How to Self-Direct Your Retirement Account

June 16th, 2020

One of the most commonly cited reasons why more people don’t invest in real estate is lack of funds. It’s easy to understand. Coming up with a down payment of $20,000 isn’t as easy as dipping into your savings account. After all, most people have their savings tied up in a retirement account, which is heavily regulated by the government. And the typical 401(k) or IRA account doesn’t allow investments in real estate. Those accounts can only be invested in things like stocks, bonds and mutual funds. But did you know there’s an easy—and legal—way to use your retirement account funds to invest in real estate? 


How a Traditional Retirement Account Works


A traditional retirement account such as an IRA or 401(k) is managed by a broker or investment manager. Yours might be with a company such as The Vanguard Group, Fidelity Investments or a similar financial services company. Your retirement account brokerage might not have even been chosen by you. Typically, an employer chooses a brokerage and all its employees have their retirement account with that broker. If you changed jobs, then your new employer will create a new  retirement account with whatever brokerage they use. But no matter which brokerage you or your employer uses, you can’t use that money to invest in the most lucrative investment vehicle that exists today—real estate.


What is a Self-Directed Retirement Account?


A self-directed retirement account is simply an IRA or 401(k) that you have control over. You decide what to invest in and what not to invest in, not your broker. When you think about it, that makes more sense, doesn’t it? Why should your broker be making the decisions about your retirement money? And why should you be prohibited from using your hard earned money to invest in something you’re interested in, like real estate? 


In fact, the government lets you invest in a whole slew of extra things when you self-direct your retirement account. This includes all kinds of real estate; commercial, turnkey rentals, multi-family, land, etc. It also includes things like tax lien certificates, precious metals, notes and private placement deals. Basically, a whole new world of investment opportunities opens up when you self-direct your retirement account. These are investments that you can get excited about—unlike stocks and bonds that exist only on paper.


How to Self-Direct Your Retirement Account


Now, even though you self-direct your retirement account, you still need to adhere to important government regulations that cover self-directed retirement accounts. Because you’re getting tax benefits from that retirement account, you’re still required to follow certain rules. The first rule to be aware of is that you can’t personally “handle” your retirement account money. That just means that it can never be deposited or run through your own personal checking or savings accounts. For that reason, you must hire a custodian. A self-directed retirement account custodian is unlike a broker because the custodian doesn’t tell you where to invest your money and they have no vested interest in your profits or losses. They are simply there to handle transactions on your behalf and to ensure that your self-directed retirement account remains in compliance with government regulations. So the first thing you need to do is to find a self-directed retirement account custodian, which you can do with a simple Google search. 


Next, you’ll need to notify your existing broker that you will be transferring your funds to the self-directed account custodian. Be forewarned, if you have a personal account with your broker, they won’t be happy that you’ve decided to self-direct your account. Why? Because it means no more fees or commissions for them. They may even try to dissuade you from self-directing. But don’t worry, because self-directing is legal and quite common. The only reason you may not have heard about it before is because brokers don’t make commissions from self-directed accounts. So you certainly won’t hear about it from them!


Finally, you’ll want to decide what you’d like to invest in. It’s all up to you now. So if you’re interested in investing in a turnkey rental, you no longer have to worry that you don’t have the money for the down payment. You just contact your custodian and use the money from your self-directed retirement account to get yourself on the real estate investment ladder. 


The best part about investing with your self-directed retirement account is that any profits you make from your self-directed retirement account investments go straight back into your account, either tax-free or tax deferred! You get all the benefits of the retirement account profits, plus you get to call the shots about where to invest! 


Self-directing your retirement account is one of the smartest ways to grab control over your financial future. And investing in turnkey rentals is one of the easiest ways to start making positive cash flow from day one. You can get tax-free or tax deferred income going straight into your retirement account, from an investment that you understand and trust – real estate. Isn’t it time to get started? Choose your turnkey rental today.

  1. Do you need to open the Solo K account in the name of a business (have an LLC)? It sounds like this account is for small businesses. I am asking for friends that would like to do this, but don’t currently have an LLC.

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