Benefits of Rolling Over to a Self-Directed IRA

Greater Investment Flexibility

One of the key benefits of rolling over to a self-directed IRA is the flexibility it provides in choosing your investments. Unlike traditional retirement accounts, a self-directed IRA allows you to invest in a wide range of assets beyond the usual stocks and bonds. From real estate to private equity and even precious metals, the possibilities are endless. This flexibility opens up new avenues for diversification and potentially higher returns.

Potential for Higher Returns

With greater investment flexibility comes the potential for higher returns. By expanding your investment options beyond traditional assets, you can tap into sectors and opportunities that may not be available in a conventional retirement account. This increased potential for growth can significantly impact the overall performance of your portfolio and accelerate your retirement savings.

More Control Over Investment Decisions

When it comes to your retirement savings, having control over your investment decisions is crucial. Rolling over to a self-directed IRA empowers you to make investment choices based on your own research, expertise, and risk tolerance. You are no longer limited to pre-selected investment options. This level of control allows you to align your investments with your personal financial goals and make strategic decisions to maximize returns.

Diversification Opportunities

Diversification is a fundamental principle of investing. By spreading your investments across different asset classes, you can reduce risk and increase the potential for long-term growth. A self-directed IRA offers unparalleled diversification opportunities. You can allocate your funds to a diverse mix of assets, enabling you to weather market volatility and potentially achieve more stable returns.

Addressing Misconceptions and Challenges

Clarifying the Rollover Process

One common misconception about rolling over to a self-directed IRA is that the process is complicated and time-consuming. The process is relatively simple. By working with a reputable financial institution or advisor specializing in self-directed IRAs, you can navigate the rollover process seamlessly. They will guide you through the necessary paperwork and ensure a smooth transition of your retirement funds.

Explaining Different Investment Options in a Self-Directed IRA

Another challenge that individuals face is understanding the various investment options available in a self-directed IRA. It’s important to educate yourself about the different asset classes, their associated risks, and potential rewards. Consulting with a knowledgeable advisor can help you gain a better understanding of these options and make informed investment decisions aligned with your financial goals.

Highlighting the Unique Flexibility of Self-Directed IRAs

Many people mistakenly assume that all IRAs offer the same investment flexibility. However, self-directed IRAs stand out as a unique option. Unlike traditional IRAs, which limit investment choices to a predefined list of assets, self-directed IRAs give you the freedom to invest in a wide array of alternative assets. This expanded flexibility is a game-changer for those seeking to diversify their portfolios and explore non-traditional investment opportunities.

Success Story

Let’s consider the story of John, a retired federal employee who decided to roll over his thrift savings plan to a self-directed IRA. By diversifying his investments across real estate, private equity, and precious metals, John was able to achieve a higher level of growth and stability in his retirement portfolio. The flexibility and control offered by his self-directed IRA allowed him to tailor his investments to his specific financial objectives, resulting in a successful retirement strategy.

Rolling over your thrift savings plan to a self-directed IRA is a strategic move that can significantly enhance your retirement savings. With greater investment flexibility, potential for higher returns, more control over investment decisions, and diversification opportunities, this approach offers a wealth of benefits. If you’re ready to explore the possibilities and maximize your investment potential, contact us for a free consultation. Our team of experts is here to guide you on your journey towards a secure and prosperous retirement.

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TSP accounts are a valuable asset for federal employees and veterans, offering a tax-advantaged way to save for retirement. However, as your career progresses or if you have transitioned to a new phase of life, it’s important to reassess your TSP account strategy.

The Benefits of Rolling Over TSP Accounts

One option to consider is rolling over your TSP accounts to a new provider. This approach offers several advantages:

Tax Advantages

By rolling over your TSP accounts, you can maintain the tax-deferred status of your retirement savings. This means that you won’t have to pay taxes on the funds until you withdraw them in the future.

Investment Options

Old TSP accounts may have limited investment choices compared to what is available through other providers. By rolling over your TSP accounts, you gain access to a wider range of investment options that better align with your financial goals and risk tolerance.

Greater Flexibility

Rolling over your TSP accounts allows for greater flexibility in managing your retirement savings. You can consolidate your accounts, making it easier to track your investments and simplify your financial planning.

