The Individual Retirement Account and company 401k plan have been retirement savings options for decades. But those basic plans the only game in town. Specialized forms of these accounts and the Health Savings Account can play a key role in building wealth. Edwin Kelly, a recent guest on the Creating Wealth Show, talks with host Jason Hartman about ways to tap the power of these plans as part of a larger investing strategy.
Editorial: Listener Q&A
Episode 542 of Jason’s top rated investing podcast opens with Jason’s Editorial, a rundown of key trending topics and questions from listeners. On this episode Jason introduces a question from US listener Nathan, a new investor who hails from Minnesota.
Nathan asks how much capital and experience an investor should have before expanding the portfolio. Jason points out that it isn’t a matter of time, as much as a matter of capital: how much you can invest – and whether you have an emergency fund to protect your investments.
It’s important to keep at least 4 percent of a property’s value in the bank, ready to access if needed. That means for an investment property valued at $100,000, a wise investor should have $4,000 stashed away.
The larger the portfolio, the smaller the reserve fund for each property can be, since risk is spread over multiple investments. But for a new investor who only has one property, it’s essential to have a larger backup fund – more than that minimum 4 percent if possible.
That’s because there are no other properties available to absorb risk. And, Jason emphasizes, it’s important to think of that emergency fund as the property’s fund, not your own, for unrelated emergency expenses. That way an unexpected major expenditure or prolonged period of vacancy can be covered.
Steve, a listener from Canada, asks what an investor can do to get startup money with bad or nonexistent credit – and can the Jason Hartman Foundation help?
Jason reminds listeners that the Jason Hartman Foundation isn’t intended for this purpose, but many sources can help. The key is to seek out ‘asset-based: funding, AKA hard money lending, to launch an investing enterprise. Whether you’re a foreign investor with no local credit history or a citizen who’s had credit problems, asset based funding should help.
Edwin Kelly: Retirement Savings Accounts and HSAs
Guest Edwin Kelly is CEO of Specialized IRA Services, and he joins Jason to outline some advanced strategies for maximizing returns an building wealth with Self Directed IRAs, Solo 401k plans and Health Savings Accounts.
Self-Directed IRAs
Self directed IRAs can be a valuable instrument for generating passive income for retirement and for building wealth. Kelly points out that many companies create these accounts, often at very low cost.
Some are custodians, others are administrators and some are both. A custodian is a licensed and regulated financial institution that holds the assets in question, while an administrator, usually under the banner of a custodian, is responsible for managing paperwork, tax issues and the like.
With a self directed IRA customized to suit a client’s particular needs, it’s possible to generate income in a relatively short time. Kelly cites a few examples of clients who used the self directed IRA to begin building a portfolio of investment properties that, in once case, doubled the client’s retirement income within ninety days of his retirements.
Solo 401k (SoloK) Plans
The Solo, or individual 401k plan is another option that lest clients generate more income than a standard plan allows. This kind of 401k allows for much higher contributions than traditional 401k plans, and allows for investing within the plan.
The SoloK plan offers another way for higher income investors to protect their money and keep it tax-free. With fees based on the amount of assets held, the Solok also allows investors to hold income-generating assets within the plan.
Health Saving Plans
An option for those with high deductible health insurance plans; the health savings plan is a way to safeguard money toward the deductible. Health Savings Plans are highly flexible, and the money can be used for just about anything deemed medically necessary.
These plans can lower insurance premiums too – and as Kelly points out, the savings can be used toward investing in income properties – an asset that can actually pay the accountholder’s expenses.
Kelly emphasizes that every client’s needs are different – and it’s important to be flexible in creating plans to fit what a client actually wants to accomplish. For example, some firms discourage clients from creating one or more LLCs inside their IRA or other accounts. But, Kelly says, his firm believes that if a client wants to take a particular direction, they should be allowed to. It’s the company’s job to customize the plan and support the client’s decisions.
Financial freedom depends on sound decisions coupled with good advice – and the right plan. For new and seasoned investors alike, specialized financial instruments like the self-directed IRA, Solo 401k and Health Savings loans offer new possibilities for building wealth. (Featured image:Flickr/imagesofmoney)
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CW 542: Edwin Kelly – Using the Self Directed IRA, Solo 401k and the HSA to Maximize Your Portfolio
The Jason Hartman Team
