An IRA, or individual retirement account, is the cornerstone of most people’s retirement plan. This unique investment vehicle allows a taxpayer to contribute a portion of their income up to a certain amount. You are allowed to contribute up to $5,500-$6,500 per year depending on your income, tax-filing status, and other factors.
These limits were adjusted upwards for 2016 to account for inflation. Under a traditional IRA, these contributions are tax deductible. However, all contributions (whether initially tax deductible or not) can reap returns on a tax-deferred basis until retirement and withdrawal.
When you begin to withdraw at age 59 1/2, withdrawals from the IRA will be taxable. The great benefit of delaying this tax payment is belonging to a lower tax bracket in retirement. Once you reach age 70 ½, withdrawals of an IRA are mandatory. If your IRA contains different assets in it, you can choose which amount of what assets you wish you remove and when. Furthermore, an IRA is created solely for a single individual person. It is not associated with one’s employer or workplace.
IRAs can contain a wide variety of asset types and may be invested in any asset type that the custodian institution, such as a bank or brokerage, allows. Stocks, bonds, mutual funds and ETFs are some of the more common components of an IRA. But with a self-directed IRA, you can hold more types of assets, including precious metals and real estate. Due to their subjective values, collectibles, including antiques and collectible coins, and cash-value life insurance are prohibited from an IRA.
Established by the Employee Retirement Income Security Act of 1974, about a third of Americans possess some type of IRA, according to the Investment Company Institute. IRAs accounted for the greatest share of retirement assets, totaling $7.3 trillion, compared to all defined contribution plans including 401(k)’s, totaling $6.7 trillion in the fourth quarter of 2015. With the decline of pensions and employer-provided plans, IRA’s have become the most popular investment tool of managing one’s retirement.
The 3 Ways to Fund an IRA
Most (not all) taxpayers are allowed to contribute $5,500-$6,500 maximum per year to their IRA (must be over 50 ½ years old to contribute over $5,500). This goes for Traditional & Roth accounts only. Owners of SEP IRA’s can contribute either 25% of earned income or $55,000 per year, whichever is less. Exceptions apply.
Money can be withdrawn from one retirement plan and contributed to another IRA within 60 days of the initial withdrawal. This transaction is 100% tax-free and penalty free. Money is sent from an old retirement plan directly to the individual account holder and they are responsible for contributing it to their new IRA within 60 days to avoid paying taxes. This is the most commonly used method for people with employer-sponsored retirement plans (401k, 403b, 457b). Generally, this can only be done one time per year, per account.
3. Trustee to Trustee (also known as Direct Transfer)
The individual account holder instructs that money be transferred directly from their current IRA trustee into a new IRA account. Money moves from one company (trustee) to another company (trustee) without the account holder having to take receipt of funds at any time. This type of transfer is 100% tax-free, IRS penalty-free and has no restrictions on the amount of transfers available.
**IMPORTANT: Transfers must be done from “like plan” to “like plan”. Pre-tax accounts get transferred to pre-tax accounts (Traditional and SEP accounts are interchangeable since they are both pre-tax), and post-tax accounts get transferred into post-tax accounts (only transfer Roth account into Roth account).
Withdrawing Money from an IRA
1. Withdrawing at Any Time
Money can be withdrawn from an IRA at any time – however, if a withdrawal is taken prior to reaching age 59 ½, a 10% Federal penalty applies.
2. Indirect Rollovers
Indirect rollovers are a tax-free, penalty-free withdrawal if completed within 60 days.
Many Retirement Accounts Qualify
If you see your plan below, you could qualify for an investment in gold.
Allows individual investors to contribute pre-tax income toward investments that can grow tax-deferred (no capital gains/dividend income is taxed). Allowed to contribute up to $5,500-$6,500 depending on taxpayer’s income, tax-filing status, and other factors. Contributions are tax-deductible. Money is taxed upon withdrawal. May withdraw money at any time – however, if you are not over 59 ½ years old, federal penalty will apply.
