The contributions made to a traditional 401(k) account established by your employer are obvious. They are typically made with your pre-tax dollars and matched, or partially matched, by your employer. The benefits of using pre-tax dollars make these types of contributions ideal. Your 401(k) is also one that benefits from being a tax-deferred investment account.
One of the pitfalls of an employer’s 401(k) plan, however, is the limited, often biased, investment options available to you. With a self-directed 401(k) plan, many of those investment boundaries are removed. In fact, if you choose to open a self-directed 401(k) account, you not only increase your investment opportunities, but also your own control over the account as a whole.
The benefits of a self-directed 401(k) are definitely worth considering when it comes to your retirement nest egg. After all, an increase in your portfolio diversity is not just a great way to generate different types of returns and earnings, but also help to prevent the negative effects of an economic downturn from robbing you of your future. However, if you already have a 401(k) account with your employer or not, you may wonder how a self-directed 401(k) is funded.
Funding your self-directed 401(k) is not as complicated as you might think. At IRA Business Trusts, we tend to see three methods that help fund your new self-directed 401(k) account. Funds from transfers, contributions and profit sharing are typically used for these types of accounts.
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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