Commodities are everyday essentials, but did you know they were also investment opportunities? From the fuel in your car to the steak on your dinner table, commodities are raw materials. If you want to diversify your investment portfolio, commodities can surely take care of that. But is it wise to actually invest in them? Let’s take a look.

Types of Commodities

Tradable commodities fall into one of four categories.

• Precious Metals
• Energy
• Livestock and Meats
• Agriculture

Precious metals, like gold, silver, copper and platinum, are among the most popular kinds of commodity investments. Energy, which includes things like crude oil, natural gas, and gasoline, as also popular investment choices. Livestock and meat are considered commodities too. Live cattle and pork bellies are examples of these. If meats aren’t your thing, you can invest in agriculture instead. Corn, soybeans, rice, cocoa, coffee and cotton are all possible agricultural investments. When learning these markets, get professional advice so you can make the best commodity decisions for your portfolio (for example, by getting a Self-Directed IRA for Precious Metals).

Types of Commodity Investments

You can invest in commodities in a several different ways. For some, buying the physical raw material, like gold bullions, is an easy way to invest. These items can be securely stored in an approved depository. For more experienced investors, using futures contracts or exchange-traded funds (ETFs) are ideal. After all, purchasing 300 gallons of crude oil isn’t exactly easy to store in your safe deposit box. A futures contract is an agreement to purchase or sell a specific quantity of an item at a pre-defined price at a designated time in the future. Hiring a professional to help manage your futures contract may be your best bet if you are a relatively new investor. Investing in commodity stock is also possible. Gold mining and grain stocks are popular choices today. You can also invest in a company that deals in commodities, like a heavy-equipment manufacturer who sells tractors to farmers.

Why Invest in a Commodity?

Commodities are often used to hedge your investment funds during periods of instability, inflation, or devaluation. They should not be your primary investment, but they certainly do help to enhance your portfolio. Commodity investments typically move in opposition of stocks. Stocks can plummet when economic instabilities arise. But, in times of economic hardship, while money may be sparse, everyone still needs food and energy. Long-term investments require significant amounts of money, time, and research. These are best left to professionals.

Royal Legal Solutions has years of experience with commodities and trade trends. Our investment professionals can help you with your investment decisions, navigating the world we live in through stocks, trades and more. However, for all of the effort put into them, long-term investments tend to work well with a patient buy-and-hold approach.

Because large-scale commodity investments use economies of scale and predetermined prices, even small shifts in values can have large impacts. Because of this, experts typically prefer investing in commodity stocks over the actual goods themselves.

Hedge Your Bets with Commodities

Investing in commodities can help protect your funds. Commodities are personal investments that take a bit of legwork to thoroughly understand. Whether you invest in a single commodity, a particular sector of commodities, or an array of different sectors – select options that make sense to you. Hiring a professional may be the best way to invest in commodities, whether you are buying the goods themselves of purchasing stocks.

Investing in your future may not seem ideal when you have bills to pay now. At Royal Legal Solutions, we understand the ups and downs of daily finances. However, using a tax-deferred investment strategy can help ensure you can enjoy your golden years as you wish. Below, we take a look at the benefits associated with tax-deferred investments and some of the best ways to build your “nest egg”.

Tax Lingo You Should Know

“Tax-deferred” does not necessarily mean you will never pay taxes. Instead, it refers to investment earnings that accumulate free of taxes. These “tax-free” investments and their returns are only taxed once you make withdrawals. Depending on the plan you pick, you have the option of paying taxes before investing instead of later when you withdrawal. But we will talk about that more in a moment.

The Benefits of Tax Deferred Investments

There are two primary benefits when it comes to tax-deferred investments, both of which primarily revolve around saving you money and reducing taxes.

Invest Now, Pay Later

First, by paying taxes later, your investment returns are allowed unrestricted growth. This means that the money that would be taken by taxes, stays in your account. The more money in your account, the more you can invest. With more investments comes a higher potential return.

