Self-Directed Retirement Fund Investing
Introduction to Self-Directed IRA's
Like with many investment vehicles, "self-directed" IRA's originated out of necessity -- the necessity for investors to have increased control over the placement and growth of their retirement funds. Not all investors have a need for self-directed IRAs -- many do not. But for investors who feel they have a level of knowledge, expertise, and/or success in investing . . . that they can generate greater wealth through seizing control of their investment funds and opening them up to greater options, then "self-directed" IRA's are a smart choice.
The Self-Directed Difference:
A self-directed IRA is technically no different than any other IRA (or 401k). It follows the same function for tax deferral investing, asset protection, and it requires the use of a custodian to oversee the general administration of the funds.
The difference with the self-directed IRA is that it provides an
array of additional investment options, which are directly controlled by the investor. Most IRA custodians only allow approved stocks, bonds, mutual funds and CD's;
a "self-directed IRA custodian" allows those types of investments in addition to real estate, notes, private placements, tax lien certificates and much more – even including the funding of a business. As the investor, you (not the fund custodian)
have the discretion on where to invest the moneys.
Growing in Popularity:
Many people are skeptical of self-directed IRA's for the simple reason that they are unfamiliar with them; their CPAs, or other financial advisors have not recommended them, so they wrongfully believe they are new, and/or otherwise untested. Ironically, the concept of investing in real estate and other assets in retirement plans has been around for more than 30 years. The concept hasn't received much attention because most custodians who offer IRAs (such as banks and brokerage firms) focus on mutual funds, CD's and other like investments (which they themselves often have a vested interest in). Likewise financial planners often prefer more institutional approaches because it is easier for multi-client management, and it seemingly reduces their professional liability due to the global acceptance of these formats. Despite all the reasons why self-directing has not more quickly become popular, none of them are due to a lack of effectiveness. Not all self-directing investors make perfect choices to maximize their portfolio, but all of them have greater maneuverability, greater choices, and greater control of their financial destiny. Again, self-directing is not for everyone; but it is an incredibly powerful choice for those investors who want to create greater wealth by using their knowledge of investments outside the areas of stocks, bonds, and CD's.
Self-Employed Companies – Create your own 401(k):
Another growing area of self-directed 401(k)s come from the recent expansion of people becoming self-employed and incorporating their own businesses. Many investors simply believe that they have to have an employer provide them a 401(k), or else they have to invest in an IRA. Becoming the employer rather than the employee is a great option – especially for most professional service industries. As always, there are inherent business risks and costs in creating a company, and the entrepreneur still has to choose a fund custodian that allows the self-directing format – so all investors are encouraged to contact legal counsel as well as a securities professional for advice in these areas. For many investors, they will discover that the relative risks and costs are minimal when compared to the overall strength in growth and asset protection that self-directed 401(k)s provide.
Roth's and Rollovers:
Although the language in this section has not specifically highlighted the Roth format, the Roth is available for both the self-directed IRA and 401(k). For many investors, this format becomes the better choice. As noted in a previous
section, some components to consider when comparing the Roth to the traditional format are changes and increases in tax structure as wealth increases over time. For investors who wish to seize full control of their retirement funds, and
wish to build a retirement that will provide them with greater future resources, they may wish to look more closely at the Roth format.
The regulations concerning rollovers from custodial-directed investments to self-directed formats are currently relaxed. This is especially true for past employees who wish to roll their previous 401(k) to a current self-directed IRA.
A rollover to a self-directed format may clearly be the best option. Likewise, many investors may also be benefited in the long run by rolling over traditional investments into a Roth. Taxes will have to be paid up-front (via the Roth format), but based on circumstances, this may be a wise maneuver. The amount of options and the criteria for determining the best option are as vast as the specific facts that surround investors. No one web-page (or even an entire web-site) can provide enough information to cover them all. Our intent is not to advise the reader on what they should do; rather it is simply to arm them with the understanding that many options need to be explored.
You Are Not Your Investment:
It is common for some investors to blur the lines between their self-directed IRAs and themselves. Even though it is the investor who directs the placement of the investment, and even though the IRA is ultimately owned by the investor, the
IRA itself is a separate entity from the investor. It is the IRA that is the true investment entity –the investment is held in the IRA's name. As an example, when purchasing real estate, the common language for the vesting deed is
"[Name of the Custodial Company] as Custodian For The Benefit Of [Name of IRA]".
