded Social Security System, many have decided to take control of their future by saving for retirement. You should do the same.

More and more financially unprepared Americans are retiring without enough money to live on. Without Social Security, they will need their own financial nest egg. And you will too.

Retirement Accounts
Retirement accounts can make you wealthy, no matter who you are. You don’t have to be a securities market whiz, buying and selling pork bellies on your way to riches. You don’t have to be a brilliant entrepreneur who starts a company from scratch and takes it public. Heck, you don’t even have to be self-employed if you don’t want to. Nope, you can be an everyday Joe or Jane with an everyday job in Anytown, USA. Retirement accounts are built for everyday Joes, and combining them with the power of compound interest can make you rich (in the long run) even if you don’t make a lot of money. All you need is diligence and some time.

Compound Interest
The earlier you start saving for retirement, the better, because you can harness the power of compound interest. Compound interest happens when you invest in something, the interest (or earnings) are reinvested, and you earn interest on your interest. It’s amazing how fast compound interest can make something grow.

Here are two examples:

1. Let’s say Christine, who is 25 years old, wants to have at least a million dollars by the time she retires (age 65). If Christine invests just $160 a month at 10% compounded monthly, her investment will grow to $1,011,852 in those forty years. Her contribution was only $76,800. The remaining $935,000 (and change) can be attributed to the power of compound interest!
2. Now, let’s take Steve. He invests $450 a month for the same amount of time, and earns the same interest rate. However, his investment will grow to almost $3 million in those forty years! $2.8 million to be exact.

You can see why years and years ago, none other than Albert Einstein said that compound interest was the most powerful force on Earth. Look again at these two examples and you’ll see he was right.

Tax-Deferred and Tax-Free IRAs
Whether you’ve started planning for retirement or not, an Individual Retirement Account (IRA) is a retirement plan that can provide significant tax advantages for your retirement savings. There are a number of different types of IRAs, which may be either employer-provided or self-provided plans. Some of these include:

• Traditional IRA
• Roth IRA
• SEP IRA
• SIMPLE IRA
• Education IRA
• Spousal IRA
• Self-directed IRA

Through the years Congress has implemented a variety of changes to IRAs. But the most important element has remained constant--the benefit of investing tax-deferred or tax-free!

Why is this so important? To illustrate simply, if your current tax bracket is 28 percent, you will automatically save that much by not paying taxes on your earnings. In the case of tax-deferred plans, the earnings accumulate without tax until the funds are withdrawn from the retirement account. This allows 100 percent of your earnings to accumulate and compound rather than just 72 percent.

Let’s look at the two most popular IRAs:

1. The Traditional IRA is a tax-deferred retirement plan. In addition to deferring taxes on earnings, the Traditional IRA also provides a tax deduction for contributions, which leaves you with more usable income.
2. With a Roth IRA there is not a tax benefit for making contributions (a Roth uses after-tax dollars rather than pretax dollars). However, a Roth IRA allows for all investments and earnings to grow tax-free! This means that if you follow the rules you will NEVER have to pay taxes on these investments--not even at withdrawal!

Retirement accounts and compound interest are two powerful forces. And when you put them both together, pretty incredible numbers start to appear. Make sure you take control of your financial future by investing for retirement. Then you’ll truly be able to pursue your dreams during your Golden Years.

Self-directed IRAs: Investment Vehicle of the Rich

Where is your retirement money? And how much are you earning on it? If you're settling for poor returns with stocks, bonds, mutual funds, or CDs, you need to reevaluate. Many savvy investors are putting their money into high-yielding, real estate-backed investments where they don't have to sweat the volatility of the stock market.

You could be doing the same. In fact, anyone can. The secret is self-directed IRAs!

Self-directed retirement accounts have been around for several decades, but they have only recently gained popularity. And even at that, "popular" is a relative term. While more than 40 percent of the population holds some type of IRA, it is estimated that less than one percent take advantage of a self-directed account.

The Self-directed Retirement Plan
So what is a self-directed IRA? To understand, let's first look at traditional retirement plans. Most retirement plans [Traditional IRAs, 401(k)s, etc.] restrict their investors to a mix of stocks, bonds, mutual funds, CDs, etc. This probably sounds familiar to you.

Not a self-directed account. A truly self-directed retirement account empowers you to invest in ANY assets that are not prohibited by the IRS. What kind of investments do they allow? Almost anything! Most self-directed IRA custodians accept:

• Real Estate Notes and Mortgages (or Trust Deeds)
• Contracts for Deed
• Mobile Home Notes
• Business Notes
• Automobile Notes
• Secured or Unsecured Loans
• Investment Real Estate
• Options on Real Estate
• Lease Payments
• Tax Lien Certificates
• Accounts Receivable Financing
• Invoice Factoring
• Limited Partnerships and LLCs
• Traditional Stocks, Bonds, CDs, and Mutual Funds
• And the list goes on!

Imagine trying to invest in those with your current IRA custodian!

Self-directed Key Facts
Setting up a self-directed account is not difficult. You can use direct or rollover contributions from your current retirement accounts to fund it. But before you do so, here are several key facts you should know:

1. Self-direction is a specialized field and there are only about a dozen or so companies who offer it. A search of the Internet will reveal custodians (also called administrators) who offer this service.
2. When self-directing retirement funds, it is important to verify that the investment meets IRS guidelines. Most collectibles are disallowed by the IRS. Here is the list of things the IRS says you may NOT invest in:
   • Works of Art
   • Rugs
   • Antiques
   • Metals
   • Stamps
   • Coins
   • Alcoholic beverages
3. You can legally access your existing IRA, 401(k), 403(b), or other retirement funds and rollover those monies to fund your self-directed account.

Why Self-direct?
There are two primary reasons people choose to self-direct their retirement accounts:

1. They want control over their investment decisions rather than relying on someone else to decide what is best for their retirement account. As we often say, "No one cares about your money like you do."
2. They want to tap into higher rates of return often available through nonstandard investments.

You may not realize you can have more than one retirement account. The fact is, you can have dozens. For example, you can have a traditional IRA account, a Roth IRA, and a self-directed IRA--all while participating in the 401(k) at your place of employment. So don't think it's all or nothing when having a self-directed IRA.

Check with your CPA for specific IRS rules, but the government is generally pretty generous with allowing you to secure your retirement the way you want. That's why there's no reason for you to settle for poor returns or stock market volatility. With self-directed retirement accounts, you can REALLY diversify. Have fun with the process and watch your accounts grow.