In our May 30, 2012 post, we spoke about whether a “true” company 401K plan (to the layman, a 401K plan at a company with employees, etc.) can self-direct their retirement assets. The answer is YES.
While permissible, are there reasons why a company may not want to establish a self-directed 401k plan? I mean I rave about the benefits of a self-directed 401K all the time….wouldn’t I do the same with a “company” 401K plan as well? Wouldn’t I be a proponent for all of the employees of a company having the ability to self-direct and take control of their 401K accounts?
Well, yes AND no. Continue reading
For those of you who are used to a longer article from me…you will get one after this. But, it doesn’t take independent analysis to determine that you rarely hear about self-directed plans. Of course, if makes sense that your broker isn’t necessarily going to tell you about this option…and kudos to them if they do….as they most likely will not benefit (financially) from their clients utilizing a self-directed account.
That being said, there are many finance television and radio shows, newspapers, magazines and pundits who, you would think, are ALWAYS scouring for topics to discuss on air and in print. BUT, it is rare that you ever see ANY education or discussion on the topic of self-directed IRAs and 401Ks. Even during the bleakest of economic times, you did not hear a whisper about it.
Now, I would never be cynical (for those of you who don’t know me well….this is my attempt at being sarcastic) for the reasons why you don’t hear at least the concept of self-direction being discussed. But I am curious if it could or might or maybe have anything to do with advertising dollars from “others” that are interested in selling you their investment products.
I’m just sayin……
So, when is PPP valuable to use when establishing your Self-Directed (SD) IRA or 401K? Well….always!! But, wait, what is PPP? It is simply nothing more than Productive and Prudent Planning. So, you may say to yourself, well, “Duh”, but you may be surprised how many people do not take these two simple words to heart.
You see, as more and more people find out about the ability to self-direct their retirement assets, they become enamored with the process, want to get their plans established and then ask, “Now what?” While not discouraging in any way the establishment of these plans, one must take the responsibility to not only learn everything they can about such plans (and there are some definite things to learn), but also be productive and prudent with their planning so they really hit the ground running when their account has been established or shortly thereafter. And, by running, that doesn’t necessarily mean going out and investing right away, but knowing what conditions, terms, etc. you are wanting and/or needing to be met before you make an investment into a non-traditional asset. Continue reading
BawldGuy Here: We’re starting literally where we left off last night. If you missed Part I, here it is.
So, let’s apply this to a typical situation with “flips”.
UBIT, as you can see from the preceding paragraph can be a bit more tricky. Practically speaking, the types of real estate projects where a self-directed IRA (note for later……I am only referring to IRAs now, not 401Ks) might face UBIT responsibilities are profits generated from “flips” that result in a resale vs. holding as inventory of assets.
Now, if you are purchasing the property as an appreciable investment or rental income, these are exempt from taxation in an IRA…..but there is one HUGE exception to this ….and that is that is IF your IRA purchases the property through a loan or other form of leverage (debt financed income…referenced above), the IRA will automatically trigger UBIT tax on the profits associated with percentage of leveraged funds to profit. Continue reading
Unfortunately, many people are unaware that they can invest their retirement funds in assets other than “traditional” assets such as stocks, bonds and mutual funds. Unfortunately, this prohibits them from investing in “non-traditional” assets (e.g., real estate) when they may want to make these investments.
But, since brokerage firms and banks will only permit you to invest in their financial products, how is one able to invest in other assets and how does this have any correlation to Goldilocks and the Three Bears? You remember the story….”this porridge is too hot, this porridge is too cold, this porridge is just right.” Well , let’s first introduce the stars of our show……
Papa Bear -– Papa Bear is your bank or brokerage firm/broker whose plans only allow you to invest in stocks, bonds and mutual funds. Continue reading