Saving for your retirement is one of the best ways to prepare yourself for the next phase of your life. Your investment choices can limit or enhance your portfolio. Different types of retirement accounts provide you with varying degrees of control and opportunities. A traditional individual retirement account (IRA), for example, puts your account primarily in the hands of a financial advisor. It limits your investment possibilities to bonds, stocks and mutual funds.
However, a self-directed 401(k) gives you complete control over your investments and an increased chance to diversify your portfolio. In fact, with a self-directed 401(k), you can invest in everything from real estate, to precious metals, commodities and more. This level of portfolio diversification has the potential to create enormous returns. While there are risks associated with such potential, some individuals prefer self-directed 401(k)’s to other retirement account options. In addition to the potential earnings and diversification, a self-directed 401(k) allows you to have checkbook control.
As the owner of your self-directed 401(k), you maintain full control of your plan. In fact, unlike a self-directed IRA, the Internal Revenue Service (IRS) does not require you to have a qualified trustee or custodian. As the plan’s owner, you are your own trustee. This allows you to open a trust account in the name of your self-directed 401(k) at any bank or credit union. Checkbook control enables you to act immediately on investment opportunities. Because you do not have to go through a custodian, you eliminate the approval process some firms require. You simply write a check from your self-directed 401(k) trust fund and the money will be transferred immediately upon receipt.
As with any checkbook account, there are a few do’s and don’ts you should be aware of.
While you are the owner of your self-directed 401(k) plan, you will need to open the account with a provider. At Royal Legal Solutions, we understand the nuances of investment portfolios and IRS regulations. Our goal is to help you increase your retirement fund without incurring penalties from the regulatory bodies.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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