Retirement Account and Self-Directed IRA Cases

Retirement accounts help investors plan and save for retirement. Some of these accounts allow investors to save on a tax-deferred basis.

There are many options when it comes to retirement accounts. There are several types including 401(k) Retirement Accounts, Traditional Individual Retirement Accounts (IRAs), Roth IRAs, SEP IRAs, and Simple IRAs. These various accounts have the same goal of helping you save for retirement, however, there are different factors involved that you should be cognizant of, including tax implications, age requirements, employer contributions, withdrawal penalties, and amounts you can invest per year.

The Traditional IRA is popular because it is a tax-deferred retirement account. Meaning, the IRS allows you to invest pre-tax monies into the account which are then used to purchase securities. The assets are not taxed until you take distributions down the road, thus allowing the account to grow over time before realizing capital gains/losses.

401(k)s are known as defined contribution retirement savings plans offered by employers. 401(k)s have become more common over time, as pensions have become less common. Because the 401(k) retirement plan is offered through your employer, you should carefully review the agreements/paperwork to identify whether your employer “matches” your contributions and at what percentage.

No, under the relevant law, you cannot use your retirement assets as collateral.

Self-Directed IRAs are directed by the account holder, not a broker. Meaning, an advisor is generally unable to make investment recommendations for this type of account. Thus, the account holder has free range and can purchase alternative investments, which would otherwise be prohibited from another type of IRA account. A couple of benefits from this type of IRA account are that you, the investor, have control over your retirement funds, and you can diversify the account across various types of assets (including private equity for example). However, adding alternative investments to your retirement account increases risks including liquidity concerns.

If a broker or advisor tells you to take a distribution or roll over to a Self-Directed IRA, BEWARE… It may be that they want to sell you something inappropriate outside the firm and outside of a supervisor’s review. Many Ponzi schemes start in Self-Directed IRAs because the investments are not vetted or sponsored.