What is a Self Directed 401(k)? | Money Chatter

A self directed 401(k) is a type of retirement plan. This plan does not differ from any other 401(k) or IRA plan. The differentiating factor of this plan is that you get to have more investment options with a self directed 401(k) plan.

A lot of retirement plan fund investment custodians only permit investments in mutual funds, approved stocks, bonds, and CDs. On the other hand, most self directed 401(k) custodians will allow investments in these avenues plus other routes of investment including but not limited to real estate, notes, private placements, tax lien certificates and more.

There are many benefits of investing in a self directed 401(k) plan. In addition to the regular 401(k) benefits of having untaxed profits and deductions on tax and asset protection, you have the right to make decisions of investing in other tax free investments that you perceive suitable and fully understand. You can cite an investment of this kind to your custodian and have the ability of creating more wealth.

You should be aware that the IRS permits self directed 401(k)s under specified rules and regulations. The IRS publications number 560 and 590 sheds light on the rules and regulation governing IRAs and other certified retirement plans such as 401(k)s. There are also some additional rules and codes on IRAs spelt out by the IRS that you should come to grips with.

Compliance is also ensured by the IRS on IRAs as they have special rules concerning self directed 401(k) investments. Thus, you should make an effort to be familiar with these rules before you go for a self directed 401(k) plan. Certain transactions are prohibited by the IRS through the use of 401(k)s. For example, self directed investments are put in the light of this matter. This is where you or family members of descending lineage get to have aforementioned ownership of the plan.

Another thing that you should keep in mind is that no investments apart from FDIC-insured deposits are guaranteed. So, you must realize the fact that the risk of investing in assets that you already know and identify with are lower than those risks linked with making only predictable 401(k) investments.

The above points will tell you that the self directed 401(k) plans are only suitable for those who would like to amass wealth using their understanding on investing in assets rather than bonds, stocks and CDs.? A person with adequate knowledge of the financial sector and stocks can thoroughly benefit from the self-directed 401(k) plans. However, a person with limited knowledge may not be able to make the most of such an avenue.

If you have an adequate knowhow of the financial sector, then you can surely invest in self directed 401(k) plan to maximize your returns on investment and still get all the benefits associated with 401(k) plans. This option is best suited for people who understand the dynamics of financial industry.

Rick Pendykoski, founder of Self Directed Retirement Plans LLC takes great pride to give honest and experinced advice to people looking to take control of their retirement accounts. For more information and advice on retirement plans visit SDRetirementPlans.com

Source: http://www.amp-research.info/what-is-a-self-directed-401k-2/

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