What type of Self Directed Retirement Plans are there?

First, we should discuss what we mean by a self directed retirement plan. These plans generally allow an individual  access to alternative investments not normally available through the usual channels.

For example, you might see that Fidelity will have a “self-directed” IRA or 401(k) plan available, but this usually means that the individual can select from the known universe of stocks , bonds, mutual funds, ETFs, and options or futures contracts.

It does not mean this individual can buy a rental home or a private placement or precious metals with his or her IRA or 401(k).

In the “true” self-directed world, there are two types of plans available for the investor; an individual retirement account, or IRA, or an individual 401k. These plans fall under different sections of the IRS code, and each have distinct treatment by the IRS. In the case of the 401k, (sometimes referred to as solo 401k, solo k, i401k, self employed 401k etc.) the Department of Labor has additional regulations that must be followed, as this is an employer sponsored plan (see Why 401k? for more specific details).

A third party custodian is necessary to hold your funds with the IRA. They usually have to sign documents and pay funds in relation to a real estate or other investment transaction, and they have much higher annual fees than your traditional IRA would have at a wire house like Fidelity or Schwab. You can expect to pay from$200 up to $500 annually.

The 401k plan has many excellent features and benefits, and is by far the better plan. First of all it is not necessary to have a third party involved with your plan. This gives you much more direct control -  not to mention the elimination of annual fees. As any good planner will tell you, fees eat into your investment returns. 95% of you can qualify for your own 401(k) so don’t be intimidated.

This is a huge topic, and to keep your reading time a s short as possible, I will be breaking this up into several posts. Stay tuned for lots more and happy planning!

About Roger Simard

Roger P. Simard, CFP® Roger P. Simard is the founding principal of Genesis Financial Advisors, LLC, and Genesis Tax Advisors, LLC. He heads the firm's corporate and personal financial planning practice and oversees all operations. Mr. Simard concentrates his work in the fields of financial planning, real estate investing, tax planning, and portfolio management. Mr. Simard is a Certified Financial Planner™ and has over 23 years of experience helping individuals and businesses achieve financial success. Mr. Simard was a speaker for The Prudential Spirit of Community Awards, a nationwide youth recognition program honoring secondary school students for outstanding service. He is a frequent speaker and radio guest on business and taxation issues and successful investment strategies and provides Continuing Education classes for Realtors.
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