Guidant Financial Group Blog

One of the great things about having a truly self-directed retirement account like Guidant’s Self-directed IRA LLC is that you have complete control over where your money goes. Unfortunately, one of the disadvantages of a truly self-directed account is that, well, you have complete control over where your money goes!

ABC News reported today on yet another retirement scam (see Beware Early Retirement Scams) promising unsubstantiated returns and early retirement for participants. Unfortunately, these kinds of scams are everywhere.

Even though the ability to direct your funds where you wish -- even on a whim -- is a very appealing benefit of a self-directed IRA, these early retirement scams only underscore the necessity of having a highly qualified and trusted financial advisor review your investment ideas.

Never invest in anything new without consulting a professional or acquainting yourself with people who have succeeded in this kind of investment before. It is true that there are a lot of investment opportunities out there that could potentially make you rich, but be wary of anyone who tells you it’s as easy as pulling out all your retirement funds and putting them into one plan!

Read our blog about the "guidant financial group scam".

Both the House and the Senate have bills in front of them that will require 401(k) firms and employers to disclose all fees associated with 401(k) investment and maintenance (see proposed bill here). While most people agree that this is a move in the right direction, there is some considerable argument as to whether the cost to put such disclosures in place is too high. There is no question that a law will be put in place, but exactly what the law will look like is up for debate.

MarketWatch came out with an article today that outlines arguments from both sides of the debate (see Laying it on the Line).

The article specifically addresses self-directed brokerage accounts (not the same as a Guidant’s self-directed IRA LLC self-directed IRA), which would have to disclose a myriad of fees, as the investment opportunities are nearly infinite within the securities market.

The fear that both sides share is that, if too many fees are disclosed, employees will choose not to participate in the 401(k) Plan , since it may appear that the plan is too expensive. Most Americans would agree that anything that deters people from saving for retirement is not a good idea.

Hopefully a happy medium will be found; one that will leave employees confident in their 401(k) Plan and will encourage them to participate in this retirement savings vehicle.

Regardless of my own personal opinion -- which I confess is biased -- it’s not Guidant’s place to declare who should have a self-directed IRA. I can, however, tell you who is securing a Guidant self-directed IRA. We recently surveyed Guidant’s self-directed IRA clients to ask them more about who they are and why they chose this type of retirement plan:

• 79% had a 4-yr degree
• 26% had an MBA or equivalent advanced education
• 85% had a credit score above 700 (read: a very good score!)
• 66% were over 45 years old
• 50% had a net worth over $500,000
• 57% cited security and profit potential as the reason they wanted a self-directed IRA

Additional demographic data we have received shows that our average clients hold management positions, make in excess of $70,000, have an average of $160,000 in their retirement plans, and they use advisors to help them make financial decisions.

I found the results of the survey very illuminating and even surprising. This demographic isn’t exactly the industry standard. All indications are that Guidant caters to a more successful and educated consumer.

While we like to think of ourselves as the Lexus of providers, and as much as we’d like to believe that holding a Guidant self-directed IRA is the new status symbol, these high-end consumers are probably choosing us because they’re likely to be considerably more experienced in financial matters than the average consumer.

This means, they are less likely to be intimidated by a concept that may be somewhat new to them. And because they’ve been around the block a few times when it comes to investing – and they have probably been nickel and dimed to death through transaction fees, legal documents and rollover costs – they are more likely to recognize the true value of our flat-fee service packages. Additionally, savvy investors understand the advantages of paying a bit more upfront in order to earn a bigger payoff down the line. (Back in Psych 101, we referred to this as the “deferred gratification process,” and it was considered a good thing in managing life in general, but especially good in managing money!)

There are a lot of self-directed IRA providers that compete on price – not value – and thus they cater to a different type of consumer/investor. So it’s very gratifying to know that the more informed and experienced consumer is turning to us for the value factor – as well as for a darn good deal!

Back to my opening comments . . . .

