Did you know that you could take charge of your own retirement funds and invest them in virtually anything that you believe can make you money, and where they are more secure from market fluctuations?
Yes, the tax law permits you to convert your retirement funds into self-directed IRAs or 401(k) plans where you control them. Many individuals have purchased real estate and other assets as alternative investments for their retirement plans. If you invest with IRA funds, you still need an outside custodian that will permit you to invest in alternative investments. Whereas, if you set up a self-directed 401(k) plan, you will not need to pay outside parties an annual fee.
The conversion of retirement funds can be done at any time and will permit you to have checkbook control over your retirement assets. This flexibility allows you to seek out alternative investments that can increase in value either tax-deferred or tax-free until you retire. The self-directed plans permit you to acquire investments, i.e. real estate, with debt financing by either a bank loan or where a seller would carry financing on the property. This allows you to increase your retirement investment assets in a way that cannot be done with most conventional retirement accounts.
There is no limit on the amount of retirement assets that you can convert into a self-directed account. The IRS and the Department of Labor both have various stringent rules that must be followed so as not to cause taxation of retirement assets. Generally, professional help should be sought to make sure that no tax laws are broken. If you have retirement funds that you want to diversify and control yourself while earning tax-free or deferred income until retirement, then establishment of a Roth IRA or 401(k) is an option to consider.
• Ken Lindow, CPA, CGMA, MBA, lives and works in Ahwatukee Foothills. Contact him with tax questions or column topic ideas at (480) 940-8351 or Ken@LindowCPA.com.