Happy Thanksgiving!

What a great holiday!  This year, it comes at a time when our country’s financial climate is in great turmoil and when poignant change is just over the horizon.  It comes just in time to remind us of all the important things in life, all for which we can be thankful. 

 

God.  Family.  Friends.  Love.

 

I thank God every day for the love of our family and friends around us.  Over the years, we have created our own family traditions around certain holidays and Thanksgiving is one of the highlights.  Even with our oldest in college, we still manage to all get together to celebrate and give thanks in our own, inimitable style. 

 

We try to adhere to our basic traditions, but some things do change from year to year, usually for the better.  Tomorrow morning, I’ll be going to church for the first time on a Thanksgiving.  I’m trying to start the day off right by giving thanks to our Lord who gives us everything.  After church, I’ll return to the Smudski tradition of preparing the Thanksgiving Feast for our family!  And this part hasn’t changed in many years!!!

 

We start by breaking the bread for the stuffing and washing the turkey. We’ll stuff the turkey and get it roasting by 1PM.  Then come the pumpkin pies, the sweet potato casserole, the cranberry sauce, the mashed potatoes and corn, and probably even a poppyseed roll!  At 5 o’clock, when the turkey’s almost done, we’ll drain the drippings and make our own delicious gravy. 

 

At 6:00 or so, we set the formal dining room table with all the “good dishes”, carve the turkey, pop the cork on a nice bottle of wine and sit down to our traditional Thanksgiving family dinner.   

 

After all these years, I am still amazed at how our children still love the traditional routine!  They look forward to this dinner every year.  Not just the food, but being together to share it all with the family.  And it wouldn’t be truly Thanksgiving in our house but for the after dinner tradition of putting up the Christmas tree. 

 

This year, our daughters will probably have their boyfriends join us for the festivities.  Of course, the lights go on tree first and my son is getting quite good at that.  Then come the ornaments.  The kids each have their own sets of ornaments and they get those up first.  Then all the family ornaments get on the tree.  At that point we decide whether we’re going to put tinsel on the tree this year or not.  It’s always beautiful either way.  And all the while, we’re drinking hot chocolate, the fire’s going and Bing and Nat are crooning out Christmas songs on the stereo! 

 

When all’s said and done for the day, my wife and I sit in the dark, staring at the beautifully lit tree of Christmas.  We thank God for how lucky we are to have such wonderful kids, great family and friends, a nice home and community to live in, and each other to spend the rest of our lives together.   

 

That’s our Thanksgiving.  As the kids get older and start families of their own, we know it’s going to change.  But it can only get better, as they grow and build their own traditions and we all somehow meld our traditions together with Love. 

 

Have a Happy Thanksgiving! 

401(k)’s and Self Directed IRAs

401(k) accounts have recently become a very hot topic in the media.  Now that our economy is officially in a recession, many of you have felt the effects of the recession in your 401(k)’s because of the falling value of stocks.  Many 401(k) programs do not allow you to shift from one investment to another quickly in response to the changing market conditions.  For those that do, I hope you were able to take advantage of that by putting some of your retirement savings on the sidelines in a good money market fund within your 401(k). 

I’m sure most of you understand the basics of a 401(k).  A 401(k) is essentially like a Traditional IRA (Individual Retirement Account) that is administered by an employer.  I say like a Traditional IRA because a 401(k) is funded with contributions that are deducted from your current income and when you finally take distribution of your 401(k) funds, the distributions are considered ordinary income and are taxed on your yearly 1040 form. 

Because of this, if you were to ever leave the job where you’re contributing to this 401(k), you are able to then transfer the assets in your 401(k) to a Traditional IRA, at an IRA custodian of your choosing, without having to pay any taxes or incur any penalties for early withdrawal.  You can do this because of the basic similarities of the account types. 

It doesn’t matter how you leave the job either.  You can leave voluntarily or involuntarily.  In this new recession, especially here in Michigan, I unfortunately have quite a few friends and acquaintances who have recently lost their jobs, many of whom have substantial assets in their 401(k)’s.  They are now eligible to move their 401(k) assets to a new Traditional IRA. 