The Disadvantages of Leaving Money in Old TSP Accounts

While it may be tempting to leave your money in old TSP accounts, there are several disadvantages to consider:

Limited Investment Choices

Old TSP accounts often have a limited selection of investment options. This can restrict your ability to diversify your portfolio and potentially lower your returns.

Lack of Control

Leaving money in old TSP accounts means relinquishing control over your retirement savings. You may be subject to the administrative rules and investment strategies of the TSP, which may not align with your personal financial goals.

Potential Fees

Old TSP accounts may come with maintenance fees or other charges that can eat into your retirement savings. By transferring your TSP accounts to a new provider, you can potentially reduce or eliminate these fees.

How to Transfer TSP Accounts to a New Provider

If you decide that rolling over your TSP accounts is the right choice for you, here is a step-by-step guide to help you navigate the process:

1. Research Potential Providers: Look for reputable financial institutions that offer retirement account services and compare their features, fees, and customer reviews.
2. Contact Your Chosen Provider: Reach out to your selected provider and inquire about their rollover process. They will guide you through the necessary paperwork and documentation.
3. Complete the Rollover Forms: Fill out the required forms provided by your new provider. These forms will authorize the transfer of your TSP funds to the new account.
4. Submit the Forms: Send the completed forms to your new provider, ensuring that all information is accurate and complete.
5. Follow Up: Stay in touch with your new provider to track the progress of the transfer. They will notify you once the funds have been successfully moved.

Case Study: John’s Successful Transfer

Let’s take a look at John, a retired federal employee who decided to transfer his TSP account. With the guidance of a trusted financial advisor, John researched different providers and identified one that aligned with his retirement goals. He completed the necessary paperwork and successfully transferred his TSP funds to the new provider. This allowed John to have more control over his investments and access a wider range of investment options.

Case Study: Sarah’s Difficulties

On the other hand, let’s consider Sarah, who chose to leave her money in an old TSP account. Over time, Sarah faced challenges such as limited investment choices and difficulties in managing her retirement savings effectively. She realized the importance of taking proactive steps to address these issues and decided to explore the option of rolling over her TSP account.

Comparison of Different Providers for TSP Accounts

When choosing a new provider for your TSP accounts, it’s essential to consider factors such as customer experiences and feedback. Look for providers that have a solid track record of customer satisfaction and transparent fee structures. Consider their investment options, account management tools, and customer support services to ensure they meet your specific needs.

As a federal employee or veteran, taking action and making informed decisions about your old TSP accounts is crucial. Rolling over your TSP accounts to a new provider offers numerous benefits, including tax advantages, increased investment options, and greater flexibility. By carefully considering your options and following the steps outlined in this guide, you can take control of your retirement savings and optimize your financial future.

Remember, it’s never too late to reassess your TSP account strategy and make changes that align with your goals and aspirations. Ensure that your retirement savings work for you and provide the financial security you deserve.

The post What to Do with Old TSP Accounts: A Guide for Federal Employees and Veterans appeared first on New Century Investments.

Your credit score is important when you decide to purchase a home or any significant purchase that requires loans or payments over a period. Your credit score measures how reliable you are in paying back a loan or making payments in general.

The most impactful thing you can do to build creditworthiness is to make payments on time. This history accounts for 35% of your credit score. Ways to help you accomplish this is to set up autopay on your recurring expenses and create calendars to track when those payments are due. You can also have the platforms through which you make payments send you reminders as you approach the due date.

Next, it is important to pay off revolving credit card balances. Focus on the balances that are higher first, making them a priority to pay off. If you are continually paying off your balance in full, but still have a high utilization rate, consider paying the balance before the monthly statement date. This will help keep your balance lower throughout the month.

The length of your credit history is another important factor that impacts your overall score. Consider keeping your old credit cards open and even using them and paying them off every now and then. Keeping these older cards active will benefit your score because your credit history won’t be erased.

Diversifying the types of credit you have also impacts your credit score. Having a mix of an auto loan and a mortgage loan, rather than one type, will have a stronger credit mix. This is something that will grow over time as you apply for new credit accounts as you need them. It is important to remember to not try too hard to take on more debt than is necessary when starting to build credit.

