Suppose you've retired or have a retirement account from a past employer. In that case, you can transfer money from your traditional 401K or IRA into a Self-Directed IRA (SDIRA) and gain checkbook control over your funds.

Why haven't you heard of an SDIRA?

Reduced fees and commissions: Self-directed IRAs typically involve lower fees and commissions than actively managed funds or investment products commonly promoted by traditional financial institutions. This means less potential revenue for them.

Increased responsibility and risk for investors: Self-directed IRAs grant more control and freedom and place the responsibility for investment decisions and potential losses solely on the investor. This can be daunting for some individuals, leading them to stick with professionally managed options traditional Wall Street firms offer.

Less control over investor behavior: With traditional options, institutions often have more influence over where investor money goes, potentially directing it towards products that generate higher fees for them. Self-directed IRAs break this dynamic, giving investors more autonomy.

Competition with alternative investment firms: Self-directed IRAs open doors to alternative investments beyond traditional stocks and bonds, potentially competing with offerings from firms specializing in those alternative assets.

But with money in an SDIRA, you can take money out of the stock market and invest in other qualified assets, including real estate! You can be the commander of your own destiny, and make investment decisions that you are confident with and invest in assets you are confident in!

When it comes to power and flexibility, Self-Directed IRAs (SDIRAs) offer significant advantages over traditional IRAs and 401(k)s. Here's a breakdown of the key differences:

Investment Power:

• SDIRA: Opens doors to a much wider range of investments beyond stocks, bonds, and mutual funds. You can invest in real estate, private equity, precious metals, cryptocurrency, even businesses – anything the IRS allows within an IRA structure.

• Traditional IRA/401(k): Limited to a pre-defined selection of traditional investment options chosen by your financial institution or plan administrator.

Control and Decision-Making:

• SDIRA: You are in the driver's seat, making all investment decisions based on your research, risk tolerance, and goals. You have complete control over your portfolio.

• Traditional IRA/401(k): Decisions are largely made by your institution or plan administrator. You might have limited choices to customize your portfolio.

Diversification and Potential Returns:

• SDIRA: Opens doors to potentially higher returns by venturing beyond traditional asset classes. However, it also comes with higher risk as you are responsible for your choices.

• Traditional IRA/401(k): Lower risk due to diversification within standard asset classes, but the potential for growth may be limited.

Fees and Costs:

• SDIRA: Typically require higher fees to cover the additional administrative complexities and custodian services needed for holding alternative assets.

• Traditional IRA/401(k): Fees vary depending on the institution and chosen options, but generally lower than SDIRAs due to simpler offerings.

Requirements and Responsibility:

• SDIRA: Requires more knowledge, due diligence, and research from the investor as they navigate the broader investment landscape. Mistakes can be costly.

• Traditional IRA/401(k): Requires less active involvement; rely on the expertise of your chosen institution or plan administrator.

Why Should You Self-Direct Your IRA or 401K?

How To Establish Your SDIRA?

Before making any self-directed investment, you must open an account with a provider or what is called a “Custodian” and fund it to get started. Your ability to fund your new plan can be accomplished two ways:

1. Contributions:

• New contributions: You can make annual contributions directly to your SDIRA, just like with a traditional or Roth IRA. The contribution limit for 2024 is $7,000 ($8,000 if you're 50 or older).

• Rollover from an existing retirement account: You can transfer funds from another IRA or a previous employer's 401(k) into your SDIRA. This is called a rollover and is generally not considered a taxable event.

2. In-kind transfers:

• Transferring existing assets: With some SDIRA custodians, you can transfer existing investment assets you already own, such as stocks, bonds, or mutual funds, into your SDIRA. This can be advantageous if you want to avoid selling and potentially incurring capital gains taxes. However, not all custodians allow in-kind transfers, and there may be limitations on the types of assets you can transfer.

Getting Started with an SDIRA Custodian

I and my team have made getting started and finding the proper SDIRA custodian for you as easy as possible. Because there are many Custodian services, I will refrain from naming one specifically and suggesting that you use them. HOWEVER… My team and I have compiled a list of SDIRA custodial service providers to help you identify the right one to use. Inside this list, I have “check marked” the custodial service providers that my investment partners and I have used to create SDIRA and Solo 401 Ks. You can download the list below for free. Along with the list, I have provided a questionnaire, which you can use to contact each of the custodians on the list and ask them. These are questions you may not even know to ask but will help you create and decide which SDIRA custodian to open an account with and use.

Disclaimer: The information provided in this post is for educational purposes only and should not be considered financial, tax, or investment advice. Always consult with a qualified professional before making any financial decisions.