Washington Equity Management

Funding a 401(K) could be one of the biggest mistakes you could make, according to Pulzar Inc. research. The research shows:

• Your 401(K) could cause you to pay higher taxes than necessary when you retire.
• Your 401(K), subject to market volatility, could leave you out of money before you die.

Does your 401k plan provide protection against negative market performance?

Most Americans have lost 20-40% in their investment accounts during the past 18 months. Yes, they’ve rebounded in the past 6 months, but what built in protection is there against another downdraft and future losses?

Does your 401k plan offer strong, solid performing options? Mr Brooks Hamilton, who designs 401K plans for B&J Partners, stated on 60 Minutes that most of the funds in 401k plans are dogs.

How has your retirement account performed over the past 10 years? Are you ahead or behind where you were in 1999? If you invested $100,000 in an S&P 500 Index Fund, here’s what you’d have in January of 2009:

 401(K) Tax Myths:

Do you know how much the tax deductions from retirement contributions you take today will cost you tomorrow?

Is your 401k/tax-deferred retirement plan actually setting you up to pay higher taxes in retirement, and have you out of money before you die?

Tax deferred retirement plans, including 401K plans, were set up as much to benefit the government as you. Calculations show that the average American who lives 20 years in retirement, will pay 5 to 8 times more taxes on distributions in retirement than he saved in taxes from contributions during his working years.

Do you know how’s it going to work out for you?

We live in complex times. Government spending and debt levels are the highest in history. Unfunded government entitlements are over $50Trillion. How are we going to pay for all this? What do you think? Are the low tax rates we’ve enjoyed for the past 30 years going to hold, stay about the same, or do you think tax rates will creep up in the future?

If tax rates go up, and you’ve deferred payment of your taxes to some future date when tax rates are higher, what will that do to your spendable income? If tax rates creep up in the future, then the conventional wisdom that says you’ll be in a lower tax bracket when you retire probably is no longer valid, is it?

How are you preparing for this? Do you know what results await you down the road? Are you certain you won’t outlive your money?

Most Americans have been brought up with the same basic goals-

• Get a good education. 
• Get a good job. 
• Buy a house. Pay it off as soon as you can. 
• Fund the company retirement plan as aggressively as possible. 
• Retire at 65, if possible, and spoil the grandchildren.

If we all know this conventional wisdom and believe it works, then why did the Social Security Administration release these figures:

If you take any 100 people at the start of their working careers and follow them for 40 years until they reach ‘retirement age,’ here’s what you’ll find:

• Only 1 will be wealthy;
• 4 will be financially secure;
• 5 will continue working, not because they want to but because they have to;
• 36 will be dead; and
• 54 will be dead broke – dependent on their Social Security checks, relatives, friends, even charity for a minimum standard of living.

That’s 5% successful, 95% unsuccessful. How could good advice from widely accepted conventional wisdom produce such poor results?

If there were a better way to protect and grow your funds, when would you want to know – now, while you have time on your side, or when you’re about out of money? Small, strategic adjustments can make a significant difference. Over funding a 401(K) or tax-deferred retirement plan is not one of them.

Where you accumulate your money and how you access it in retirement is every bit as important as how much money you have.

If you’re already funding a 401K or tax-deferred retirement plan, you could already be making costly errors. Wouldn’t you want to know the impact of what you’re doing now will have on your future?

Take 17 minutes and view an important case study video about Bob and Carol.  Click Here.   Log in and click on ‘Bob and Carol.’  (The intro and concept videos are important, but the eye-opening numbers are in the case study.)  Note the subtle, simple, cost-less changes that were recommended and the powerful impact these suggestions had on their income taxes and their retirement.  Then call 206-388-4074 to run your own numbers through our proprietary process and see what the difference could be for you.

Clients who’ve implemented this very strategy have not lost a single dollar due to market performance during the last 2 years. Clients who’ve implemented this strategy over the past 10 years are over 2 ½ times ahead of where they’d be in an S&P Index fund. And they’re on their way to saving tens of thousands in income taxes. For some, it’s literally a Million Dollar difference for them and the lives of their heirs.  Find out what the difference could be for you.

Call today.

Articles 401(K), low risk investment, private pension, retirement, taxes

As people experience the current state of the economy with the sub-prime mortgage debacle, near collapses by banking and insurance giants, as well as a plummeting stock market and shrinking retirement accounts, they want to take back control of their investments. 