Sometimes, companies sell portions of the company to other companies, and the employees involved now have effectively changed employers.  In most cases, the 401(k)’s stay with the old company and become eligible for transfer to a new Traditional IRA. 

 To be sure, this is one choice of many the employees have for dealing with their 401(k)’s when leaving a company.  For instance, if the assets in the IRA are greater than $5,000, the former employer must continue to administer the former employee’s 401(k), if the employee so desires.  Also, the employee has the option of rolling over the assets of the 401(k) from the previous employer to the new employer’s plan.   

But transferring the old 401(k) to a new Self Directed IRA opens up a whole new world of investment opportunities.  In a 401(k), you are restricted to investments that are available to the 401(k), usually a small set of mutual funds as well as the company’s stock.  Even in a “regular” IRA, administered by a brokerage house, you are limited mostly to Stocks, Bonds, and Mutual Funds for your investments. 

In a Truly Self Directed IRA, you not only open the doors to all stocks and mutual funds, you also open the doors to a whole array of alternative investments, including Real Estate.  If you have expertise, for instance, in renting properties, you may want to try that in your Self Directed IRA, where all the profits can accrue on a tax deferred basis.   

If you don’t have the expertise, but know someone who does – AND you trust that person — you could participate with that person in their Real Estate investing and earn a very nice return for your IRA in the process.  The benefits of this kind of investing can be great.  My favorite, given today’s very volatile stock market, is that you can get a very steady rate of return and not be subject to the roller coaster ride that most stock investors are on at the moment.  In 401(k)’s you don’t have this opportunity. 

The bottom line here is to be aware that there are other alternatives for your 401(k) besides keeping it in the 401(k) when you leave a company.  Alternatives that could ultimately give you far more flexibility and much better returns than what you’re seeing now. 

 

Stunned and Amazed!!!

As I venture into developing this blog, I realize I should start with a brief background of myself.   My name is Paul Smudski.  I have been a Real Estate Investor in earnest for about five years now.   Before that, I spent almost 20 years investing in Stocks, Bonds, and Mutual Funds as a hobby.   In 2005, I left my 9 to 5 IT job to pursue Real Estate Investing as a full time endeavor.  

But where did I get this passion for IRAs?  Well, it was bubbling under the surface for many years while I was involved with Stocks and Stock options.   Did you know that in most cases, people are prevented by their brokerages from investing in stock options in their IRAs because they are speculative?  However, I discovered Selling Covered Calls or Selling Cash Covered Puts were cash flow strategies, not speculative strategies, and thus were permitted in the IRA.   That’s when I first started learning more about IRAs. 

In 1998, we converted our Traditional IRAs to the new Roth IRAs — the best thing to happen to IRAs in 25 years, by the way!  And we rode the tech wave to some pretty decent profits over the next couple of years. 

The tech bubble burst in 2001 and 2002, and our involvement with stocks faded.   In 2002, I became enamored with the Real Estate Market and all the creative investing that can be done.   And I started learning everything I could about Real Estate. 

In the summer of 2003, I was at a four-day Real Estate Investment Seminar/Sell-A-Thon, when I stumbled across one of the vendors.  Equity Trust Company was there to talk about their Self-Directed IRA services, but I was wondering “Why?”  In all my 18 years of investing, mostly in stocks, bonds, and mutual funds, I had never had any notion presented to me, nor had I ever had any reason to believe that you could do anything else with an IRA.  So, why was this IRA company at a Real Estate meeting? 

What I found out shocked and amazed me!  I was dumbfounded that my financial planner had never told me about any of this in the nine years she was helping me manage my portfolio. It eventually became apparent she was just trying to protect her turf.  She couldn’t make any money off the new knowledge I had.   I guess I don’t blame her.  I probably would have protected my turf, too, if I were her!