Applying for multiple credit accounts at one time can negatively impact your credit score. A lender will run a hard inquiry each time you apply for one, knocking points off your credit score. Strategize to only apply when you need to, and to focus on spacing out those inquiries. You can also see if a lender offers prequalification. This is when they review your ability to be applying for this loan and will keep the inquiry from impacting your credit score.

Inaccurate or fraudulent information on your credit report can be detrimental to your score. If this happens to you, you can dispute it with credit reporting agencies, who will investigate the situation. This is a good way to get any fraudulent activity removed from your account.

Becoming an authorized user on a loved one’s account can immediately impact your credit score. Of course, make sure that the user has a positive payment history and a relatively low credit utilization rate.

Building credit is not a hard thing to do. It just requires some knowledge and understanding of how your score is affected. Adopting these tips and strategies will improve your credit score, and contribute to a better financial future.

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Active investing involves a hands-on approach where investors actively manage their portfolios by making frequent buying and selling decisions based on their analysis of market trends, company performance, and other relevant information

Passive investing, on the other hand, is a more hands-off approach where investors build a portfolio designed to mirror the performance of a market index or a specific sector.

The post Active Investing vs Passive Investing: A Comparative Analysis appeared first on New Century Investments.

There are specific life insurance policies that can become a financial asset to you. Think of it like an investment account, such as an IRA or mutual fund.

Permanent Life Insurance

Permanent life insurance policies allow you to invest in conservative investments, like mutual funds or ETF’s. You can customize your investments, allowing your policy to align with your goals and risk tolerance. There are two types of permanent life insurance.

Whole Life Insurance

Whole life insurance is the most common type. This policy allows you to accumulate cash value. When you pay for the policy each month, a portion of it is placed onto a cash value account. This is basically a savings account component with the life insurance policy.  It is noteworthy that the premiums on these policies typically won’t increase over the life of the policy.

Universal Life Insurance

Universal life insurance is the second type that allows policymakers to grow an asset over time. What sets this one apart is that the premiums are not set and can change at any point. There is something called “variable universal life insurance” which allows investors to have more freedom over their investments. This could lead to higher returns in the long run.

How To Use Your Policy

To use your life insurance policy as an asset you must grow your investments and develop the power to borrow against what you have saved. These earnings are also growing on a tax-deferred basis.

• Use your policy as collateral for a loan: This will help you get approved for a loan or potentially get a better rate on the loan. This is a form of showing lenders that you are trustworthy as a borrower.
• Take a loan from your policy: You can borrow against the cash value of your permanent life insurance policy. When you do take a loan from your policy and it is not paid off by the time of your death, then that benefit is subtracted from what your beneficiaries would have received.
• Withdraw funds: You can simply take money from your policy that is cash. This is also money that will not be paid to your beneficiaries later. If your withdrawal is a large amount, then you may pay taxes from dipping into your investments.
• Option for accelerated benefits: This option is available in a time of severe medical emergencies.
• Surrender the policy: You can cancel your insurance policy and get back the cash value that you put in. Keep in mind to read the fine print, because often time there are quite high fees when doing this. Similarly, if you to withdraw from a retirement account early.

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Introduction

Financial planning integrates your lifestyle with your long-term goals, equipping you and your family to best prepare for the future. Planning can feel tedious and overwhelming, but your future self will be grateful you did the work now. Like with most things in life, financial plans are not black and white, but flexible and designed for your unique circumstances.

What is a Financial Plan?

A financial plan is a comprehensive analysis of your financial situation, and the steps needed to take to reach your financial goals. Financial plans reveal where you need to adjust your lifestyle to get back on track. The time horizon of a financial plan depends on your goals and how far away you are from achieving them. Financial plans are flexible, providing cushion for medical emergencies, marriage, the birth of a child, and other life events.