Many are also disenchanted with the traditional investments available through typical retirement plans like an IRA or their company’s 401(K) plan.  The range of investment options via an employer’s retirement plan is generally restricted to a limited number of mutual funds and/or company stock. 

These funds do not provide protection of principal against downward market risks, which can be found among numerous prudent alternatives available today.  Furthermore, mutual funds provide limited opportunity for true diversification beyond stocks or bonds.

Additionally, a Harvard University study in 2006 proved that performance of mutual funds managed by investors working on their own is 6.626% and funds provided by financial advisors averaged 2.924%, net of all expenses (Morningstar.com and Harvard Business School website), bringing advisor recommendations under question. 

More and more investors are moving away from mutual fund managers and the volatile stock market and making their own decisions using Self-Directed IRAs to invest in traditional and non-traditional assets.

An investment portfolio constructed of uncorrelated assets can achieve an overall stronger rate of return with a lower level of risk, mitigate the volatility of the equity markets and conquer the eroding impact of inflation on purchasing power and long term investment performance.  There is a mountain of statistical evidence and Nobel Prize winning research that supports this approach.  However, it’s extremely difficult to achieve these results if you invest mainly in one asset class, for example, stocks via the mutual funds offered in an employer’s 401(K).

So what can you do?

“Everyday Americans are fed up with the failures of so-called financial wizards,” Provident Group Board noted. “People want to be accountable for and control their own investment destinies. With self-directed retirement accounts they can do just that.”

It is a little known fact that Self-Directed IRAs have been available since the creation of traditional IRAs by the Employee Retirement Income Act of 1974.  Also, typicial traditional and Roth IRAs allow for $5000 to $6000 annual contributions.  However, Self-Directed IRAs and Solo 401(K) and Solo 401(K) Roth programs allow for contributions up to $49,000 annually, depending upon age.

In the past, over 97% of retirement accounts have been dictated by the traditional investments available in the market.  This has been largely controlled by fear of the unknown.  Traditional custodians and brokers have falsely claimed that self-directed IRAs are complicated, risky and illegal.  Due to economic concerns gripping America today, people are educating themselves, taking back control and are no longer depending on traditional methods to invest in IRAs. 

Investment News (Sept 2007) reported a projection of a 10-12% increase in IRA rollovers from 2007-2010.  The trend will likely increase with the collapse of the traditional markets in 2008 and 2009 and as investors look to other means to recover losses and achieve greater financial success and security.

Many people are turning their attention to the variety of investment options available within the self-directed IRA including:

• Residential and Commercial Real Estate
• Life Settlements
• TICs (Tenants in Common)
• Tax Liens, Tax Deeds
• Mortgages, Loans, Notes
• Real Estate Options
• Small Businesses, Franchises
• Private and Publicly Listed Stock
• Limited Liability Companies
• Limited Partnerships

IRA investment regulations are largely regulated by what you can’t do with them rather than what you can.  This is what makes self-directed IRAs of non-traditional investments possible.  There are very few prohibited transactions:

• life insurance for yourself
• collectibles
• metal, gems, and stamps
• rugs and antiques
• coins
• artwork
• alcoholic beverages
• Sub Chapter S Corporations.

Setting up a self-directed IRA: 

The IRS requires a custodian to administer the retirement funds.  After the funds are moved to a non-traditional custodian, you direct your funds to the investment of your choosing.  The custodian will facilitate the investment purchase as required by IRS code.  If setting up legal services, such as an LLC is necessary, they can also assist with that.  Once investments are made the custodian will administer the account and hold the investment documents for safe-keeping.  Any profit or income from the investment goes directly back to your IRA account.

Two categories to consider for a Self-Directed IRA:

Life Settlements

A life settlement is simply the sale, or transfer of ownership, of an existing life insurance policy to another party. Typically, the individual selling the policy no longer wants or needs or can afford it, and desires to sell it to a third party via a secondary market. 

Historically, larger institutions have been the primary purchasers of these policies.  Now, fractions of policies may be purchased by accredited retail purchasers. These investors purchase the policy at a discount to its face value, keeping the policy in force until maturity. Upon maturity, the investors receive the full face value of the policy as their return on investment. These funds return to your self-directed IRA and grow tax-deferred in a traditional IRA or tax-free if using a Roth IRA.