But here it is in a nutshell.  Truly Self-Directed IRAs exist where you can invest in virtually anything you can imagine.  You want to own a 104-unit apartment building in your IRA?  Go for it.  You want to operate a business from your IRA?  No problem.  You want to partner up with 100 other investors to purchase a strip mall?  Be my guest. 

It’s all possible in your IRA.  All that and then some. 

THAT’S when I started getting really passionate about IRAs!  The wealth building possibilities multiplied exponentially when those doors opened up!  I thought, if you could take all the creative Real Estate strategies I was learning about, making $10,000, $20,000, $50,000 or more on each deal, and do that all in a TAX-FREE vehicle, you’d be on your way to building a retirement income most people only dream about! 

And the strategies keep coming. 

Now, I will be devoting my time on this blog covering many of the ins and outs of IRAs.  Many of the technical details you need to know in order to invest properly using a Self Directed IRA.  And many of the creative strategies I and others have developed, especially in Real Estate, to increase wealth for not only yourself, but for your family and their families for generations to come. 

In a later post, I will explain what the “IRA Concierge” is all about.  For now, suffice it to say that if you have any questions at all about IRAs, I will be happy to address them.  

Thank you for joining me on this journey.  May it be a profitable journey for all involved!

 

 

Opportunities Abound

Really?  Opportunities abound?  In this market? 

We have been hearing about the meltdown of the credit markets for the past couple of weeks.  The government has authorized up to $700 Billion to be spent to “rescue” the markets from the Mortgage-Backed Security debacle.   And the talking heads on CNN, MSNBC, and even Fox News are talking about the inevitibility of a recession. 

And yet, opportunities abound.  There are still plenty of people in this country who have plenty of money, much of it invested and losing value (some even gaining!), but much if it sitting on the sidelines, waiting for all of this turmoil to play out.  More and more money every day is being withdrawn from the market and put in cash positions, so that it doesn’t lose any more value.   Investors seem very wary of the huge gyrations of the stock market in recent days, not knowing what to do next with their cash. 

It may be even worse on those who have large retirement reserves, in 401(K) accounts or IRAs.  That’s the money you count on to be there when you retire.  That’s the money that the financial planners told you, according to their “models”, would steadily grow over time at an average 10-11% rate.   That’s the money they told you to invest for the long term and to hold on to during the short term storms.  

But you never know with the stock market.  Sure, stocks have returned 11% annual returns — on average — for the last almost 80 years.  But tell that to the people that retired in 1978.  Tell that to the people who retired in 2000.  Tell that to the people who expected to retire at the end of this year, 2008.  If they were/are invested in Stocks or Mutual funds, a significant portion of their wealth has been wiped away in these last couple of months. 

But again, opportunities abound.  They are all around us.  For instance, I just read an article in Crain’s Detroit Business about commercial mortgages called “Conduit Loans” being in trouble.  Some of these loans, just like loans that are packaged up in Mortgage-Backed Securities, cannot be renegotiated.  Many of them in the Detroit area are coming due and payable in the next year and will have to be refinanced.  But because of the decline in market values for commercial properties, the borrowers will not be able to secure conventional commercial financing due to the fact that they will not have enough equity to meet the new, more stringent borrowing requirements.   And they will face foreclosure as a result.   But why is this an opportunity?

This is where normal people with money, like you and me, come in to create the financing that these folks are going to need.  Most of these mortgages are well-performing mortgages and the companies that are making the payments are good companies.  Good credit risks.  Just caught up in the unforeseen circumstances that are putting a squeeze on them. 

Now, obviously, this would be an unconventional place for the normal investor to put his money.  But, let’s imagine for a bit.  You lend the money to these borrowers at a rate that is probably 8% or more.  You get consistent payments coming in, month after month, like clockwork.   The money is not at the mercy of the wild swings of the stock market and you can sleep at night knowing that.   And you’re getting a pretty darn good return. 

Here’s the best part.  And here’s where I come in.  Did you know you could do an investment like this in your IRA? 

Watch this space for further details…