Components of Financial Planning

• Budgeting is an important component of planning because it reveals your income sources and expenses, your assets and liabilities, and your financial strengths and weaknesses.
• Investing is another component, because it is important for building wealth and moving towards retirement if that is your goal.
• Retirement planning looks at your retirement and social security income and assesses the lifestyle you want to live during your retirement.
• Estate planning looks at inheritance tax estimates, any wills, and plans to give to philanthropic organizations.
• Tax planning deals with 401(k) and IRA contribution plans and returns on capital gains and income tax.
• Risk management has to do with LTC, disability, and life insurance. It also ensures beneficiaries and survivor benefit plans.

Determine Your Financial Goals

This step is vital to crafting your plan for what your needs are. Gather short-term and long-term goals but focus on looking at the whole picture of your financial future. These goals could include buying a home, retiring at 65, or paying off debt. Be honest with yourself about what you want out of life and how that translates financially.

Determine Financial Situation

It is important to know what you own verses what you owe. This will help in calculating your Net Worth, the value of everything you own. Knowing how much money you are bringing in and how much is going out is also important for budgeting and assessing where adjustments can be made.

Construct Plan

Next, piece together a plan outlining the actionable steps needed to stay on track. This typically involves saving money for retirement, building an emergency fund, and saving for traveling or desired purchases. Investing will also likely be part of your plan, because it is the optimal way to build wealth. You will need to discern your preferences and risk tolerance when building an investment portfolio. Paying off any debt is usually a piece of the plan, whether it’s car loans, student loans, or credit card debt. Building credit could also be a part of your plan if you are wanting to make big purchases, like a home or new car. Certified Financial Planners are educated and qualified to provide recommendations regarding your specific situation.

Implement Plan

Now, it is time to act. Once you have created your plan, you can now implement these adjustments to your everyday life. If your plan includes some extreme cutbacks to how much you are spending or increasing your savings, it is okay to start small and build up to your goal. Taking things incrementally will give you a better chance of sticking to the plan. Remember to stay flexible when things inevitably change.

Periodically Review & Revise

We are all faced with challenges and changes, making it important to reassess your plan and adjust accordingly. Adjustments like lengthening your timeline, saving more, or changing your goal altogether will help guide you back to the path.

Conclusion

A financial plan will help you manage your wealth wisely and keep you on a path towards the vision you have for your life. Seeking out a financial advisor is a great place to start when beginning this journey. Lets all take a leap towards a lifestyle that complements our finances.

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Throughout your life you come to milestones where insurance is a given, while others are simply encouraged. How do we know which ones to purchase and when? Insurance is a financial contract between an individual and an insurance company that insures you are protected from financial loss in severe circumstances. Insurance is another ever-changing area of life. Throughout different stages of life will require different policies and different coverage.

Insurance In Your 20s

Health Insurance

Medical debt is one of the largest sources of debt among US consumers. Most people cannot afford healthcare on their own. This makes health insurance very important to consider as you roll off your parent’s plan and enter your adult life. Fortunately, many companies provide health insurance plans for their employees. Health insurance is one that you will most likely always have.

Auto Insurance

In most states, auto insurance is required. There are different amounts of coverage that you can purchase, like liability and full coverage. Rates for auto insurance are tied to age, car make and model, driving record, location, and sometimes gender. If you are driving a car, you will need auto insurance.

Renters Insurance

If you are renting a home or an apartment, you will need renter’s insurance. Most properties require their tenants to have renter’s insurance. Renter’s insurance protects you from natural disasters, theft, and more.

Disability Insurance

This provides income should you be disabled and unable to work a job. If you are reliant on a paycheck to support yourself or your family, disability insurance is worth the expense. Employers typically offer policies for traditional workers, while self employed people take out an individual policy. Disability insurance should be prioritized until you exit the workforce and rely on your savings to live through retirement.

Insurance In Your 30s

Life Insurance

The age at which someone becomes dependent on you, for most in their 30s, is the age encouraged to get a life insurance policy. This could be a spouse, aging parents, or children. There is term life insurance and permanent life insurance. Term is when the policy runs out after a certain period and is typically recommended because it is affordable and straightforward.

Homeowners Insurance

When you purchase a home, it is wise to consider homeowners insurance because it covers everything from liability to the structure itself. Most mortgage lenders require you to have homeowners’ insurance. If you live in wildfire, tornado, or hurricane prone area, there will always be a higher premium.