Allows individual investors to contribute post-tax income toward investments that grow on a tax-deferred basis. Allowed to contribute up to $5,500-$6,500 depending on taxpayer’s income, tax-filing status, and other factors. Contributions are NOT tax deductible. Since money is taxed before being contributed to Roth account, it does NOT get taxed upon withdrawal. Completely free withdrawal, as long as individual is over 59 ½ years old. If money is withdrawn before they reach age 59 ½ years old and the ROTH account is less than 5 years vested, federal penalty applies.
Simplified Employee Pension (SEP)
A retirement plan that an employer or self-employed individual can establish for themselves and their employees. Contributions are tax deductible – very similar in nature to Traditional IRA. Individual must be the owner of the business/President/CEO/self-employed in order to establish a SEP IRA. SEP IRA’s can be transferred/rolled over into a Traditional IRA or a new SEP IRA. In a SEP IRA you are allowed to contribute up to 25% of your income, up to $55,000 per year.
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)
A retirement plan that may be established by employers/self employed individual. Contributions are tax-deductible. These accounts can only be transferred to Traditional IRA’s or SIMPLE IRA’s after they have been established for at least 2 years. If the account is less than 2 years old it may not be moved.
Employer-sponsored retirement plan for a “for profit” company. 401(k)s are the most common kind of defined contribution retirement plan. These plans can generally only be rolled over if the individual is over 59 ½ years old or separated from service (no longer working for employer).
Employer-sponsored retirement plan for “non-profit” company. Generally can only be rolled over if the individual is over 59 ½ years old or separated from service (no longer working for employer)
If you’re an employee of a city, county, township, park board, water district or similar entity, your employer may offer a tax-exempt savings benefit known as a government 457(b) deferred compensation plan. This retirement plan allows employees to make pre-tax salary deferrals. An advantage of the 457(b) plan is that it is not subject to the IRS age 59 ½ rule and there is no 10% penalty for withdrawing your funds before that age, although the withdrawal is subject to ordinary income taxation.
Tax-Sheltered Annuity (TSA)
Commonly found in many 403b plans, tax sheltered annuities allow an employee to make contributions from his or her income into a retirement plan. The contributions are deducted from the employee’s income and, as a result, the contributions and related benefits are not taxed until the employee withdraws them from the plan. Because the employer can also make direct contributions to the plan, the employee gains the benefit of having additional tax-free funds accruing.
Thrift Savings Plan
Retirement plan for Federal government employees. Employee’s are either “civilian” or “uniformed.” Must be either 59 ½ years old and/or separated from service from Federal Government in order to rollover funds. TSP has their own set of forms to be used for any rollovers.
6 Reasons to Invest in Precious Metals
Advantage Gold is committed to providing you with the education, understanding, and comfort you need to make sound financial decisions. Here are some of our charts and graphs to help you learn about Gold and why you should choose Advantage Gold for converting your existing IRA or eligible 401(K) into gold or other precious metals.
You Could Already Qualify
Take our quick and simple survey to easily see if you can qualify to invest in gold with your retirement plan. It takes less than 5 minutes and you don’t need to give away any of your personal financial information to find out.
Why Gold and Why Advantage Gold?
Finances can be tricky and complicated. That’s why we want to share with you exactly who we are and what we can do to help you achieve your financial goals. Watch our short explainer video to learn just what we can do to help you.
Gold IRA Infographic
If you are interested in buying gold but need more information about what kind of gold investment you would like to make, our Gold Investment Infographic will walk you through the differences between Exchange-Traded Funds (ETFs), gold stocks and physical gold. If you would like more information about owning physical gold, call one of our specialists today at 1-800-341-8584.
Are Hidden FEES In Your Current Plan Funding Someone Else’s Retirement?
Imagine this scenario for just a moment…
You’re reviewing the latest statement for your 401(k) and a seemingly innocuous number catches your eye…
There are all sorts of fees for administration and record keeping and the entire time you’re trying to process these fees you can literally picture money flying out of your wallet and into someone else’s. Because the sad truth is according to a 2012 CNN report by Robert Hiltonsmith fees can “reduce your 401(k) balance up to 30%, regardless of whether you have $1 or $1 million in your retirement account.”
Plus we’re just talking about the fees on your statement YOU CAN SEE…
The numbers you see on your 401(k) statements are reporting net gains. That’s right…only the total funds in your account AFTER fees are sucked out of your 401(k). This literally means that fees for managing your investments are subtracted from your gains or added to your losses without you ever seeing them.
