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Using Your 401k/IRA to Utilize the Power of a Self-Directed IRA

A Self-Directed 401(k) IRA (or SDIRA) is the type of investment plan a person wants when they want to take more control over their investment options. Traditional 401(k)s are limited in investment options to pre-approved methods, whereas the SDIRA allows you to choose what and how you invest your preretirement funds. Instead of leaving your retirement in the hands of your employer, you – the plan holder – are in charge. By taking your retirement investment plan into your own hands, you can direct how and when you invest.

Career professionals often already have a 401(k) and ask if they can even access the benefits of a Self-Directed IRA. If you meet the eligibility requirements, the process is simple and, in most cases, incredibly easy. Once the rollover process is initiated, decide whether your rollover will be direct or indirect. In the latter case, there is a 60-day timeframe for your 401(k) distribution to be deposited into your new Self-Directed IRA. Or keep both, but be aware that your contribution limit applies to both accounts combined.

Traditional 401(k)s are limited in what can be invested in – chiefly stocks and bonds. However, the investment benefits of a Self-Directed IRA are vast. With a Self-Directed IRA, your fund can invest in:

• Real Estate – purchase residential or commercial real estate as investments.
• Tax Liens – invest in liens on properties.
• Private Placements – securities that are not publicly traded.
• Precious Metals – invest in precious metals and minerals, such as gold or silver, physically and through exchange-traded funds.
• Energy Investments – invest directly by purchasing energy resources or as a hedge against inflation.
• Equipment Leasing – invest in farm equipment or heavy machinery.
• Foreign Currency – invest in the currency of foreign countries.
• Private Debt – invest in outstanding debts.
• Cryptocurrency – invest in new and evolving currency options.
• Private Equity – invest in privately held companies, such as startups, small businesses, or even large private companies.

Self-Directed IRAs can invest in those options and countless more, truly opening a world of freedom where investors can plan for their future. Certain things, such as collectibles like artwork or antiques, cannot be invested in.

Three primary ways to fund a Self-Directed IRA are transfers, profit sharing, and contributions. Transferring funds from your previous 401(k) or other types of IRAs, not including Roth IRAs, is the first option. You can receive a direct share of profits, up to 25%, from a sponsoring entity’s profit as your second option. Lastly, personal contributions, self-employed income up to $23,000 for anyone under 50, or catchup contributions with an additional $7,500 for a total of $30,500 for those over 50.

All contributions, including investment returns and earnings, are tax-deferred until withdrawal. You have a wider pool of investment options and a say in investing your funds.

Your 401(k) can work for you, rather than by those who set it up for you by taking control with a Self-Directed IRA.