If you’re looking for greater control over your retirement planning and investments, a self-directed retirement plan could be the perfect choice. These plans allow you to choose exactly where and how your money is invested, explore a wider range of investment choices, and decide which assets work best for you.
What Are Self-Directed Retirement Plans?
A self-directed IRA or 401k is very similar to the conventional version of these plans, except that you can invest your retirement savings in alternative asset classes in addition to traditional investments. Many of these plans are administered by a custodian, but you choose exactly which assets they invest in.
Why Should You Opt for Self-Directed Plans?
Here are some of the most common reasons to choose a self-directed retirement plan:
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Wider Investment Options
– With a traditional retirement plan, your investment choices are restricted to stocks, bonds and mutual funds offered by your employer’s plan. A self-directed plan allows you to choose non-traditional asset such as precious metals, startups and real estate as well. It gives you almost complete control over your investment options, so you can customize your portfolio exactly the way you want it.
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Flexible Growth Potential
– If you’re putting money in a retirement plan with limited choices for investment, you’re losing out on potentially unlimited growth and returns. Alternative assets and private investing could give you higher profits than stocks or bonds, allowing you to grow your wealth and reach retirement goals faster. Even a brokerage IRA through a bank is not set up to work with as many asset classes as a self-directed plan.
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Higher Tax Savings
– Putting money into a dedicated retirement plan instead of a brokerage account gives you tax benefits, regardless of whether these plans are self-directed or not. However, the responsibility of paying taxes also falls on you. If you take some time to understand the tax rules and regulations, you can choose a plan that gives you the highest tax savings along with more flexibility and control over your investments.
Which Type of Self-Directed Retirement Plan is Best?
These are the three types of self-directed retirement plans gaining in popularity:
- Self-Directed Custodial IRA– While these plans allow alternative investments and are self-directed, investments need to be approved by the plan custodian or administrator. Along with traditional stocks and bonds, you can also invest in precious metals, real estate, tax deeds/liens, mortgage notes, private equity and lending, etc. Some banks and financial institutions offer brokerage accounts marketed as self-directed plans, but you can only choose between conventional stocks, bonds and mutual funds offered by them.
- Checkbook Control IRAÂ – A checkbook IRA or self-directed IRA with checkbook control is the option to choose if you want complete control over investments without the need for custodial consent. This type of self-directed account works by investing in a single-member LLC owned by the IRA and managed by you, with investments made through the IRA. You can write checks to make investments, but be careful about prohibited transactions!
- Self-Directed Solo 401k Plan– Designed for people who own a business or are self-employed, these plans allow you to make high contributions, borrow against your savings and enjoy a significant tax shelter. A Solo 401k is self-directed since there is no need for a custodian, and plan assets are held in a trust with you as the trustee. If you’re a business owner, though, make sure that you only choose this plan type if you have no full-time employees.
When it comes to saving and planning for your retirement, taking control of your investments and financial growth is a step in the right direction. Open up your options for future income with the right self-directed retirement plans today!
Author Bio:
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at rick@sdretirementplans.com.
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