Author Archives: schatzi

Mar
27
2023

The Truth About Investing 401K Money in Real Estate

There are many success stories about self investing IRA money in less “traditional” investment vehicles. Many people would never think about investing 401K money in real estate, tax liens or anything else besides stocks and bonds. But, more and more experienced investors are realizing the benefits and growing truly tax-free wealth for their retirement.

In order to get the most out of self investing IRA funds, you first need to do a little comparative shopping. The average broker does not offer all of the different investment opportunities that can truly increase and individual’s profits.

A lot of professional advisors that are well educated in other aspects of accounting and tax laws have never heard of investing 401K money in real estate. But, it is a perfectly legal option. You just have to find a trustee that offers the option.

Also, you need to look at the fees charged among trustees that do offer the less traditional investment options. Some companies charge “per transaction” fees that can really eat away at your returns and profits.

A better choice, for most people, is a flat annual fee. There are a lot of new companies that are offering free and easy set-up for self investing IRA accounts. But, when you look for further information and read their free structure, you will see that they are charging you per transaction fees, as well as a broker’s commission.

Most of them still only offer the options of stocks and bonds. It is rare to find a company that offers you the option of investing 401K money in real estate, but when you do, there are sometimes even more and higher fees.

If you are interested in self investing IRA money in real estate or investing 401K money in real estate, there are specific fees that you want to avoid. Here’s a brief look at a common scenario that many people run into.

Let’s say that you decide to hold rental property in the account. Initially, you would instruct your trustee to write a check for the property. There are companies that charge as much as $175 simply to write a check to buy the property.

The deed is held in the trustees name with the additional line “for the benefit of Your Individual Retirement Account.” Some companies charge quarterly fees for asset administration. That can cost as much as $8 per deed.

Once you start self investing IRA in real estate and you see the profits or income rolling into the account, you will want to keep going, so a fee like “asset administration” could become quite unreasonable. But, that’s not even the most expensive fee that can accompany investing 401K money in real estate.

In order to buy, manage and maintain rental or other properties, you need a cash balance, because all of these things must be paid by the account. Rental income will constantly flow into the account.

So, it would not be unusual to have an un-invested cash balance of $10,000 or more. There are some account custodians that charge as much as 45% of your earned interest just to maintain the records for that balance.

The bottom line is that self investing IRA money is a good idea, if you have the time and the know-how, but remember to find out about the fees, before you choose a custodian.

Mar
26
2023

A ‘Fee-Only’ Financial Planner’s View of Life Insurance

When was the last time you met someone who introduced themselves as a “life insurance agent?” These days, even life insurance salesmen refer to themselves as “financial advisors.” Yet, what advice do you think an insurance salesman will provide? Of course, they will recommend you buy life insurance. To make matters worse, the insurance industry has managed to take something quite simple and complicate it to the point where not even all the people who sell it fully grasp the implications of the product.

So what do Certified Financial Planners (CFPs) who don’t collect commissions on product sales think about life insurance? When is purchasing life insurance appropriate?

CASH VALUE vs. TERM INSURANCE

Life insurance comes in many forms. Some policies slowly accumulate a cash value, meaning most of your premium goes towards insurance and a small portion goes towards a savings account. When you surrender your policy you may be able to collect this savings account. These products include whole, universal, and variable-universal life policies.

These policies are commonly presented as an investment. But beware! You should always think of life insurance as an expense. When you purchase insurance, you are buying something –peace of mind. Insurance is a way to ensure the financial security of the breadwinner’s family until the family can accumulate enough investments to make insurance no longer necessary. For this reason, insurance is frequently a necessity for young families, and often less necessary for mature families.

Whole Life

Whole life insurance typically requires the owner to pay premiums for the life of the policy. The insurer guarantees that the policy’s cash values will increase regardless of the performance of the company or its experience with death claims. With whole life policies, the interest rate applied to the cash value is predetermined and fixed.

Universal Life

Like all types of insurance, universal life pays a death benefit when the insured individual passes. Before death, however, the cash-value grows at varying rates depending on the ups and downs of interest paid on bonds and savings accounts.

Variable-Universal Life

Variable-universal life policies are similar to universal life policies, except the cash value can be invested in mutual funds (called sub-accounts) rather than at the insurance company’s current interest rates. However, the fees on these policies can be extremely high and in almost every circumstance there are more efficient strategies.

Term

Policies with 100% insurance and no cash values are called term insurance. This is the type of policy most people picture when they think of insurance. You simply pay the premium and collect a benefit in the event of death.

Although there is no savings element to term insurance, remember you are buying insurance to ensure your family is taken care of if something happens to you. In most cases there are more efficient ways to save and plan for retirement than through the purchase of cash value insurance policies.

Insurance or Investment?

A phrase you may have heard when considering insurance is to “buy term and invest the difference.” (You likely don’t hear this from insurance agents because they are paid a higher commission on cash-value policies. The salesman’s commission on cash value policies is often 90% of your first year premium.) To implement this strategy, buy low-premium term insurance from a highly-rated insurer and put the money saved from not buying a cash-value policy into a true investment account like an IRA, Roth IRA, etc. This provides your family with the protection it needs and an efficient way to save for retirement. Hopefully, over time, the investment account will grow and the need for insurance will be eliminated.

