Self-Directed IRA gives You Freedom to Manage Your Investments
This is Part 3 of a 9 part series focused on educating others on retirement accounts, alternate means of investing with these accounts, and ultimately how we can provide multiple forms of investment opportunities with these accounts within our business in which you can attain high rates of returns at substantially low risk.
Your money currently locked up in retirement plans can become a great source of raising capital for various types of investments, but people with a 401(K) usually face two hurdles. Those hurdles are one, their employers do not allow them to borrow from their 401(K) for the purpose of investment and two, investment options within the account are limited to traditional stocks, bonds and mutual funds. Those who want to tap into better investment alternatives feel their hands are tied as they sit on the fence and helplessly watch others taking advantage of the prevailing buyers’ markets in sectors like real estate.
If you find yourself in such a situation, one way out is to roll over to a self-directed Individual Retirement Account (IRA) or, if you can manage, open an IRA which runs parallel to the 401(K). Below are some facts explaining why an IRA is better than a 401(k).
- Unlike a 401(k), where investment in stocks of public companies and mutual funds are the only options, a self-directed IRA puts you in the driver’s seat and gives you better control over where you want to invest your money. You can invest in real estate, rental property, precious metals (such as gold), overseas assets and many more non-traditional sectors.
- You are entitled to a 401(K) according to the policies of the company employing you. However, the interest rate, payment terms, payment method, and payment period are determined by your employer. A self-directed IRA gives you more freedom in terms of determining not only the type of investment, but also the policy regulations.
- Anyone with an earned income and under the age of 70 ½ can have an IRA; however, unless you are a business owner, you must work for an employer who provides a 401(K) to receive such retirement benefits.
How to open a Self-Directed IRA
Opening a self-directed IRA is an easy process. Based on what type of investment you want to make, you can choose a financial institution including mutual fund banks, brokerage firms, or a custodial firm (if you want to purchase real estate where the property title can be held in the account holder’s name). You need to specify how you want to manage the property – at your own direction, through a property manager, or the formation of a limited-liability corporation (LLC). Ask your tax accountant or custodian if you are allowed to manage your own properties within your retirement account. To our knowledge, you cannot.