Who should hold a self-directed IRA? I started out by saying that it’s not Guidant’s place to say who should hold a self-directed IRA. But now I’m going to back peddle on my words a bit. While our statistics show that a very sophisticated demographic is taking a more active role in utilizing and building IRAs, we don’t want it to end there. There’s room for everybody in the pool! Many of our happiest clients have no more than $35-40K in their retirement funds when they come to us, and they certainly don’t read The Wall Street Journal on a daily basis, if at all. Our hope is that, as more consumers see that the savviest of investors are turning to Guidant for self-directed IRAs, they’ll recognize the value in these vehicles, too.

So let me now completely contradict my opening statement. “Who should have a self-directed IRA?” Everyone!

We couldn’t help ourselves. When we heard that Britney Spears’ company had been hit by a tax lien (see Britney’s Company Hit By Tax Lien) we had to tie it in somehow. Although we are unaware of any county or state selling corporate liens at auction, how interesting would it be to be able to invest in the former Mousketeer’s company with your self-directed IRA? Think of all the bizarre goings on you would be privy to!

If Baltimore can sell foreclosure rights on $130 water bills, could it only be a matter of time before the State of California starts selling shares of Brit-Brit’s singing career?

CNNMoney had a fun take on the miniscule growth in GDP this quarter (see Economy: It Could Have Been a lot Worse). Read Paul R. LaMonica and several economists’ arguments for growth, and not “The Great Depression 2: Electric Boogaloo.”

So, if technically there is no recession, why does it feel like there’s one? Even though “the numbers” (0.6% growth in GDP) don’t indicate we’re in an official recession, the spending habits of Americans will tell you that we are definitely feeling some kind of economic depression.

The reality is that people base their spending habits on how they feel and what they’re experiencing in their own lives. The “experts” often seem too keen on focusing on the numbers and not on the financial anxiety of the public. Forbes.com (see Technically, No Recession [Feel Better?]) quoted Doug Elmendorf, a senior fellow at the Brookings Institution and a former Fed economist, as saying “There will be more attention paid to the number than there ought to be. . . . People are very focused on this question of whether or not we're in a recession."

So are the facts strong enough to outweigh the feelings? Is it possible that the numbers could offer some glimmer of hope – enough to encourage spending? Or are people too busy looking at their mounting debt to even notice?

Should we start defining a recession by how people feel and behave, rather than by the formal definition of a recession?

A bleak little tidbit from TheStreet today (see Where to Invest to Escape Inflation) appears to conclude that no country is safe from inflation.

Although the article doesn’t go into much detail, it does point out that a few countries seem to be faring better than others for the time being, but it is becoming more and more apparent that inflation could soon be a global problem.

While the article specifically addresses mutual fund investments, alternative investments (such as real estate) could also be affected. It’ll be interesting to see if global inflation levels the playing field for international investors or if it will encourage Americans to invest domestically.

If you don’t know what you are going to do with your economic stimulus check yet, according to Entrepreneur Daily (Entrepreneur.com’s blog), you’re not the only one (see Can Stimulus Checks Boost the Economy?). Of course the hope (and the purpose of the checks in the first place) is that people will spend these checks soon and help to boost the economy.

Since direct deposits should start hitting bank accounts next week, we’ll be able to see soon where this money is actually going.

One thing that Entrepreneur Daily did not address was how many people will put the stimulus check toward their retirement. The CNNMoney slideshow does highlight one young man who plans to put his money into a retirement account for future savings. But what about the rest of us?

With all the news last year about the supposed retirement savings crisis, it will be interesting to see how many people mimic this young man’s choice and put the money in an IRA.

What do you plan to do with your check?

One of the great things about Guidant’s 401(k) small business financing solution is that, in addition to enabling individuals to finance their business with their retirement accounts, it allows partners to pool together these same tax-deferred monies. Without the disqualified parties’ restrictions, 401(k) small business financing allows family members, friends and colleagues to go into business together with the same ease, regardless of their familial relation.

Something that the 401(k) small business financing solution cannot do for you, however, is choose your business partner – that’s completely up to you!