Because the IRA and the investor are separate entities, all costs, expenses, payments, profits, and other financial affects related to the investment, must be made by and returned to the actual IRA account. Investors of a self-directed
IRA are typically not allowed to pay for costs and/or personally receive any form of returns from the investment. (Note, there are some exceptions, but they are few and far in between. The most notable of these exceptions is when a
self-directed IRA is used to create a corporation, the company can employ the investor and pay salary, etc., but these payments are related employment payments only . . . not related to any "ownership" returns.)
Role of the Custodian:
As with all IRAs, the management and maneuvering of the investment funds have to be performed by the fund's custodian. Although the self-directing investor/owner will be making decisions on the placement of the investments, the
custodian remains responsible for the administrative processing and transferring of the money. When the investor wishes to make an investment purchase or sale, they must contact the custodian who will initiate all the necessary
paperwork for the transaction.
Additionally, depending on the quality of the custodial company (see the "preferred affiliates" tab of this website for companies supported by FDC Services) the custodian will also draft and submit all the necessary paperwork to the IRS.
Introduction to the Self-Directed 401(k)
The dichotomy between the Self-Directed 401(k) and the traditional 401(k) is similar to that of the IRAs. There is no technical difference between the self-directed 401(k) and the traditional, except for expanded investment options which may be chosen by the self-directed 401(k). The self-directed 401(k) still mandates that the investment transactions be processed through the fund's custodian, but the investor owner has greater discretion over the placement. However, because 401(k)s are employer-based, they are less commonly used. The amount of companies that are allowing employees to contribute into self-directed 401(k)s are growing in numbers (due to the pressures of savvy employees demanding a greater retirement availability), but the overall percentage of participation still small. Many companies have little incentive to advertise the fact that they allow the self-directing format. A lot of companies receive financial perks from their relationships with various fund institutions; other companies fear a potential risk that may arise from allowing employees to control their own "company-based" retirement. The result is that many companies who offer the self-directed format, do not vocalize it to the average employee. So as a general rule, any person who wishes operate under a self-directed format needs to specifically inquire as to whether this option is available through their company's program.
FDC Services and the Self Directing Process:
FDC Services Inc. and the FDC Service Group are dedicated to helping all investors obtain greater financial freedom through investing in real estate – this includes working with investors who are utilizing self-directed IRA's and 401(k)s. FDC Services has many years of experience in these fields, and FDC Services can greatly increase the retirement portfolios of many investors. But FDC Services is not the first step in this process . . . the first step should be to contact an accredited IRA custodial company for a consultation. (See the "preferred affiliates" tab of this website for companies supported by FDC Services.) There are numerous regulations related to self-directing IRAs/401(k)s, and most of them are fact specific to an investor's particular set circumstances. To better understand if and/or how some of these regulations may affect your investment plans, and to better understand the full scope of freedom that comes with self-directing an IRA, a licensed securities professional must be consulted. Once an investor has a clear understanding of the scope of their investment options, FDC Services will be able to show them how to best utilize their moneys to maximize their returns in real estate – with minimal risk.
Additional Information on Retirement Funds Investing
IRA vs 401k |
Traditional IRA vs Roth IRA
Making more money and smarter choices is a lot easier
when you have the right tools.
For greater information on how self-directing your retirement monies can be leveraged with real estate, contact FDC Services Inc.
Self-Directed IRA and 401k
Partner Affiliations
In the spirit of our search to consistently associate with very high quality companies we have met with and interviewed the following companies. We of course advocate you doing your own diligence before you select a company. There are many good resources below which should help you in your decision and of course you may call or email an FDC representative at any time.
Guidant Financial Group
Information from Guidant Financial Group
- For information specific to Self-Directed IRA products that Guidant Financial offers to investors read more at their website.
- One of Guidant's investment vehicles - Auriga™ allows an investor the ability to purchase real estate with their retirement funds. Watch this video to learn about using Guidant's Auriga™.
- Guidant periodically hosts learning seminars online. Review the format, time and date information at this location.
For more information please contact:
Doug Miller
Senior Account Manager
13122 N.E. 20th. St. Ste. 100 | Bellevue, WA 98005
telephone: 888.472.4455 x3235