The typical policy is purchased from someone over 78 years of age with a definable life expectancy. The owner has decided that the policy is either no longer affordable or necessary, and thus chooses to sell the policy rather than let it lapse, thereby converting the death benefit into a life benefit for their use. These special use policies might be for Estate Planning, Key-Man or Large-Loan policies. Typically, these policies are $1 million – $20 million in face value.

Life settlements provide contractual guarantee of principal and are completely uncorrelated to any other markets.  The return on investment is not impacted by the equity, bond or commodity markets, interest rates, oil prices or other economic events.  A life settlements investment represents true diversification, principal protection and has delivered a strong double digit rate of return each and every year for over 18 years.

Real Estate

The first thing to remember when your IRA purchases real estate is that the property is for investment purposes only. Your IRA must take title to the property. For example: Custodian Name FBO (for the benefit of) John Smith IRA. Your IRA may purchase property from an unrelated party (anyone who is not disqualified). Any income from the property such as rent goes back into the IRA. Likewise, any expenses, such as property management fees, maintenance etc., are paid from your IRA. It is advisable to use a property management company to avoid any prohibited transactions. When the property is sold, funds also go back into the IRA and remain tax-deferred or tax-free if using a Roth IRA.

There are various ways to purchase real estate. You may form an LLC and pool different funds together to purchase. For instance, you may use your IRA funds together with personal funds, a non-recourse loan, or with other investors. These different entities all own a part of the LLC, percentages being based on the amount of money invested.

Below are just some of the types of real estate you can invest in with your IRA:

• Residential homes, condominiums, duplexes, four-plexes
• Commercial retail, apartment complexes, office condominiums, homes
• Industrial manufacturing, warehouses
• Land

A non-recourse loan may also be secured to purchase investment real estate with your IRA. Typically the down payment for these loans is 30% to 40%. Guidelines for these loans do not normally use credit scores or income for loan qualifications.  These loans enable diversification across several properties within an IRA.

Truly Self Directed IRAs:

Where you open your IRA usually determines your available investment options.  You may be comfortable with your bank or financial institution, but your investment opportunities may be limited by their own self-interest.  A truly self-directed IRA custodian acts as a passive partner in your transactions.  They will be able to answer any administrative and legal questions pertaining to your IRA, but the power is in your hands when it comes to investment options and decisions.

Many major employers allow employees to re-position funds they’ve placed in their company’s qualified plans into a self-directed IRA that they can manage themselves.  You should observe the prescribed process pertaining to the chosen investment to preserve the tax advantages and avoid any penalties.  The process is not complicated and can produce net benefits that make the exercise worthwhile.  This enables the individual to have access to a wider range of investment options than may be available via an employer’s qualified plan.  Investors can achieve greater safety and performance of his entire investment portfolio with a prudently executed and managed strategy.

Articles, Self Directed IRAs 401(K), custodian, estate planning, Investment Real Estate, life settlements, retirement plan, Roth IRA, self-directed IRA

Principal protection, true diversification and solid performance. 

Protect principal from market risks in a safe vehicle untied to equities, bonds, commodities, interest rates, or real estate.

Fractionalized Life Settlements are uncorrelated to any other market.  

Imagine receiving a double digit rate of return with the risk of a money market fund or CD.  What if you’re so well insulated that it wouldn’t matter if the equity market dropped 500 points or real estate dropped 35% – your money wouldn’t be impacted at all!

Life Settlement investments have been a favorite of insitutional investors such as banks, endowment funds and investors like Warren Buffet for years.  Now life settlements are available to accredited retail investors.  Life settlements have delivered solid returns for over 18 years with CD type risk.

Learn details in our Life Settlements Presentation:  HERE

It’s GOOD and it’s TRUE.  Don’t let fearful skepticism cause you to miss out.

If you have money under-performing anywhere, learn how life settlements could safely rejuvenate at least a portion of those funds.  Re-position money from 401(K) plans that don’t provide protection against downside market risk.  Upgrade low returning CD’s or bonds.

Watch the presentation above and take action with your new knowledge.

“He who refuses to embrace a unique opportunity loses the prize as surely as if he had failed.” – William James

Alternative Investments 401(K), alt-inv-ls, life settlements, low risk investment, rate of return, self-directed IRA