As a new article in Forbes points out, it is very important to think through your choice of a business partner thoroughly (see What to Look for in a Perfect Partner). Even the little things can turn into big problems later (think Apple’s Steve Jobs and Stephen Wozniac, as the article points out).

Some things to consider when looking for a business partner, according to Forbes:
• Complementary Skills
• Ability to Listen, Strength to Disagree
• Clean Track Record
• Solid Contacts
• Common Goals

Come to think of it, that’s a pretty good list of traits to consider when looking for any kind of partner!

According to the Investment Company Institute, only 14 percent of Americans eligible to make IRA contributions did so in 2006. This means that more than 85 percent of Americans are not actively investing in their retirement future.

According to an article in today’s New York Times (see A Stalwart of Retirement Planning: The I.R.A.), two reasons many Americans aren’t saving is the confusion surrounding what kind of account to open and what contribution rules apply once they have an account established.

The Times article does a great job of outlining some of the different kinds of retirement accounts and the contribution limits of each, but the author seems to think that an IRA (traditional or Roth) is the best way to go.

One thing that many prospective Guidant clients don’t realize is that just about any kind of retirement account can be self-directed. We have had clients self-direct traditional and Roth IRAs, SEPs, Simples and Keoghs.

A traditional or Roth may be the best for you; however, take the time to really examine all your options. Because just about every retirement account can be self-directed, you have the luxury of determining what kind of retirement account is the best fit for you.

Just be sure that the contribution restrictions aren’t so confusing that they deter you from making them!

Entrepreneur.com had a great article today on the benefits of a creative marketing strategy. Although some businesses are starting to experience the pinch of deflated consumer spending, a creative marketing strategy may be all they need to get those sales up again.

In the article “Pump it Up,” author Sarah Pierce talks about tactics that can be used to exploit high gas prices. One software company, for example, started marketing its commercial navigation software as a necessary tool for fuel efficiency (knowing where you are going and the most direct route can save drivers fuel and money).

It’s definitely scary out there (we are currently paying $3.70/gallon in Seattle), but this article shows that, with a little bit of creativity, you might be able to turn a negative into a positive.

I understand from your site that flipping houses is permitted in a self-directed IRA. But I'm wondering - does the entire purchase price of the house, and the needed renovations, have to be paid in cash in full by the IRA?
-- Andrew (Boca Raton, Fla.)

The short answer is: Yes. It is possible to obtain a loan to purchase a property with your IRA; however, this must be a “non-recourse loan,” and all non-recourse lenders require that the property be income-producing (i.e., a rental property). Thus, if you are purchasing the property to renovate and flip, it will not qualify for financing.

Because IRS Code dictates that your IRA cannot benefit from you or your personal funds, you must pay for any renovations out of the account as well. This code is commonly referred to as the “exclusive benefit rule,” and it can be found in IRC § 408(a), § 401(a) and ERISA § 404(a)(1)(A)(i)).

It is possible to partner with other people and/or their IRAs, so this may be an option for you.

Bottom line: Unless you plan to partner with another party, you will need to have enough liquid cash in your IRA to purchase and renovate the property.

Do you have an Ask the Expert question? Submit your questions to asktheexpert@guidantfinancial.com.

An article in National Real Estate Investor today (see Commercial Real Estate Market Holds Steady) summarizes a new report by Moody’s Investor Service that shows six of seven commercial real estate markets are holding strong. The hotel sector was the worst performing sector, and retail properties were the best.

It is good to know that some real estate sectors are doing well, although the private sector could use a little boost!

Scary but true: As if the housing market weren’t already bad enough, lenders are now freezing lines of credit. While not all accounts were frozen, many Americans with lines of credit in place can expect their accounts to be scrutinized.

Money magazine (see When a HELOC Freezes Over) has some suggestions on what to do if your account is, or could be, frozen.

