How to take control of your IRA & 401K investments

For most of my adult life and working career, I let my 401K and IRA fund managers invest my money as they saw fit. I believed that they were paid professionals and would seek out the maximum returns possible to build my account. And, to a point, that's true. However, these fund managers can only work with their own proprietary investment products. In other words, there are a lot of investment alternatives out there that they can't include in MY 401K or IRA portfolio.

It took me a long time to figure this out. I just assumed that my best interests were being served. If the stock market took a licking and my 401K didn't drop as badly as the overall market, I felt like I was doing good.

Then I came across a phenomenon called "self-directed IRA's". They aren't new to the planet, they were just new to me (they've been around for >30 years).

What are they? Self-directed IRA's are legally no different than any other IRA. The difference is that you choose the IRA's investments from a much broader set of alternatives. You have much more flexibility and control.

Basically, to set up a self-directed IRA, you need a third party "custodian" for the assets of your IRA. There are two classes of companies legally allowed to hold IRA assets:

1) Banks: (banks, trust companies, savings & loans, and credit unions).
2) Non-bank custodians separately licensed by the IRS (broker-dealers, mutual fund companies, and insurance companies).

There are about 20 self-directed IRA custodians available in the US. The one I use is PENSCO Trust Company (they fall under class 1 above). PENSCO has been around since 1989. They service customers in all 50 states. Their corporate offices are in San Francisco, but their Trust Company offices are in New Hampshire. They are regulated by the IRS, the NASD (Nat'l Assoc. of Securities Dealers), the US Securities & Exchange Commission and a state banking commissioner. I felt that was good enough oversight to help me sleep at night knowing my funds were safe. Plus, they are excellent communicators and very efficient. You can check them out at the image link below -- also, be sure to download their FREE ebook "Answers to Investors' Top 50 Questions About Self-Directed IRA's from the image link below:

Self-directed IRA's are growing rapidly in popularity, but they still only represent about 3% of the IRA funds invested in the US. However, people like me are catching on and word is spreading.

The initial concern I had was: is this legal and legitimate? After doing my homework, I clearly found the answer to be a resounding YES. But you'll be surprised how many people, including professionals like attorneys, bankers and accountants who still aren't familiar with self-directed IRA's.

What really sparked my interest was the fact that I could still invest in the securities like stocks and bonds that my old fund managers were investing in if I wanted to, plus things like Certificates of Deposit, annuities, mutual funds, etc. -- but I could also invest in a whole new spectrum of investment vehicles. These include things like raw land development projects, rental properties, trust deeds, tax liens and tax lien certificates, new or existing businesses, commercial property, race horses, airplanes, billboards, fishing rights in Alaska, foreign real estate, etc. There are some restrictions, as there are on any investment type. For example, all of these must be handled as investments and can't be for personal use (e.g. you can't live in a rental property owned by your self-directed IRA).

There are a few assets that you CANNOT invest in with your IRA

Life insurance contracts
Collectibles (cars, stamps, furniture, rare coins, etc.)
Capital stock in an "S" corporation

Anyway, I recommend that EVERYONE at least check out self-directed IRA's. With the stock market gyrations these days, it's worth exploring your options.

See you next blog. Retirement Wiz (email me at: johnha7@yahoo.com )