Pet Insurance

At the end of the day, you might be willing to spend $10,000 if it means your dog will get better. This is not a necessity but could be worth considering for some people. Some plans cover up to 90% of your routine visits and vaccinations.

Insurance in your 40s

Long-Term Care Insurance

This may be a good idea for those who are aging or disabled and need professional help with daily functioning. Keep in mind that as you age you are more expensive to insure. It may be a good idea to consider long-term care insurance well before you need it, even if you think you may never need it.

To be insured is to protect you as an individual and anyone dependent on you in the face of perils that no human could afford. It can be confusing as you enter adulthood to know what is vital and what is not. Having the knowledge of what insurance is most important in your stage of life will bring a sense of security and peace to you financial well-being.

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The post Understanding Insurance appeared first on New Century Investments.

Maintaining a portfolio that aligns with your objectives and risk tolerance requires something called rebalancing. Your portfolio has a certain mix of asset types, like stocks, bonds, and real estate. Asset prices fluctuate, meaning their weighting will shift over time. This leads to the goal of maintaining and investment mix that supports you as an individual. Rebalancing also mitigates volatility and manages potential risk.

Periodic Time-Based Rebalancing

Rebalancing looks like selling assets that have appreciated beyond your long-term weighting and purchasing assets that have fallen below your target level. This strategy involves rebalancing at regular intervals, like annually, quarterly, irrespective of asset price movements.

Threshold or Price-Based Rebalancing

This strategy involves rebalancing once the portfolio deviates from the target mix. A mix is typically made up of stocks and bonds. Stocks are risky and bonds are safe. Moderate portfolios are typically 60% stocks and 40% bonds while aggressive portfolios are 80% stocks and 20% bonds. If a moderate portfolio starts to become more aggressive, then it is time to rebalance.

When To Rebalance?

Market Volatility

Investors commonly look to rebalance during stock market upward and downward trends. Volatility is not always a time to rebalance, and the goals is not to overreact to the market. Someone may want to increase their stock holdings, during an upward trend. If this was a moderate portfolio and veered into 70% holdings in stocks, it might be time to rebalance again.

Major Life Events

These events include retirement, expecting a child, buying a home, or going through a major health event. As life changes, so will your financial goals. Life changes will beckon you to re-evaluate your portfolio and rebalance as needed. This typically happens as people approach retirement. Retirees want a portfolio that is much safer than when they were in their 30s. They are reliant on that money to live and for their estate to pass on to their loved ones. Another situation could be that family member did pass and you received an inheritance. This would also be a time to invest and rebalance.

Diversification

This is the key to a well-performing portfolio. If you are concerned that your portfolio is not diversified enough or want to add a new investment, then it is time to rebalance.

It’s Been a While

Lastly, if you have not visited your portfolio in over a year and cannot remember what is going on it may be time to rebalance. Professionals recommend rebalancing quarterly or on an annual basis. This may not change much but provide clarity that you are on track.

Financial professionals are the best resources to draw on for rebalancing portfolios, based on tools and experience. Working hard to tend to your portfolio will reap exponential returns.

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1. Investment Flexibility: IRAs typically offer a wider range of investment options compared to TSPs, allowing you to tailor your portfolio to your specific goals and risk tolerance.
2. More control: With an IRA, you have greater control over your investments and can choose your own investment strategies including stocks, bonds, and mutual funds.
3. Consolidation: Rolling over TSP funds into an IRA can simplify your retirement accounts by consolidating them into one, making it easier to manage and track your investments.
4. Beneficiary options: IRAs often provide more flexible beneficiary options, allowing you to customize the distribution of your assets to your beneficiaries.
5. No Required Minimum Distributions at 72: Unlike TSPs, some IRAs, like ROTH IRAs, do not have required RMDs at age 72, which can be a wonderful advantage for those who want to continue tax advantage growth.

Rolling your Thrift Savings Plan assets into a Traditional IRA will help you avoid the 10% early withdrawal penalty. You will also control your IRA and have unlimited investment options. If you enjoy hands on investments, then rolling your TSP into an IRA may be for you. Contact us today for a tailored investment strategy on how your TSP can work as hard as you worked for it.

