Are self-directed IRAs all that they are built up to be? Let’s consider that question. We’ve all been sold on the idea of IRAs as a wise investment product. Contributions accumulate in value during your working years, allowing you to enjoy the fruits of your labor upon retirement. And they do offer tax benefits to their owners. Sounds great. But when looked at closely, you begin to see the limitations of IRAs.

Understanding the Limitations of Self-directed IRAs
Self-directed IRAs, in particular, are attractive to many people who like the idea of controlling where their money is invested. You can use these accounts to contribute and control your investments in the stocks, funds or bonds of your choosing. When using traditional IRAs, your contributions and capital gains are tax-deferred, allowing more of your money to be used in an investment strategy.
The limitations of these IRAs, however, is in their name––Individual Retirement Accounts. As a financial tool, these accounts are strictly for retirement, and they are regulated by the IRS as such. If you don’t follow their rules, you can lose your tax benefits.

To begin with, the tax benefits of these accounts are limited. Contributions to traditional IRAs are made tax-free, but get taxed upon distribution. Roth IRA contributions go in after tax, but distributions are tax free. Also, if your Adjusted Gross Income is $65K or more (single) or $109K or more (married) then you will receive no deduction on your federal income tax filings for your self-directed IRA contributions. So for those earning more than those amounts, these accounts are hardly a tax relief vehicle and seriously limits their value as an investment product.

The IRS also regulates the contribution amounts, investment use and distribution of these types of accounts. There are limits as to how much you can contribute annually. Currently, if you are younger than 50, $5,000 is your limit. If you are older than 50, you can contribute up to $6,000.

Self-directed IRAs are also limited by what you can use your money for. There is a self-dealing rule, for example, that says you can’t act or benefit on your own behalf as a trustee of your money. Basically, you can’t have any direct or indirect personal involvement or gain from any of your investments. That includes renting a house you bought to a family member. If you used self-directed IRA funds to purchase that house, you can’t even fix the kitchen sink…let alone allow your niece to rent it. These investment limitations are fairly severe.

The same limitations exist when it comes to the distribution of your funds. With few exceptions, you can’t access your funds until you reach the IRS retirement age. If you do so, those funds will be subject to the normal income tax plus a 10% withdrawal penalty.

Offering a Better Way
Dividend paying whole life insurance offers a platform that provides many of the same benefits of an IRA, but without the limitations. In fact, when used as an Infinite Banking System, the cash value growth and tax benefits of these policies go above and beyond most retirement investment strategies.

With a dividend-paying whole life policy that is structured to work as an Infinite Banking System, policyholders will benefit from:

•tax-deferred income growth
•tax-free distributions via policy loans
•tax-free withdrawals up to your basis
•no contribution restrictions, subject to health underwriting
•no income-level restrictions
•a death benefit for beneficiaries

Understanding the Infinite Banking Concept
So what is Infinite Banking? It’s a financial philosophy of being your own bank and its predicated on the tax and investment advantages of a whole life policy. You will fund your account with your premium payments. The insurance company will, in turn, invest a portion of your premiums in very safe financial instruments such as bonds. These will be be diversified by industry, maturity and geography for added investment security.

Gains from these investments will be factored with overall performance of the insurance company. The costs of overhead, mortality (death benefit payouts) and other expenses are subtracted from the gains. What’s left is the excess that can be given back to the policyholders as dividends. Typically, these policies have a guaranteed tax-free growth rate of around 4%.

Through your premium payments and dividend earnings, the cash value within your policy will begin to grow, and that’s where the greatest benefits begin. You get to be your own bank.

When you put money into a traditional financial institution, they will pay you a small amount of interest. When you borrow from that financial institution, they will charge you a greater amount of interest. In the banking industry this is known as the spread, and it’s how financial institutions make their money.

A dividend-paying whole life insurance policy allows you to lend money to yourself using the cash values within your policy. You control these funds and dictate the re-payment terms. That means you set the interest rate, the amortization period and other loan terms. As you pay back the loan, you also pay yourself interest, and collect the spread that would otherwise go to your lending institution. There are no penalties for a late or missed payment. And there are no loan fees or other transaction fees.

You can use these personal loans anyway you want. Finance your car, pay yourself back. Finance your roof, pay yourself back. Finance your business, pay yourself back. You’re in control, not the IRS.

