When It’s Good to Have a “Honey-Do” List!?

I am amazed at the good men out there who routinely spend their weekends doing “honey-do” activities that their wife has asked them to do. The reason I can really respect these men is that I am not one….I mean, I couldn’t tell you if you had to turn a wrench left or right to tighten a bolt. As I always say….we each have our own strengths and weaknesses…honey-do lists are not my strength.

However, there are probably many good honey-do lists one could consider when it comes to the family’s finances, but I am going to throw a “wrench” (oh, also, I was never a comedian either!!) into the typical conversations about family budgets and other assorted financial issues. If your spouse/partner puts this one on the honey-do list, it is a good thing. This topic is one that is rarely discussed (even by me), but that almost always comes up as a potential benefit to individuals establishing self-directed 401Ks.

When I receive calls from individuals about establishing self-directed IRAs or 401Ks, I always probe with some questions about their age(s), marital status, and whether an individual or spouse is a W-2 employee, self-employed or a combination of the two (e.g., a hybrid individual who is both a W-2 and self-employed). Why would I ask these questions? Well, the primary reason is to discover what type of self-directed plan is best for them and what they qualify for.

All qualified retirement plans are NOT the same

While I have gone into great detail in the past as to why a self-directed 401K is most likely a better retirement plan to hold over its ugly cousin the IRA, there is one benefit I have never discussed in a blog that bears review. This benefit is that in a 401K structure, both husband and wife (or domestic partners) can serve as co-trustees of the 401K….even if one of the individuals is not self-employed or employed by the other individual. This is not true with the IRA….as it is an INDIVIDUAL retirement account.

You may say “so what”?! But consider this, as co-trustees of the account (if both individuals are fine with this arrangement), both individuals have the same legal rights to control the retirement account and the investments it makes. Without going into legalese, there are many significant beneficial reasons to have co-trusteeship. Instantly, I think of estate issues related to disability and death of individuals when the 401K has only the one trustee and that individual passes away or becomes incapacitated due to a disability. Next, there are some “convenience” factors where the spouse can execute transactions and write checks on behalf of the plan.

Now, at this point in time, you might again be saying, “so what”. But a huge benefit to having both spouses serve as co-trustees is that now both individuals (if they desire) can transfer/rollover qualified retirement plan funds in their respective names to the 401K plan and have access to all of these funds for investment purposes.

Let’s use a quick example:

BawldGuy is married to BawldGal. BawldGuy is a self-employed individual with no employees. BawldGuy has numerous Traditional IRA accounts and a couple of old 401K accounts that have a total value of $500,000. BawldGal, on the other hand, is a W-2 employee but has an old 401K with a value of $250,000.
BawldGuy qualifies for and is interested in establishing a self-directed 401K. He knows that he can transfer/rollover $500,000 of his assets from other plans into the new 401K plan. He is excited that as Trustee of his plan, he will have full fiduciary control of this plan and its funds. What BawldGuy doesn’t know but learns is that if his wife is a co-trustee of the plan, she can also transfer/rollover eligible funds into this new plan. Net effect is that the plan of which both BawldGuy and BawldGal are co-trustees, now has investable assets of $750,000 rather than $500,000. For individuals truly interested in self-directing their retirement funds, this may be a huge consideration as it provides them greater flexibility and potential “buying power.”

Together but separate

For all individuals who say that this is not a good consideration as the funds will be co-mingled and make accounting for future distributions very cumbersome and difficult, I would say “GREAT point”. However, when these types of accounts are established, we actually take that into consideration and establish sub (participant) accounts WITHIN the 401K. Therefore, in the Bawld’s situation, they have total investable assets of $750,000 in the 401K, but that $750,000 is broken down in one participant account (BawldGuy) which totals $500,000 and another participant account (BawldGal) which totals $250,000. Therefore, they can keep all funds in one account for investment purposes, but separate for accounting purposes the funds that belong to each individual.

Now saying this, there may be many legal and personal reasons why spouses/partners may not wish to do this, so take into consideration what YOU feel most comfortable doing. As such, you should always review your personal situation with your tax or legal professional for their advice. However, for those individuals who find this option attractive and qualify for the 401K, it is a nice alternative to fund the 401K with qualified retirement funds from both individuals, allowing them greater control, flexibility and greater buying power with their funds.

Keep this in mind when considering a self-directed plan. This simple nugget of information may just be something that you find extremely attractive when deciding how to direct your retirement investments.

BawldGuy Here: My experience talking with folks about their Purposeful Plans is that they simply aren’t aware of many options already on their menu. Most are related to real estate, but a significant segment involve this exact scenario. It’s my guess this post will spark many couples to revisit their qualified plan(s) and how they’re set up. Love this stuff, John.

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About John Park

John Park is a facilitator for self-directed IRAs and 401Ks and founder of PGI Agency, Inc. which is host to PGI SelfDirected. Prior to that, John maintained his own insurance agency and also worked in intercollegiate athletics (Arizona State University, Big Ten Conference Office). For over 6 years, PGI has established both self-directed IRA and 401K accounts so that individuals can take control of their retirement assets and invest in both Traditional and Non-Traditional (e.g., real estate) assets. John believes that most people should fully explore having FULL control of their retirement funds and be the steward of their own money.

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