The answer lies in the name. Legally, what distinguishes a self-directed 401(k) from any other 401(k) is the fact that you have an ability to direct the investment of your 401(k) yourself. However, it is important to keep in mind that some companies claim to offer self-directed 401(k), but at the same time limit your options to what you can invest in. We encourage our clients to make sure they are dealing with true self-directed 401(k), because it opens a wider possibility for investments.
TRUE Self-Directed 401(k)
True Self Directed 401(k) means having a full control of your checkbook and not having to go back to your financial institution to get permission to invest. With true self-directed 401(k) you and only you hold the checkbook.
What Can Self-Directed 401(k) Be Invested In
Self-directed 401(k) gives you flexibility and opportunity to decide what you want to invest in. To achieve better returns you can invest your 401(k) in:
- Trust Deeds/ Mortgages and Mortgage Pools
- Private Notes and Loans
What types of retirement accounts can be rolled into Self-Directed accounts?
- Traditional IRAs
- Roth IRAs
- Sep IRAs
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- Coverdell Education Savings
- Government Eligible Deferred Compensation Plans
How Popular Is Investing With Self-Directed Accounts
Unfortunately, not popular at all. Statistically, only about 3% of retirement accounts are self-directed and only 2% are invested in Real Estate. Such unpopularity is caused by failure to inform investors about all possible investing opportunities, for instance, many investors are not aware that the stock market is not the only investment choice for the self-directed 401(k). For more detailed information about self-directed accounts and how it works, please make an appointment with one of our trust deed investing specialist for a free face-to-face private consultation.
Why Have I Never Heard Of This?
Unfortunately, typical investment advisers are either unaware or reluctant to inform investors of such opportunity. Suit yourself, stock broker is interested in you investing your self-directed 401(k) in stocks, otherwise, he would not make his commission; the bank would much prefer you to invest in CD. Thus, unfortunately for many investors the existence of other investment options has been a well-kept secret. Typical investment advisers and brokers have retained control of over 97% of retirement accounts for decades and were able to make a not such a bad living off of it. There is no reason for them to inform you about alternative options for investing your self-directed 401(k).
After an abrupt decline in stock market, corruption and corporate scandals, investors started to become frustrated with traditional investment choices and begun seeking alternatives. Thus, awareness started to grow and, now days, you would see more and more people investing into Real Estate.
However, if you ask your current custodian or investment broker/adviser about such investment opportunities as Trust Deeds, you will receive a negative reply, such as claiming it too complicated or even illegal. These are simply dishonest or ignorant answers. Chances are, your financial institution does not offer such investments, hence, will financially suffer if you decide to move your capital. You should carefully research all possible investment options yourself and make an informed decision.