In my encounters with traders across the nation, I am constantly asked to talk about retirement plans. “Michael, should I set up a retirement plan? Which plan is better?” My answer is that even traders will retire some day so you should definitely plan your retirement and the best time to start is NOW.
So, how did modern retirement accounts get started? In 1974, Congress passed the Employee Retirement Income Securities Act (ERISA). Out of this landmark legislation grew IRAs, 401(k)s and other company sponsored plans, such as SEPs, 403(b) plans used by educators, and most other qualified retirement plans. The government gave Americans four attractive incentives to save:
Contributions are tax deductible. Every dollar you contribute to your account will be deducted from your gross taxable pay consequently reducing current taxable income and creating an immediate return on investment at the rate of your marginal tax bracket.
Contributions and investment gains are not taxed until distributed. Your account can grow tax free without the intervention of Uncle Sam. Basically, if you invest $10,000 per year for a duration of 20 years at a 10% average rate of return, you will have about $200,000 more in your tax deferred retirement account than in your non-deferred account. That’s the power of tax deference.
Contributions are easy to make through payroll deductions. For company employees, if you never saw or touched the money, it was easier to save for retirement.
Generally speaking, these Retirement accounts were also exempt from creditors. Congress overhauled the bankruptcy laws in 2005. Under the new law, virtually all retirement account and pension plan funds are exempt from creditors, meaning you get to keep them if you file for Chapter 7 bankruptcy. In Chapter 13 bankruptcy, because your retirement accounts are exempt, they won’t affect how much you must repay unsecured creditors. (To learn more about the role of exemptions in Chapter 7 and Chapter 13 bankruptcy, consult your attorney). With a few exceptions, the exemption amounts are unlimited, so the entire amount of the retirement account is protected.
With all of these enticements, saving for retirement was practically irresistible and Americans began to put away millions in IRAs and other retirement accounts. Retirement plans grew in such popularity that at the end of 2007, the nation’s pension assets had grown to a staggering $17.6 trillion. Then the Market Crash of 2008 happened. On March 10, 2009, Anthony W. Ryan, Assistant Secretary of the U.S. Department of the Treasury reported that, “The total value of our nation’s retirement savings has been estimated at $11 trillion.” One of the reasons for this immense wealth loss is the fact that most Americans could not short the market or opt out to invest in alternative investment vehicles.
So, are retirement plans good for us or not? The answer is YES retirement plans are a great vehicle to secure and increase our wealth bucket. However, the plans that 96% of Americans have pose many disadvantages. They lack freedom and choice, two values that this great nation was based on. Most retirement plans will limit you to only certain class assets your plan offers such as stocks, bonds, and mutual funds. Furthermore, most custodians allow access only to mutual funds they have pre-selected. These funds usually charge fairly high management fees, some of which are hidden, so you can never quite follow the costs of maintaining your retirement account and their performance is mediocre at best. You would also like to know that originally, 401(k) plans were not intended to be retirement plans but savings plans. When ERISA came out, employers moved away from costly pension plans and Wall Street identified huge profit potential and thus the mutual funds were born and Wall Street grew richer than ever leaving us with limited investment options and exposed to market crashes.
A better way. What if you had the freedom and choice to invest or trade your retirement accounts in almost anything you would like including Real Estate, Tax Liens, Land, Options, Futures, Forex, Precious metals, mortgage trust deeds, private investment in LLCs and much more?
What if you had full control of your investments coupled with minimal management fees compared to the high fees your current plans charge? What if you could achieve asset protection and checkbook control of your investments and have your money locally held and investments and trades done without any red tape?
What is the secret that only 4% of savvy American investors know? It’s a little section of the IRS code (IRS Code 4975). What is revealed is what you are allowed to invest in with your retirement funds. Actually, there isn’t a long list of what is allowed; instead, there is a very short list of what is disallowed.
These vehicles of Self-Directed IRA LLC or Solo 401(k) retirement accounts put control back in your hands and out of Wall Street’s hands, allowing you to increase your rate of return and to really diversify your retirement accounts. Your options of investing and trading are almost limitless.
So, if you do not have a Self-Directed account, you need to contact one of our professionals and jump-start your retirement accounts. We make the process easy for you allowing you to focus on what you do best, invest and trade.
– Michael Atias