And what this means is there are hidden costs you never see or hear of. According to Kiplinger.com’s article “The High Cost of 401(k) Fees: How Much Are You Paying?”, administrative and record-keeping fees actually get “divvied” up amongst all the participants in a plan but are not explicitly listed on individual investment statements. Yes, “administrative” and “record-keeping fees”. This basically means that you have the privilege of paying fees for your plan to keep track of how much money you’ve handed over- often without even knowing it! …And this lack of transparency makes most 401(k) plans frustrating and COSTLY. The lack of transparency also explains why 80% of plan holders actually have no clue how much their plan’s fees are hurting their retirement.
BUT… you do have a huge measure of control over this situation. Know Your Enemy: Find Your FeesSo let’s talk about how you can become a pro at figuring out how to calculate and cut costs in your plan… First and foremost you need to know how to actually find the fees on your statement. Although this task can seem daunting, we have some helpful tips for you…
There are four basic types of costs that you must be aware of:
Direct Investment Expenses
Portfolio Management Fees
Undisclosed or Hidden Costs
Direct Investment Expenses
Direct investment expenses, also known as “expense ratios,” can be found on your 401(k) plan website, or helpful financial sites like Kiplinger.com or Morningstar.com. Expense ratios are expressed as an annual percentage of your total investments and are different for each fund.
TIP: Grab your most recent 401(k) statement, find the expense ratio of each fund, and add the costs up to get your total annual direct investment expense!
Portfolio Management Fees
If your plan uses a broker or an investment consultant (many smaller plans do) you may be charged as much as 2% in portfolio management fees. 403(b) plans that most teachers and non-profit organizations participate in could also be laden with additional costs for mortality and insurance.
Many employees end up paying a share of the total operating cost of their 401ks. This is especially prevalent in smaller companies.
TIP: Get a copy of your plan’s annual summary. This can be provided by your plan administrator or the benefits office at your work. In section labeled “basic financial information” you can find the plan’s total expenses. The difference between the expenses and benefits paid is your plan’s net administrative/operating expenses. Divide the net operating expense figure by the total value of the plan and you’ll come up with the percentage for annual operating expenses.
Your plan may have a revenue sharing program that is literally funding your boss’s retirement. Sound scary? It is. Especially since these arrangements between the plan provider and individual mutual fund companies are seldom disclosed. These hidden costs can include commissions paid to plan providers to steer participants to higher cost funds within their 401ks or a back end deal of a rebate to the provider which eliminates operating expenses for the service provider but not for you as the participant.
To illustrate how these fees can eat away at your retirement let’s look at a $100,000 example. Let’s say a 401k provider charges 1% for management of a mutual fund with an expense ratio of 1.5%. Add an operating expense of .8% and you’re all the way up 3.3% annual in fees. That’s $3,300 a year, EVERY… SINGLE… YEAR!
You can see why Demos think tank policy analyst Robert Hiltonsmith stated “You can work as potentially hard as possible and play by the rules and still not be able to retire with some dignity.”
The Easiest Way To Avoid MASSIVE Fees
With the dizzying array of fees that you pay for your 401(k) there is a way to deeply reduce what comes out of your pocket.
If eligible, you can roll over your costly 401(k) into a Self-Directed IRA many of which have a flat fee structure and give you full control of your investment options. This can be done TAX FREE and PENALTY FREE!
An Advantage Gold IRA allows you to accumulate real wealth through ownership of physical gold and silver with the added benefit of flat fees! You can contribute to your IRA every year and pay the same low annual fee for the account and storage of your gold and silver. Avoid Ridiculous Percentage Based Fees NOW! After reading this your blood pressure is probably up a few points… and frankly, it should be. If you’re losing upwards of 30% of your money to petty and exorbitant fees we have a solution… With an Advantage Gold IRA you can protect your retirement, keep potential gains in your portfolio and MOST importantly pay simple flat fees. No more guessing how much you’re going to lose when your administrator decides to take more than his fair share…
In a matter of just a few minutes you can discover the power and protection of an Advantage Gold IRA.