Self-Directed Retirement Accounts

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Self-Directed Retirement Accounts - "To Succeed, You Must Take Control"
The IRS code does not include any official reference to a “self-directed” retirement plan. It is not an IRA account type, 401(k) plan or any other type of retirement plan. A self-directed retirement plan simply means that the owner of the retirement account(s) (usually an IRA, SEP, Simple or a Solo 401(k), either regular or Roth), has the ability to exercise much greater control over their investment decisions and what assets are ultimately held in the retirement account(s) by the trustee.

"True" Self-Directed Retirement Accounts
Tax-advantaged retirement account accounts issued and managed by institutions, such as banks, insurance companies and brokerage firms, only give the retirement account owner the ability to invest in what they consider “approved investments”, and do not allow the investor to truly self-direct their retirement investments. While some such institutions tout that their retirement plans are in fact self-directed, the truth is they typically permit the investors only to choose from a select group of financial products that they issue or at most, select among a group of other “traditional” IRA investments such as mutual funds over which they have an agreement with. Such institutions would never permit true self-direction of investments and would recommend to you that your retirement account invest in part in real estate or other non-traditional assets. Moreover, many advisors who work for such institutions would never recommend the inclusion of real estate or other non-traditional assets in a retirement portfolio, either because they are not in position to profit from a sale or they are simply uninformed about the process.

Self-Directed Retirement Account Asset Types
While the banks, insurance companies and brokerage firms do not permit self-directed retirement plans, fortunately there are institutions that do. Moreover, like the banks, insurance companies and brokerage firms these institutions or custodial firms do issue and manage retirement plan accounts, but the difference is they do permit your retirement plan accounts to invest in non-traditional retirement account assets. And while such investment assets can include traditional retirement plan assets such as securities, certificates of deposits (CDs), stocks, bonds, and mutual funds, ETFs, other non-traditional assets are permitted as well, such as real estate, for example:

Commercial real estate of all types Apartment buildings, co-ops, and condominiums Single-family and multiunit homes Improved or unimproved land, lots and home sites (financed or not)
Yes, there is considerable flexibility in asset types - but you still have to follow some rules on investments. It should be noted, the Internal Revenue Code does not approve any investment made inside a tax-advantaged retirement account; rather the code specifically outlines what types of investments are not permissible or prohibited. Prohibited Investments include artwork, rugs, antiques, metals, gems, stamps, coins and certain tangible personal property and most importantly, and with the exception of Solo401(k)s, investments in life insurance contracts.

Self-Directed Retirement Plan Control and Flexibility
Certainly the key difference between the banks, insurance companies and brokerage firms and the self-directed administrators or custodial firms is measured by the level of control, specifically control over what investments can be made by one’s retirement plan account. And as such, control and likewise flexibility means that your retirement plan(s) can achieve greater asset allocation and diversity, which is vital to investment portfolio long-term success. Control also means that you are free to invest in asset classes that you know best. With a self-directed retirement plan investors can benefit from a variety of alternative investment opportunities and in turn leverage one’s interest and knowledge in asset types they know best. And today, more than any time before, such control and flexibility is vitally needed to grow retirement savings. Only when you take control over your pension can you begin to take advantage of the new tax benefits that are available under the law and in doing so, maximize growth of your retirement savings.
Notably, with a self-directed retirement plan you have almost complete control over the investments in your retirement account(s), and only when you take control over your pension can you begin to take advantage of the new tax benefits that are available under the law and in doing so, maximize growth of your retirement funds.