After several years of rising returns, 401(k) and IRA investors will be reminded with their next statements that investments in the stock market don’t always go up and in some cases they may have made a retirement mistake. The S&P 500 is down more than 10 percent over the past month, and volatility is on the rise.
Despite the recent turmoil, the average 401(k)/IRA balance is up 50 percent in the last five years, which has led to an increased percentage of equities in many accounts; making them more susceptible to market risk.
The group of investors that could be taking the most risk is the group that can afford to do so the least: Baby Boomers. The generation that is just approaching or entering retirement has the least amount of time to make up for money lost in the market during a downturn. Just ask any of the folks who saw their retirement dreams torpedoed back in 2008.
There may be legitimate reasons for some Boomers to be heavily invested in stocks. A retiree with a pension plan, for example, may be able to take more risks with his investments, and those who know they’re due for a sizeable inheritance might also have a strong case for taking risks with their retirement funds.
Another factor is that Baby Boomers have put so much money into stocks is that they’re behind on their retirement savings. The average boomer is facing a shortfall of at more than $70,000, according to a report by the Employee Benefit Research Institute. With numbers like that, it can be tempting to shoot for the higher returns that the stock market can deliver, but those returns come with a risk that grows as your time horizon shortens.
A traditional safe haven for retirees and near retirees has been the bond market which has had dismal returns since the recession. With an interest rate increase looming, that’s not likely to change any time soon.
The location of your investment account determines how much you can control
Control over your financial situation is only what your investment account allows it to be. Control is owning a that is a deemed professional investor, foreign resident and non-U.S. person.
[box type=”tick” style=”rounded” border=”full”]Control is this IRS registered Self Directed IRA foreign investment account entity[/box]
The Internal Revenue Service, the U.S. Treasury and FATCA acknowledge this entity’s reporting exemption on IRS forms 3520, IRS Form 8957 and on W-8BEN-E. That all means you are free to deal without U.S. person restrictions, restraints or blockage to investments globally. Whether you are or are not a U.S. person is exempt from foreign financial institution reporting; which means there is no U.S. person blockage overseas.
Internationally recognized exempt entity
This exempt foreign financial account reporting credential is also documented in the Foreign Account Tax Compliance Act (FATCA),Intergovernmental Agreement (IGA), Tax Information Exchange Agreements (TIEA) and Double Tax Agreements (DTA) which all define it exactly and other investment entities are not even mentioned anywhere.
Outcome: Self Directed IRA with a foreign investment account puts your IRA assets under your control without a change in your tax consequence. You will purchase from an offshore tax free environment, multi-currency account, any registered security or financial instrument globally without U.S. person blockage.
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