Example below:

John Doe has left the service and now working as an engineer at Lockheed Martin in Fort Worth, Texas. John has a TSP that he is no longer actively contributing to and an active 401k through Lockheed Martin.

He is faced with 3 options:

1. He could leave his TSP where it is and make sure it is invested, growing for his retirement.
2. He could decide to transfer to his current 401k, similarly reinvesting for his retirement.
3. Lastly, he could direct it to a self-directed IRA and invest on his own for retirement.

Option 1:

The TSP has limited investment options so, leaving his TSP does not allow him access to the investment options that have historically had higher returns .. There are only 5 main funds to choose from and a few target funds. In 2022, the TSP underwent a series of changes impacting its many account holders. These included the opening of a “Mutual Fund Window” to supplement the limited offering of investment funds previously available to plan participants- though the associated expenses make it prohibitively expensive for many participants. He will also not be able to make new contributions. Having one more account to keep track of can also be a headache for some people. Not only does it involve more work when balancing your assets, but you also must maintain more paperwork.

Option 2:

Again, John is limited to his new plan’s investment options. This is important if his new 401(k) plan has limited investment options or higher than average expense ratios, which cause lower returns. Some employers have a minimum waiting period before you can sign up for their 401(k) plan, so you may have to wait before you can rollover your TSP assets.

Option 3:

The biggest advantages of rolling over his TSP into an IRA is maintaining certain tax advantages, and controlling his investment options which are no longer limited to the investment options in the Thrift Savings Plan or his new employer’s 401(k) plan. Total control allows him to limit his expenses and maintain full control of his investment.

John Doe decides on option 3, simply because, when you can self-direct, you self-direct. John will now have control over his investments, he will have access to more investment options since his new employer’s 401(k) plan does not offer ideal investment options.

The process to get started is simple, and we are here to guide you through it. Contact us today for a tailored investment strategy on how your TSP can work as hard for you, as you worked for it.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

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Building a foundation of financial literacy starting from a young age is key to setting your child up for financial success. The question is how do we do it? Especially if we did not come from a home that taught us to be financially literate.

What is financial literacy? Financial literacy is a skillset founded on knowledge that equips people to make informed decisions about their money. This is not about having the most money or having a confining budget. This is about having a healthy relationship with your finances, creating a fulfilling experience with using your money.

Research suggests that many financial habits are formed by the age of 9. Learning these skills is so formative for helping your child develop positive attitudes and habits towards money. Starting to instill these skills as early as you can is the most psychologically beneficial thing you can do for your kids.

Saving

The first practical tool is teaching your child to save for something they really want. Instilling some “skin in the game” or financial responsibility will teach the child that what you do with your money matters. Help your child plan for how much the item they want costs and how they’re going to achieve saving that amount. Teaching children delayed gratification builds character qualities like patience and learning to be content with what you have. It is important they know that adults also save for items they want, or bigger purchases like a home or a family vacation.

Practicing Managing Money

Hands on experience is always a great way to learn and become confident in that skill. It can be a fun experience for you and your child to go to a coffee shop and have them practice paying for a coffee and treat. You can also set savings goals together, set up a savings account, and teach them to allocate certain portions of their earnings to savings and spending. Practical ways to give agency to your kids is through a weekly allowance as they complete chores or for Christmas or birthday gifts.. It is healthy for a child to learn that earning and saving is linked to work. For children, they can help with the laundry, the dishes, the garden, or even helping neighbors with household tasks.

Be The Example

This last tool might be the most important. Children mirror what they see, and that means they will learn how to handle money and think about money from the perspective of their caretakers. Work on yourself to develop healthy money management and invite your children into open conversations about why certain decisions are made. Involve your children in financial activities, and the process of deciding what to purchase. Teach them about finding discounts, buying secondhand, and comparing prices. For older children, you can begin to teach them about investment accounts and the power of compound interest.

Equipping children with financial literacy is essential for their financial well-being throughout their lives. Nurturing your children financially with tools and dialogue, will help them develop strong money management skills that they can continue to pass on.

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