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Step-by-Step Guide to Self-Directing Your Retirement Account

By now you’ve probably heard about all the benefits associated with self-directed retirement accounts. Those who self-direct their retirement accounts open up a whole new world of investment opportunities beyond stocks and bonds. With a self-directed retirement account, you could invest in real estate property, tax lien certificates, digital currency like Bitcoin, structured settlements, precious metals like gold and more. If you’ve wanted to invest in something more interesting than stocks, if you’ve wanted to take more control over your investments, or if you have been wanting to invest in real estate, self-directing your retirement account could be a good option for you.

But how exactly does one go about self-directing a retirement account? You’re unlikely to get a lot of help from your stockbroker because they only make commissions when you buy and sell stocks. They may even give you erroneous information about self-directing retirement accounts. Your banker is an expert in CDs, but probably won’t be able to tell you anything about self-directing your retirement account. Your employer and HR department won’t be able to help aside from sending you back to your retirement account representative. If you’re ready to self-direct your retirement account, here’s a step by step guide to help you make it happen.

Do Your Research

Before you actually file paperwork to self-direct your retirement account, prepare yourself. Do some research into what kinds of investments are available for self-directed retirement accounts. Understand that when you start self-directing, you’ll be the decision maker so you should be ready with some investment decisions right away. You won’t want your money to be sitting idle while you do your research. Do your research first.

One way to invest with your self-directed retirement funds is to invest in private money lending. This is a fairly straightforward investment opportunity you can take advantage of if you’re an accredited investor. And, while the money is invested for about 12-18 months, you can spend that time researching your next investment.

Get a Custodian

One of the regulations governing self-directed retirement accounts is that the money and transactions are always handled in accordance with the law. You need an approved custodian who will make sure you comply with all the IRS rules about self-directed retirement accounts, can manage your distributions, keep tax records and assist with the paperwork involved in buying, selling and managing investment vehicles.

There are several self-directed custodians available through an online search. Be sure to choose a custodian that is  properly licensed, that does not impose restrictions on your investments (beyond the IRS restrictions), and that has reasonable fees.

Notify Your Broker

If you’ve been working with a private broker or retirement fund representative, you should notify them of your intent to self-direct your retirement fund from here on out. Your custodian will be sending them paperwork, but it will help if you let your broker know to expect it. Be forewarned that they aren’t going to be happy with the news. Your broker makes money on commissions – not on you self-directing your retirement account. They may try to dissuade you or say that you aren’t permitted to self-direct your account. But you are legally entitled to self-direct IRAs and 401ks according to the IRS tax code. However, it’s not common knowledge, so your broker may genuinely not realize that it’s an option. Remember that your notification is just a courtesy. You don’t need your broker’s permission to self-direct.

Move Your Money

The next step—and this is one that your custodian can assist with—is to move your money into your investment. For example, say you decided to go with a private money lending opportunity. After confirming that you’re an accredited investor and reviewing the Private Placement Memorandum, you decide to invest $50,000 into the deal. The private money lending sponsor sends over paperwork which you can have forwarded to your custodian. You sign your approval and the money is then moved into the investment. All this can happen in a matter of hours once you’ve done your due diligence on the investment. Then your money starts working for you according to the terms of the deal.

Accept Distributions

Once the investment starts paying out, those distributions go right back into your retirement account, just as they did before you self-directed. All of the regular retirement account benefits remain in place. You earn tax-free or tax-deferred interest on your self-directed retirement account just as before. You don’t need to be involved in making sure the distributions get back into the account. It’s automatic and overseen by your self-directed retirement account custodian.

Keep Researching

Depending on how far off you are from retirement, you’re looking at many more years of self-directing your retirement account. Continue researching investment opportunities so you always have a profitable place to put your money when the current investment term comes due. You’ll want to always stay one step ahead so you can strike fast when deals become available. In the case of private money lending, there may be a second opportunity when the current one ends. Your private money lending sponsor will let you know as the due date approaches.

Finally, know that that you don’t have to self-direct all of your retirement accounts. If you want, you can keep some of it in your traditional brokerage account and take out a portion to self-direct. There are pros and cons to this approach of course, but it is an option to consider.  If you’d like more information about the private money lending opportunities available through American Real Estate Investments, please contact us. We’d be happy to answer any and all questions you have about private money lending or about funding investments through your self-directed retirement accounts.