YOU CAN USE YOUR 401(K) AND IRA FUNDS TO PURCHASE NONTRADTITIONAL INVESTMENTS, REAL ESTATE, BUSINESSES AND MORE

Instantly get control of your IRA or 401(k), including checkbook control of your assets.

Invest in a much wider variety of investments than you thought possible, including real estate (land, homes, commercial, etc.,) business ventures and more.

Have profits from those investments flow back into your IRA tax deferred or into your ROTH IRA tax free.

Combine your SEP IRAs, 401(k), Keoghs & other retirement assets into a single self directed IRA account.

Many investors who own 401(k) plan assets and IRA assets have become disappointed by the unpredictability of stock market rates of return and have demanded wider investment choices beyond stocks, mutual funds and bonds.

A growing number of investors are taking the time to educate themselves about how to invest in real estate and other nontraditional assets using their retirement funds.

This strategy may work well for individuals who do not want to use their cash that is available in "taxable" bank and brokerage accounts or for those who want to diversify or control their retirement portfolios. Our firm fully supports this strategy as part of a balanced portfolio.

We do not sell investments, give investment advice or legal advice.

Many of our clients need assistance beyond what we can legally provide. Our solution is to maintain a network of educated and qualified legal and investment professionals who are able to help our clients with their specific legal and investment advising needs.

The rules governing allowable investments by IRAs DISALLOW AND PROHIBIT an IRA's investment in life insurance, collectibles (e.g., artwork, antiques, metals, gems, and most coins,) S corporation shares and the exercise of stock options granted by your employer (Unfortunately, most stock options were not granted in the name of your IRA or 401(k) account and therefore cannot be transferred into your retirement accounts.)

However, all other types of investments are permitted, and thus the range of possible investment choices is nearly unlimited. Taxpayers can make nontraditional investments with the following accounts:

  • ROTH IRA, Traditional IRA
  • 401(k)
  • Individual 401(k) - also called a Solo 401(k)
  • ROTH Individual or Solo 401(k) - New in 2006! Any income level can contribute
  • SEP IRA
  • SIMPLE IRA
  • HSA - Health Savings Accounts
  • Educational IRA / Coverdell IRA
  • KEOGH
  • 403(b), 457, 412(b) Plans

We are supportive of the ability of taxpayers to self-direct and make nontraditional investments with retirement and HSA accounts for two reasons.

First, these strategies have finally become more widely understood and validated as having potentially huge tax savings potential, and have therefore increased in popularity. A beneficial result of increased demand is an increased supply of reliable, reputable vendors who are available to educate our clients about their options and to help them grow their tax free and tax deferred assets while also keeping them within the complex tax, ERISA and Department of Labor (DOL) rules surrounding these account assets. We and our vendors can provide more guidance today than ever to ensure our clients comply with relevant laws and rules to keep them out of trouble. It makes the entire process easier than ever, and helps us refer them to competent, specialized legal and investment advisers who seemed almost nonexistent just a few years ago.

Second, and just as important, as we encourage our clients to understand the tax-saving and wealth-building power of shifting "taxable" funds from their bank and brokerage accounts into tax-free accounts such as ROTH IRA and ROTH Individual 401(k) accounts, and tax-deferred accounts such as traditional IRA/SEP IRA/SIMPLE/traditional 401(k) accounts, we can also give them a method by which they can actively access and control their retirements funds within specific rules.

We find that many taxpayers who have chosen NOT to fund their IRA and 401(k) accounts made that choice mainly because they felt that they would not be able to access those funds until retirement age. We want to change that thinking.

Now taxpayers have the option of investing in a much wider range of investments. Here is a list of just a few of the IRA and 401(k) investment options available to all taxpayers:

  • START A BUSINESS, BUY A FRANCHISE
  • BUY PART OF A BUSINESS
  • BUY A PARTNERSHIP INTEREST / FORM LIMITED PARTNERSHIPS
  • FUND LIMITED LIABILITY COMPANIES / CORPORATIONS
  • CORPORATE STOCK, FOUNDER SHARES, VARIOUS INVESTOR SHARES
  • PRIVATE PLACEMENTS (PRIVATE COMPANY STOCK INVESTMENT OR LOANS)
  • LEND MONEY, EARN INTEREST ON MORTGAGES / NOTES/PRIVATE LOANS
  • UNSECURED LOANS, SECURITY AGREEMENTS AND NOTES, AUTO PAPER
  • REAL ESTATE: RESIDENTIAL RENTAL PROPERTIES, MULTI-UNIT BUILDINGS, COMMERCIAL, STORAGE FACIITIES, BOAT SLIPS, MARINAS, TIME SHARES FOR RENTAL OR RESALE, FOREIGN REAL ESTATE
  • LAND PARCELS, LOTS, ACREAGE, TIMBERLAND, RV PARKS, OTHER INCOME PRODUCING LAND
  • REAL ESTATE LLCS, LLPS, TENANTS IN COMMON ARRANGEMENTS, PARTNERSHIPS
  • WATER RIGHTS
  • TAX LIEN CERTIFICATES
  • TAX DEEDSv
  • LEASE OPTIONS
  • OTHER CREATIVE INCOME PRODUCING REAL ESTATE INVESTMENTS
  • STRUCTURED SETTLEMENTS
  • OPTIONS ON INTELLECTUAL PROPERTY
  • ROYALTY RIGHTS
  • FRANCHISE RIGHTS
  • STOCKS, BONDS AND MUTUAL FUNDS (TRADITIONAL INVESTMENTS)
  • CERTIFICATES OF DEPOSIT
  • COMMODITIES / FUTURES
  • EXTRAORDINARY INVESTMENTSv
  • COMMERCIAL PAPER
  • LEASES, EQUIPMENT LEASES
  • JOINT VENTURES
  • CONTRACTS OF SALE
  • FACTORING
  • ACCOUNTS RECEIVABLE FINANCING
  • BUILDING BONDS
  • PRECIOUS METALS