In addition to the income growth opportunities available, there are numerous other benefits to the Infinite Banking Concept. By borrowing money from a properly structured dividend paying whole life insurance policy you can enjoy tax-deferred growth of money, tax-free distributions via policy loans, and an income-tax free death benefit for your heirs.

Who wouldn’t want a place where they can put their money to grow tax-deferred without all the limitations of a self-directed IRA. By using a dividend-paying whole life policy as an Infinite Banking System, you have full liquidity, use and control of your money. Instead of discouraging self-dealing, the Infinite Banking System encourages you to use your funds whenever and wherever you can in your own life.

Pension funds have lost about 5 trillion dollars worldwide during 2008. And the disastrous losses do not stop at that amount because the stock exchanges have started the year with further grave losses. The financial crisis will have a serious impact on the way of life of the generations in an age of 50 years and older. The problems have to be differentiated between following main groups: the pre-retirement age and the retirement age. The close pre-retirement age lasts from 50 to the statutory pension age between 58 and 65 years in most of the industrialised countries and the retirement age begins after the statutory retirement from work and the beginning of pension payments.

The risks for the population between 50 and retirement from work

This part of the population lives in an uncertain situation. Most of the pension funds have suffered serious losses. The liabilities exceed the assets of most of the pension funds. Thus pensions could be cut and be lower than expected in the future. This could result in a weaker purchasing power for the next generation that reaches the pension age within the next 10 to 15 years.

If the people have saved money besides the pension funds of their employer or if they do not have joined a corporate pension insurance and rely on other retirement schemes, they also have experienced losses on their assets in stocks, funds or real estate. It is difficult to catch up serious financial losses within a few years.

It makes matters worse if they lose their job a few years before reaching the pension age. They still are not eligible to receive a pension income and they have trouble getting a new job in an advanced age. Some employers might provide them with a compulsory retirement but this kind of schemes always mean a shortage on pension payments.

These people even can lose their own homes if their income does not longer enable them to pay the mortgages on their real estate. The situation gets worse if they have to pay back interest rates and redemption rates on other debts.

How to cope with such a horrible prospect

There is no easy solution:

1.The best and simple way would be to invest about a quarter of the savings in gold. Gold seems to become a durable currency that can be converted in any paper currency if needed. There is no confidence in stock investments and there are doubts in the future value of the money. Many experts forecast inflation.

2.People need to be flexible and even to learn something new after many years of professional experience in order to get another job after they have been dismissed. This will be a very tough task, because jobs get very rare. People are in a favourable position, if they have acquired some practical skills and crafts. There is always a chance to get something to do for people who can repair machines and equipment, can do plumbing, are able to amend cloths, can cook for catering services or care for elderly people. Such jobs could help to gap the time until a person gets eligible to receive a national or corporate pension or both of them. The high time is over for bank clerks and investment bankers. It is better to acquire professional skills that can be applied on a variety of jobs than to stick to a highly specialised profession that skills are of no use elsewhere.

3.Cash is king. People should use the opportunity to use all kinds of tax deferred saving schemes. There is a great choice of such saving schemes that banks and insurance companies of western countries offer. And it is recommendable to save much higher amounts than tax exemption rules provide for. The more savings can be accumulated the better. People should start saving in a young age and intensify it after their children are grown up and educated.

4.Saving money is better than purchasing a luxurious car that consumes much fuel and high maintenance costs.

5.Health insurance is a proven prevention against poverty. Most of the Europeans know compulsory health insurance systems. Americans should grasp the chances of getting an overall health insurance system.

6.Debts are a dangerous poverty trap. People should budget their monthly consumption according to their income. They should restrain from using loans and overdrawing credit cards and bank accounts.

7.It is favourable to live in own property, either a house or a condominium if affordable according to the regular income. It is recommendable to use savings for mortgage redemption in order to lower the liabilities before the pension age is reached.

How to cope with the financial crisis after reaching the retirement age

Most of the above hints are valid for people who already have retired from work. Only few tips have to be added:

1.It is tough if the people still are compelled to work in order to earn their living because their pension income and savings are insufficient. Some legislations and pension fund rules allow a deferred retirement and subsequently a higher pension income. This opportunity to receive later a higher pension should be used if the labour market situation allows it. It is fine, if elderly people still can work voluntarily. Work also means to join the social live and to interact with the younger generation. It is, however, difficult to find a job for elderly people while masses of younger people line up in front of the labour offices.

