Written By — John Park
Many of us remember our first “dive” into the municipal swimming pool or lake. Once we overcame the trepidation of diving head first into the expansive body of water, did we dive in completely or just halfway???
The same is true with self-directing your retirement assets. While your plan must be established and continually adhere with all IRS and, if applicable, Department of Labor regulations, the code in no way prevents a fiduciary (e.g., you, yes it can be you) from controlling all aspects of the plan.
This is true provided the fiduciary is not “self-dealing”, which is expressly prohibited. A fiduciary can only act in the best interests of the retirement plan, and may not personally benefit.
??So, if that is the case, why do most individuals believe that other individuals or entities must “do” everything for you after the self-directed plan is established? Well, the answer is lack of education on the part of the self-directed participant.??Once a self-directed plan is legally structured, an individual can have full control of their retirement assets and be the fiduciary of this plan. Practically speaking, what this means is:??
1) Ease of Investing with NO Time Restrictions — What if the self-directed participant wanted to make a timely investment only to find out that the custodian/administrator who is serving as the fiduciary of their account was going to need 10 days to process the request? One might think that that would be a bummer. If an individual had a true self-directed account (where they served as their own fiduciary), one might be able to cut down on that “processing” time by, hey, 10 days .
2) Execution of Transactions — Whether it is paying maintenance fees, repair fees, taxes, mortgates, etc., wouldn’t you rather do this yourself and not pay a third party entity money to execute these transactions for you? Further, even if they did it at no cost wouldn’t you rather control your money as compared to giving that control to someone else?! SIMPLE ENGLISH — does a self-directed participant want to pay fees every time they want a transaction executed for something they can do themselves? This simple function can save a self-directed account holder hundreds of dollars in fees!
??3) Savings With Account Maintenance Fees -– If you are the fiduciary of your own retirement plan and you have control of those funds at an account at your local bank where you live, you may have monthly fees from your bank ranging anywhere from $0 to $15 a month. You are going to be fine with that concept and having checkbook control of your funds rather than giving up that control to a third party entity and paying them money to do this for you!
?4) Having NO Account Balance Fees — Many custodians/administrators charge the participant MORE in account balance fees as the participant grows their retirement assets. Does this make any sense to anyone? Should they make more money in fees when you make good investment choices (and, oh, by the way, it’s not like they give you money back if you lose money with your investments)? Does this sound vaguely familiar with what your broker is doing to you now? With a true self-directed account, you will not pay anyone other than yourself for your account growing.
??5) “It’s Your Money” — Tying into Items 1-4 (above), bottomline is that most individuals (wait, maybe 100% of the people), if they can, would rather have their hard-earned retirement assets in an account that they actually can control and be personally responsible for. Why pay someone else to deposit your retirement assets when you can control them yourself???
Self-directed participants are and should be concerned with the following:??
1) Establishing a self-directed plan that meets all IRS/Department of Labor regulations;??
2) Security of their assets;??
3) Growth of their assets; and,??
4) The ability to control their assets. Think about it….if a self-directed individual didn’t want control of their own funds….why self-direct?
The real key is to establish the plan in compliance with IRS and, if applicable, Department of Labor regulations. After that, does one really need to pay for what they can do themselves?! ??
Get educated….remember, with self-directing your own retirement assets, what you don’t know can cost you…a lot!
BawldGuy Here: The points John makes here are especially salient when it comes to real estate investments made by self-directed plans. The ability to make quick and informed decisions followed by the execution of those decisions can literally make the difference.