Most fee-only financial planners are proponents of the “buy term and invest the difference” strategy. However, there are certain occasions when a cash value policy may make sense. For instance, buying a cash value policy may be appropriate if your need is permanent, such as caring for a special needs child. Additionally, cash value policies may make sense if your need is certain, such as if you have the policy and are then diagnosed with a terminable disease. However, if you need a cash value policy, look for a no-load policy that doesn’t pay the salesman a commission. This can cut your premium in half and you won’t pay penalties when you withdraw your cash value.

Canceling a Policy: Prepare to Pay

Canceling a term policy is simple – just stop paying the premium. If you cancel a cash value policy within 10 years of purchase, you will generally pay a penalty (called a surrender charge) when you withdraw your cash value. If you cancel a variable universal life policy, you will also pay ordinary income taxes on the profits inside the policy. Chances are your insurance agent forgot to mention this.

Bottom Line

Insurance is clearly a complicated product, but for many, it is a necessity. However, remember that insurance agents are financially motivated to sell you insurance, regardless of your circumstances. Always speak to a fee-only Certified Financial Planner, who is never compensated based on the product recommended, to get an objective opinion of whether you and your family have adequate insurance coverage.

Mar
25
2023

Computer Finance – How, Why and Who?

You’ve made the decision to get your latest computer on finance – and why not, it’s going to do wonders for your cash flow and ensure you get the latest machine.

But how to go about it? Do you go to the computer manufacturer direct? Do you go to the bank? Do you approach a specialist computer finance company? In this article, we look at the different routes available to you to get your computer.

Traditionally, the first place you went when looking for finance would be your bank manager. Computer finance is no different – and your bank will undoubtedly be only too happy to help. But beware of the hidden pitfalls. Banks will generally only lend your business a set amount – and any kind of lending it makes will count towards this. The current economic climate makes banks even tighter on their lending criteria. A tax-deductible leasing agreement, rather than a bank loan, could make more sense.

A number of manufacturers offer finance or computer leasing deals. Apple, for example, offers two options to professional UK customers called “Finance Lease” and “Residual Lease”. If you are happy to be locked into a single manufacturer, these can be worth a look – they often provide upgrade options as well, to ensure that you always have the latest IT equipment. But you will be limited to that manufacturer’s computer equipment so this may not be the best route to go for custom solutions, or where you need a piece of hardware that a manufacturer can’t provide.

Resellers have now entered this market as well, though they generally can’t match the specialist finance companies for flexibility and high APRs are typical.

Mar
24
2023

Online Business Ideas From Home – Work Smart Not Hard

The prospect of working from home appeals to a lot of people. The dreams of being able to generate a great income all from the comforts of your couch have all crossed our minds. It’s a great thought… even better concept. So how on earth do you figure out how to create your financial freedom within the confines of our basement? Every day there are more and more people turning to the internet, looking for online business ideas from home that could actually replace their regular nine to five. The hopes that this new endeavor will provide them with a real earning potential and they will attain that ‘life’ they always dreamed about. Well, the truth is that this is not some far-fetched idea that is unachievable. All you have to do is come up with the right solution and make sure to execute it properly. Easy enough right? Not so fast… make sure to take your time and create a well thought out game plan. There are plenty of ways to make money online and if you manage to combine great ideas for home business you might be looking at an incredibly successful business model that could just as well get you out of the annoying nine to five.

A Combination of Profitable Business Ideas from Home

While the majority of people are going to try to convince you that there is a miraculous formula that’s going to start generating thousands of dollars a week or even a day, the truth is, the reality of these businesses is a little different. Don’t get me wrong, there are great online business ideas that you could turn into a profitable combination. You just need to temper down those lofty expectations. If you don’t scale back the unrealistic daydreams, you are going to flame out quickly, leaving this idea of a home business in the dust.

You don’t need to invent the wheel. The most innovative home business’ are a combination of the best work ideas and combining them. For instance, you might register to all the content generating websites and start gathering writing projects. Outsource the work to someone else and pay him slightly less than the client is paying you in the first place. This is without a doubt one of the most lucrative schemes that you could take advantage of. Do the same in a variety of different niches and you are going to have a perfectly working business model which combines a few successful at home businesses.

Go For the Safest

There are a few things that are always going to be hot on the internet – marketing and shopping. You can take advantage of each of these, simultaneously. If you don’t have a marketable idea, you can start focusing your attention towards affiliate marketing. This is without a doubt one of the most lucrative online home business ideas and it’s going to require nothing but creativity and consistency. Creating your very own business where you call the shots within your affiliate marketing or network marketing industry is always popular. Do you know why? I will give you a hint… two words: residual income. The MLM industry is difficult to break into, but if you can persevere and work your tail off, you will be loving yourself once you get to a nice spot on the totem pole.

Regardless of what you set your mind to, you need to know that the most important thing is to be consistent. You have to be willing to put in the effort if you want to turn your idea into a successful at home business. This is capable of getting you out of the rut that’s the nine to five jobs.