2.Flexible people with some skills for crafts might still get paid by doing some work: e.g. either helping farmers during the harvest season or doing some gardening for landlords. They could assist wards at office buildings. They could help if others are on vacation. Baby sitting or pet sitting are also popular occupations in order to generate some side income. More about how to make money can be read at Make Money Tip. The website also offers free tools for personal finance and a link to the best free online course about financial markets.

Accidents, illnesses and mishaps cannot be totally ruled out even if you take the best of preventions. They can occur in all stages of life and unless you seek coverage under suitable insurance policies, you run the risk of ruining yourself and your dependents financially.

These days you have access to adequate insurances to protect self and family (in case you have any) against probable financial risks in different stages of life. All you need to do is buy policies judiciously and then you will face no problems in managing life changes.

Let us start with the insurance requirements of a person who has just started his/her independent adult life – it is a stage when you will no longer enjoy coverage under your parents’ policy. Select policies will better enable you manage life’s changes:

Health Insurance will be your primary requirement. If your employer sponsors your health policy, fine; however, if your job does not offer you any medical benefits (or you are jobless and hence do not have any health coverage) you should look for a temporary short-term (say, 1-12 months) health policy. Else, go for a high-deductible permanent major medical policy. If you are between jobs, you can continue the group coverage provided by your previous employer for the next 18 months under the federal program COBRA. Each policy requires you to qualify medically. You will not be covered for pre-existing conditions.
The other must-have policy for this stage of your life is the Disability Insurance policy. Disability insurance, also known as income-replacement insurance, replaces a percentage (typically around 60 to 80 percent) of your current monthly income should you be unable to continue with your occupation on account of an accident or illness. Employer sponsored disability plans provide coverage for 6 to 12 months. State-sponsored policies provide ample compensation, but only if your job is responsible for the disability. The best way to manage this adverse change in life is to supplement the employer’s policy with a private policy.

With no dependents (spouse, children or dependent parents), Life Insurance may not be very important, but buying a LI policy at this stage ensures you relatively low premiums.
You will need Auto Insurance if you own a vehicle.
Renter’s policy is the other policy that young adults can opt for to protect their valuables: clothes, jewelry and other personal property.

Once you get married, you enter a new phase of life. Your priorities change and so changes in the insurance policies / coverages you had selected in your single status become inevitable. Now that another life is financially tied to you, Life Insurance becomes all the more important. It is quite likely that you will be planning a family a year or two after getting married, hence purchase of a house will feature topmost in your priorities. Once you buy a house, purchasing a Homeowner’s Insurance policy will be must. You will also need to buy extra coverage for the homeowner’s policy exclusions.

As regards other changes, you may find it economical to have a joint Medical / Health Insurance policy. Similarly, insuring your vehicles with a single carrier will be reasonable. Prudence lies in discontinuing the disability coverage of the spouse should he/she opt not to work.

Another important policy for this stage of life is the Umbrella policy or Liability Insurance. The policy provides additional protection to Insurance-holders by promising coverage in excess to the limit offered by basic Personal Insurance policies.

The birth of a child brings fulfillment to your family life but it also requires you to shoulder larger responsibilities. And indeed, insurance policies have made managing life changes like these very easy. So, have your baby’s name included in your Health Policy (of course, within first 30 days). You will also need to increase Life Insurance coverage to take care of your future expenses, chiefly for the child’s upbringing.

As your children grow-up and start a life on their own, you enter another phase of your life. Arriving at this stage of life, the most important change you need to bring about is get yourself a Long-term Care Insurance. This Insurance Policy is meant to pay for custodial care in a nursing home or assisted-living facility, which generally involves heavy expenses. You are also entitled to getting professional at-home care under this policy. Your other Insurance requirements remain more or less the same.

It is when you retire from your job that you will need major changes in your Insurance coverage / policies. With no job, you will not have any need left for a disability coverage.

In this stage, your (as well as your partner’s) health is your major problem; so, the most important Insurance policy for you will be Health Insurance. The benefits of Medicare are not available unless you attain 65 years of age; hence, you will need to seek coverage under some state-run or private policy if you retire before 65. Medicare generally takes care of about 55 percent of a retired person’s medical expenses, so you will need supplemental policy like the Medigap Insurance.