If your account has not been frozen (yet), Money suggests you know your risks. If you live in an area with high foreclosure rates you could be at higher risk. If your account has already been suspended, Money outlines a strategy for fighting the freeze, including obtaining sale prices for houses in the area and getting your home re-appraised.

BusinessWeek came out with a great article today on maximizing profits in seasonal businesses (see Basics for Seasonal Business Owners). Many of our clients consider seasonal businesses when determining what business to purchase or start. For our small business financing client base, there is a lot of appeal in owning a business that only needs to be operated at full capacity for part of the year.

What the article’s author, Amy Barrett, does a great job of pointing out, however, is that that a seasonal business owner needs to have a unique set of skills to be successful. Number one is good employee interviewing and hiring skills. As the business is seasonal, and most workers need to be paid year round, seasonal business owners will often find that their employees leave for new jobs after they are let go for the slow season. This means that re-hiring needs to be done each busy season.

Additionally, some seasonal business owners find that profits during their busy season aren’t enough to sustain their lifestyle and the business, itself. Because of this, a creative marketing mind is a great trait to have. Perhaps, focusing on Business-to-Consumer marketing during the busy season and Business-to-Business marketing during the slow season will help even out those peaks and valleys.

Forbes came out today with its list of America’s Worst-Selling Housing Markets. The top of the list? Miami, Fla. With a booming real estate market only a few years ago, Miami is the worst hit due to a surplus of inventory, the sub-prime mortgage crisis and stagnant sales. In fact, Florida as a whole is feeling the brunt of the housing crisis with three cities (Miami, Orlando and Tampa) in the top five of those hit hardest.

Also on the Forbes list:
• Phoenix
• Los Angeles
• Washington D.C.
• Chicago
• Baltimore
• San Diego
• Denver

Many self-directed IRA investors, however, have found these areas to be rife with investment opportunity. Some investors have made private loans to those unable to obtain traditional financing, while others have been able to lease homes back to owners with the option to purchase in lease option agreements.

While many investors are familiar with the sale of tax liens as a means for counties to get paid on past-due property taxes, it may come as a surprise that liens can be purchased on unpaid water and utility bills.

According to recent reports by the Associated Press and the Baltimore Sun (see Deadline Looms on City Bills), Baltimore, Maryland’s tax sale next month will include liens on unpaid utility bills.

The surprising part of this story, however, is that lien holders can foreclose on a home for an unpaid utility bill of as little as $130. In fact, according to the Sun, more than half of the liens up for sale next month are on bills with a balance of less than $500.

Not surprisingly, many Baltimore residents are in an uproar over the possibility that people’s homes could be taken from them for such a nominal debt. (Baltimore is already among the top cities affected by the sub-prime mortgage crisis.) While a potentially phenomenal investment for outside investors, what is the moral implication behind such a transaction?

The sale has yet to happen, so there may be a change in plans – but that is yet to be seen.

I currently have a self-directed IRA/LLC with Guidant. The LLC that I have is filed in Florida; however, I have recently moved to Georgia. If I plan to purchase a piece of property in Georgia, will I need to re-file my LLC?

-- Brenda (Atlanta, Ga.)

Yes. Regardless of your state of residence, the minute you make a real property investment in a state, you will need to file your LLC there as a “foreign entity.” Filing as a foreign entity simply means that your LLC will have dual registration in the initial state of filing (in your case, Florida), and in the new state of filing.

Do you have an Ask the Expert question? Submit your questions to asktheexpert@guidantfinancial.com.

It was only a matter of time, but student loans have been the latest victim of the credit crisis. According to The Wall Street Journal (see Credit Crunch Hits Private Student Loans), both lenders and insurers of private student loans have been running into a lot of trouble lately. Sandy Baum, senior policy analyst for the College Board, the nonprofit entity that administers the SAT admissions test, is quoted as saying "Private loans are going to clearly be harder to come by for many students.”

This may mean individual lenders will be entering the private student loan business, as they have in the mortgage industry due to the credit crisis. We have definitely been receiving an influx of calls about private lending with your self-directed IRA, maybe we’ll be receiving more now!