Planning for your retirement is a critical discipline, and how well you plan will have a direct impact on your post-retirement quality of life. You’ve been following the advice of professionals, setting aside a percentage of your earnings, and have likely seen your reserves grow in recent years.
However, you’ve been around long enough to already experience economic downturns that diminished the value of your retirement investments. If you’re like most people, about 25-40% of your 401k’s value disappeared after 2008, and history will likely repeat itself with the imminence of the next recession. Your 401k could take a similar hit – only this time it’s later in your career and retirement planning process, making recovery more challenging.
At this point, you’re looking for alternative options to protect and build off the growth you’ve seen in recent years. A growing number of investors are shifting away from the traditional retirement products that limit investments to only stocks, bonds, mutual funds, ETFs and CDs, and instead are leveraging Self-Directed IRAs (SDIRA).
SDIRAs give you the flexibility to invest your retirement funds in real estate, precious metals, notes, tax lien certificates, private placements and many more without penalties.
Since multifamily real estate has already proven to be the most stable and predictable investment (especially during an economic crisis), most investors seek out this asset type to protect and grow their retirement funds with an SDIRA. It can be a great way to diversify and protect your retirement account, while avoiding tapping into your cash reserves.
How to Use Retirement Funds for Real Estate or Alternative Investments
The process of rolling over funds into an SDIRA is simple, but requires some attention to detail to ensure it’s done correctly. One of the biggest differences when converting to a SDIRA is that it requires you to hire a custodian, who will help you properly set up your account (don’t do this part yourself!). You will then serve as the director of the account, deciding what investments you’d like to make through the use of a “check book.” The check book gives you the freedom to manage your own investments.
If you have a 401(k) from a previous employer, you can roll those funds into a SDIRA. If your account is with your current employer, your plan must allow for an in-service rollover.
When it comes to SDIRAs, the IRS has only three key restrictions to tax-advantaged accounts. These include the following:
You cannot engage in a transaction with a disqualified person. For example, you may not use IRA funds for a transaction with certain family members (spouse, parent, child), an S Corporation, or your own business.
You cannot receive a personal benefit directly from the investment. For instance, you may not purchase a vacation home with SDIRA and still receive the tax benefits.
There's a short list of disallowed investments you cannot participate in, which include items such as collectible art, antiques, gems, coins, and alcoholic beverages.
Minyum Capital works with some of the top SDIRA custodians, and can facilitate an introduction if this is a path you're considering. Please reach out to Joe or Anna to discuss in more detail.
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