Potentially Lower Taxes

Second, most investments are initially made prior to retiring. In general, the taxes collected from your employment wages are much higher than those that are levied against your retirement earnings. By default, most Americans earn less during their retirement years than they did while working. Whether working part-time, holding easier jobs, or relying on their “nest egg” – retirees are not typically working high-dollar 9-to-5’s. By waiting to pay taxes on your investment gains, you can potentially owe less than you would if you were taxed upfront.

Types of Tax-Deferred Vehicles

So how can you jump onboard the tax-deferred train and start increasing your retirement fund? Most people jump on the bandwagon in one of three ways:

• 401(K)s;
• Individual Retirement Accounts (IRAs); or
• Annuity Contracts.

Let’s take a closer look at the differences between these vehicles.

401(K)

A 401(K) makes for a great long-term investment strategy. Often offered by employers, contributions are made on a pre-tax basis. This means, not only are you investing in your future, but you are also reducing your taxable income. Many employers will match your contribution as well, increasing your investment capital. (Check with your employer. Some may require a certain number of service years from you before they fully match your contributions. Others may have a cap for dollar-to-dollar matching.) There is a catch with 401(k)s. Withdrawals made before retirement will be subjected to higher taxes than they would be if made later as well as an IRS penalty tax. In addition, most 401(K) companies will treat your withdrawal as a loan; you will need to repay the funds should you take a withdrawal before retiring.

IRAs

There are several kinds of IRAs available. Traditional IRAs tend to be a favorite of those grossing $200,000 or more annually. In fact, 64% of those with higher incomes have at least one traditional IRA. Contributions made to a traditional IRA are tax deductible in most cases. However, an early (or pre-retirement) distribution will subject you not only to higher taxes, but also to an additional penalty. Roth IRA contributions are made after taxes have been taken from your wages. As with traditional IRAs, your investments can grow tax-free. While post-retirement withdrawals are tax-free, the IRS makes a clear distinction when it comes to early disbursements. Your original contributions can be withdrawn at any time from a Roth IRA; distributions of earnings, however, are subject to income taxes and a 10% penalty tax. For those who elect to open a Self-Directed IRA (SDIRA), which can be either traditional or Roth, investments are also tax-deferred. Because you must have a custodian for a SDIRA even though you make your own investment decisions, make sure you hire a reputable investment professional who won’t take advantage of these specialized nature of these accounts. (Our investment professionals have years of experience.)

Deferred Annuity Contracts

An annuity contract is a deal between you, as the investor, and a life insurance company. In a deferred annuity contract, income payments from your investment are paid at an agreed upon future date, as either installments or a lump sum. There are two phases to a deferred annuity contract – the investment savings phase and an income phase. Deferred annuity contracts can have fixed or variable rates associated with them. Withdrawals from annuity contracts are a bit more complex than those of 401(K)s and IRAs. Annuity contracts are typically subject to a “surrender period”. Depending on the contract, investors may be required to wait many years before withdrawing money from their account. Should they pull money prior to the end of that period, they will have to pay a “surrender charge”. As with the 401(K)s and traditional IRAs, a 10% penalty is charged by the IRS if money is withdrawn before retirement and withdrawals are subjected to income tax rates.

Tax-Deferment and You

Tax-deferred investments are great for planning your retirement. Pre-tax deductions lower your taxable wages, giving you a bit of a savings upfront. By not paying taxes immediately on your investment returns, you are able to invest even more. This creates a potentially larger return as you approach retirement age. When you do make withdrawals during retirement, the taxes paid on them are lower as well. Whether helping you arrange annuity contracts or providing financial advice and investment support on your IRA, we are here to help.

Royal Legal Solutions can help you invest whether you are currently working or not. While your 401(K) or Individual Retirement Account (IRA) is a great way to save for your future, your social security benefits will help too. Franklin D. Roosevelt signed the “Social Security Act” into law. This Act, which set up a trust fund, created a systematic benefits program that would support retirees and their survivors. This Act was amended in 1956 to also include disability benefits. But there is more to Social Security than that. Below are five facts you may not know about social security.

1. The Social Security Trust Fund is Massive

In 2017, the Social Security Administration (SSA) reported that the Social Security Trust fund had a total reserve of $2.85 trillion. With the exception of the seven largest countries, this reserve exceeds the gross domestic product (GDP) of every other country in the world.

