Do you ever look at your 401K statement and feel limited by the same old options of stocks, bonds, and mutual funds? What if there was a way to have greater control of your retirement and choose what you wanted to invest in, such as real estate, startups, precious metals like gold, and Digital Currency?
If you are looking for that type of change, then a 401K to a self-directed IRA rollover is for you! This Q&A article will break down exactly how it works so you’re confident about making the switch.
A self-directed IRA (SDIRA) allows you to invest in alternative assets like real estate, private equity, precious metals (like gold), and cryptocurrency. This gives you a broader range of assets.
IRA custodians, such as Preferred Trust, can administer these alternative assets.
The primary reason is control and diversification.
Control: As mentioned before, you have a great amount of freedom with your portfolio with the alternative assets now available. You are no longer limited to stocks, bonds, and mutual funds from your 401K.
Diversification: With the new unlocked freedom, you can now spread your funds across various kinds of assets. You can invest in a commercial real estate project and any precious metals, creating a well-rounded investment portfolio.
Like any investment, including your 401K rollover, there are risks. Due diligence is essential to mitigate risk and maintain a robust portfolio. You can refer to Home | Investor.gov to stay informed on keeping your assets protected.
The word “self-directed” means that the responsibility of monitoring and upkeeping your portfolio is on you. There are new aspects that you need to be aware of compared to your 401K.
Disqualified persons: You cannot transact with your spouse, children, other family members, or even yourself. The IRS Code Section 4975 has strict guidelines against using an SDIRA for personal benefit.
Fees: SDIRA custodians charge higher fees for handling alternative assets. Choose a custodian that is transparent about the fees they charge. At Preferred Trust, you can see a breakdown of the fees here.
You are the expert: While SDIRA custodians process the investment, they will NOT monitor or evaluate the investment. That responsibility falls solely on you, the investor.
Make sure you understand these risks so that you are better prepared when making the switch to a Self-Directed IRA.
If you are ready to get started, this guide will provide you with simple steps to transfer your 401K to an SDIRA.
Open your SDIRA account: Establish an account with an SDIRA custodian of your choosing.
Initiate a Direct Rollover: You will request a direct rollover from your old 401K plan to your new SDIRA custodian. Please ensure that you avoid an “indirect” rollover. You must deposit the full amount into your new IRA to avoid taxes and penalties.
Executing a 401K to a self-directed IRA rollover can be a powerful strategy to take control of your retirement future and diversify your alternative investments. However, it is not a decision to be taken lightly; it may not be right for everyone. If you feel it is right for you, ensure that you are prepared and that the direct rollover is done correctly. Always conduct your own due diligence to ensure the SDIRA custodian is right for you and understand that ongoing due diligence on the investments must be monitored by you, the investor.
Preferred Trust Company offers free consultations to make sure you can get the most out of your retirement portfolio.
If you are confident and ready to make the switch to Preferred Trust, you can open an account here. Watch our Preferred Way YouTube video to check out “The Timeline of a Self-Directed IRA” and learn more about it.