The steps to self direction are fairly straightforward:

  1. Locate a 401(k) plan sponsor or IRA provider who offers completely flexible investment options in their plan and trust document. Adopt the appropriate plan. There are several IRA administrators/custodians, but not all of them offer guidance or reasonable fees. Some reputable providers and custodians are:

    Guidant Financial Group - Offers set up of IRA LLCs and self directed 401(k)s, plus flat-fee use of custodial services. Offers checkbook control of your assets. A reputable provider with substantial experience and staff, and our preferred vendor. Respected in the self-directed industry, and they do not make investment recommendations. Contact Ron Fouts at (415) 839-5008 or click these links for the website:

    IRAs: www.guidantfinancial.com/products/auriga/default.aspx
    401(k)s: www.guidantfinancial.com/products/audeo/default.aspx

    First Trust Company of America - a custodian only, does not offer checkbook control of assets, has asset-based fees and transaction fees. You must request that they invest your money, write checks for you, etc. Respected in the self-directed industry, and they do not make investment recommendations. www.trustamerica.com Note: they offer a flat-fee option to Guidant Financial clients.

    PENSCO Trust Company - a custodian only, does not offer checkbook control of assets, has asset-based fees and transaction fees. You must request that they invest your money, write checks for you, etc. Respected in the self-directed industry, and they do not make investment recommendations. www.penscotrust.com

  2. Rollover assets from any existing IRAs, past 401(k) or other qualified plans to the new self directed account. This can take between two days to one week.
  3. Determine the appropriate diversification you desire and direct the trustee or custodian to make the asset purchases on behalf of the plan or IRA.
  4. Income and expense are treated on a prorated basis of asset ownership and recorded accordingly.
  5. Distributions must be made beginning age 70 for all plans other than Roth IRAs. Distributions may also be made in kind.

    Beware of very small businesses or "discounters" offering these services, most of which are found online. Be sure to consider what will happen to the administration of your account and Plan if anything happens to a potential provider's key personnel. Examples of these types of providers:

    • $195 set up (too low to provide safe quality)
    • Providers with "Purchase Now" buttons or online shopping carts on their websites.

    Beware of custodians and providers of IRA/401(k) services who offer to make investment recommendations to invest your funds for you. It may indicate a bias towards certain products or account arrangement.

    Companies that offer self-directed IRAs, IRA LLCs, 401(k) plans or 401(k) corporations can vary significantly in how much assistance they give to their clients.

    Some act as uninvolved custodians who simply enact the wishes of their clients without offering advice or direction. [Examples: First Trust, Pensco Trust]

    Other companies take a more consultative role in helping their clients stay within the rules of complex investments. [Example: Guidant Financial Group]

    If you do not know the advantages of setting up an LLC with your IRA, you may want to consider the latter type.

    Forming an LLC for the benefit of a self-directed IRA gives the owner checkbook control over the investments. The IRA owner can write checks directly from funds in the IRA to pay expenses related to the investments. When owning real estate within an IRA, this is a good idea because every handyperson, appraiser, painter, and landscaper must be paid directly from the IRA. If you pay out-of-pocket for such an expense, you can open your IRA up to penalties, fees, and taxes from the start of the year in which you made the mistake.

    A list of prohibited investments that IRA and 401(k) plans cannot invest in. If you do, the IRA/401(k)/other tax-qualified plan is subject to big penalties AND taxation from the start of the year in which the mistake took place:

    Your IRA cannot invest in:

    • COLLECTIBLES
    • LIFE INSURANCE
    • S CORPORATION STOCK
    • EXERCISE OF STOCK OPTIONS GRANTED BY YOUR EMPLOYER

    Your 401(k) cannot invest in:

    • COLLECTIBLES
    • LIFE INSURANCE MAY BE ACCEPTABLE UNDER CERTAIN CIRCUMSTANCES BUT IS NOT RECOMMENDED
    • S CORPORATION STOCK MAY BE ACCEPTABLE UNDER CERTAIN CIRCUMSTANCES BUT IS NOT RECOMMENDED
    • EXERCISE OF STOCK OPTIONS GRANTED BY YOUR EMPLOYER