2. Social Security Supports Millions of Americans Every Year

The trust fund may seem massive, but it is all a matter of perspective. The number of Americans who are reliant on Social Security benefits at the end of 2016 may shock you. According to the SSA, 61 million Americans collected benefits from the Social Security trust fund. That equates to $911 billion in benefit payments in 2016 alone.

3. Social Security Benefits are Subject to Income Taxes

While Social Security benefits are indeed subject to income taxes, that was not always the case. An amendment in 1983 to the Social Security Act made benefits taxable. Today, different thresholds dictate what percentage of benefits are eligible for taxation. For those with incomes between $25,000 individually or $32,000 as a couple annually, 50% of these benefits are subject to income taxes. For households that earn more than $34,000 alone or $44,000 together each year, 85% is treated as taxable income.

4. The 35 Highest Paying Years of Your Career Dictate Your Benefits Paycheck

Your benefits are directly determined by the average of your highest earnings over a 35-year period. That means that minimum wage job you held bussing tables in high school likely will not affect how much you qualify for when it comes to your retirement benefits. Royal Legal Solutions wants to help you make the most of your golden years. When you invest with us, our experts can help make sure you can retire with more than just a social security check.

5. Benefit Adjustments No Longer Take a Congressional Act

For many years, benefits were only increased after an act of congress determined they would. That changed in 1975, however. Increases now occur automatically at an administrative level. (Thank goodness for that! Now you do not have to wait for Congress to hear, debate and rule on benefit increases.)

Social Security Payouts

Claiming your Social Security benefits early may seem like a great idea. After all, 73% of beneficiaries opt to receive their benefits starting around the age of 62. However, waiting until later may be better in the long run and increase your benefit payouts. Our professionals want to help you maximize your benefits. After all, we here at Royal Legal Solutions understand just how hard you worked to earn those benefits.

If you don’t take Required Minimum Distributions, you might get hit with an incredible 50% penalty. That’s almost half!
The 50% penalty is applied to any distribution you were supposed to take from your IRA. We’re going to need a philosopher to justify this one. “But you see, your income exists…in potentiality.” Well, your tax penalty exists
in actuality and it is a big one.
If you’ve been hit with a 50% penalty don’t panic. You may be able to get a waiver for the penalty if you admit the mistake to the IRS by filing a 5329. Come clean. Throw yourself at the mercy of the court.
The bad news is, there is a lot more paperwork.
FIRST, you complete section IX of form 5329. You need to state what your distribution should have been and calculate the penalty tax. You have to right the letters “RC” next to the dollar amount you want waived on line 52.
You still with me? If you can’t listen to money matters you’re going to have a hard time handling your money matters? You need to wake up soldier.
You’re going to have to write a Statement of Explanation that outlines two things:
You need to explain what makes your error “reasonable”. Mental health issues or bad advice from a bad advisor usually qualify. Maybe you’re just new to RMD’s. The IRS is, at times, capable of compassion.
The next thing you need to provide is the step-by-step process you are planning to take, or have taken, to correct the error. If you’re on top of things, you’ve already taken the missed RMD. This makes everything clean, from your explanation for the error, to the enemy’s acceptance of your reasonable explanation.
Keep in mind that RMD failures don’t disappear. The IRS is a relentless, greedy machine. They will get their money. Get your error corrected. Also keep in mind that with an inherited Roth IRA, these withdrawals could be tax-free.
Beating the IRS at their own game is one of our favorite pastimes here at Money Matters. Thanks for tuning in.
 

There are a lot of reasons for U.S. citizens to move money or other assets overseas. In many cases, there are clear advantages to moving overseas completely. But there are clear tax obligations for American citizens. 

But before you or your money leave the USA, there are a few tax and legal consequences you need to be aware of. Remember: If you're an American citizen, it doesn't matter where you go in the world. You can't outrun the taxman.

Tax Reporting Obligations for U.S. Citizens

If you (or your money) are moving overseas, there will be lots of tax forms to be filed annually. The bureaucracy is a thick fog that conceals many rocks for you to dash your financial ship against. The government will beat you down with forms, so file carefully and stay on top of your paperwork.

If you're a U.S citizen, Uncle Sam wants to know about your foreign assets, investments and bank accounts. In fact, Uncle Sam says that you have two legal obligations. Let's review them.

Obligation #1: Disclose Foreign Bank Accounts and Assets

First, if you’re a U.S. citizen, you need to declare all foreign bank accounts if they total more than $10,000 (all foreign accounts are combined to reach the $10,000 threshold) and you must report any foreign asset (e.g. foreign stock, company ownership, etc.) whose value is $50,000 or greater.

The form required to be filed annually to disclose foreign bank accounts in excess of $10,000 is known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The form filed annually to disclose foreign assets with a value in excess of $50,000, is IRS Form 8938, Statement of Specified Financial Assets. The first obligation U.S. citizens have to their home country is the disclosure of foreign bank accounts and foreign assets.

Obligation #2: Pay Your Federal Income Taxes On Foreign Income

As a U.S. citizen, you are required to pay U.S. federal income tax on the foreign income you receive. The U.S. taxes its citizens on income no matter whether it was earned in the U.S. or abroad. That's one of several reasons our GNP is so high.

So, even if you make money outside the U.S., as a U.S. citizen, Uncle Sam says that you are still required to pay federal tax on that income. If you paid foreign income taxes to the country where the income was derived and if that country has a tax treaty with the U.S., then you’ll typically receive a credit in the U.S. for the foreign taxes paid, which reduces the amount of federal taxes owed in the U.S. You can look online for a current list of countries who have a tax treaty with the U.S.

Some U.S. citizens presume that if they leave the U.S. that they are no longer subject to federal income tax in the U.S. But this is not the case. Uncle Sam wants your (his) money. Failure to comply could result in a nasty tax dispute. And who has the time or energy for that?

Even if you relocate to a foreign country and no longer earn income from the U.S. you are still subject to U.S. tax your foreign income (and potential state income tax depending on your state of residence).  There's one last question on this topic some rebels or activists in the crowd may be wondering about.

Can I Avoid Paying Taxes While Living Abroad?

The only way to keep Uncle Sam out of your pockets, (AKA the tax jurisdiction of the United States), is to renounce your U.S. citizenship. However, this is a costly and expensive process with numerous tax repercussions.

Here's a common example that demonstrates how the disclosure and income tax reporting requirements work:
Say you have a bank account in Luxembourg with a balance of $99,999. That account generates income of $10,000 this year. Let's say that the $10,000 in income resulted in taxes owed to Luxembourg of $1000 and that you reported and paid the tax to Luxembourg.

In addition to compliance with Luxembourg law, you would need to file FinCEN Form 114 (FBAR) to disclose the foreign bank account. The FBAR form filing is due by June 30 for the prior year’s accounts. You would also need to file IRS Form 8938, since the account was at or over $50,000. Form 8938 is due with the filing of your federal tax return.

In addition to the two disclosure forms that are filed in the U.S., the $10,000 of income from your Luxembourg account must be reported as taxable income on your income tax return (form 1040).

The $1000 paid in tax to Luxembourg will be credited to you as the tax owed to Uncle Sam because Uncle Sam and Luxembourg have a tax treaty.

Conclusion

All U.S. citizens are subject to federal income tax regardless of where they live or do business. Even if you no longer earn income in the U.S., Uncle Sam wants his money. Even if you renounce your citizenship (which is expensive and has a whole host of tax repercussions), Uncle Sam can and will get his money.

(On a related note, see Why Ordinary People Set Up Offshore Bank Accounts).

You are required to pay federal income tax on foreign income you receive. This means the U.S. taxes the income that you earn, even if you earn every penny abroad. If you pay taxes in the country where you are earning income and there is a tax treaty with the US, you’ll receive a credit in the U.S. for foreign taxes paid.

These are just the basics; there are many special rules and numerous exceptions to the filings you read about here. If you plan on leaving the U.S. or moving assets outside the U.S., you should seek out experienced professionals to assist you with U.S. tax reporting obligations.

Color inside the lines of the law, and you can avoid paying a hefty cost.