Have you ever heard the phrase, you can’t take it with you? Well when it comes to your 401K, you actually can. Let’s review the difference between a 401K and a self-directed IRA. Most of us when we work for a company, they offer a 401K plan, and this is our opportunity to put money away on a pre-tax or an after-tax basis, and many times the company will have a matching contribution. It’s a great way to save for retirement, but it does come with restrictions – when you can take the money out, how you can use the money, and age restrictions. All those things that we know and love.

But there are also restrictions within a 401K because you are limited to what you can invest in. Usually, it’s the administrator that determines the assets you can invest in. We all must live by those rules when we’re working for a company. The 401K has a lot of positives, but it also has some negatives in how the money is used and what you can invest it in. This can impact properly diversifying your portfolio.

A self-directed IRA is something that as an investor, you control. When you leave a company, you can roll that 401K over tax free into a self-directed IRA where you are the investor are controlling the investment choices. This is where a lot of people don’t take heart to diversification.

Many times, they roll over their 401K, and they just keep it in the same investments they had while they were working at the company. That’s not necessarily the savviest strategy. As an investor, you’ve got to understand the risks in your retirement, and you’ve got to understand what’s out there in the marketplace. When you have a self-directed IRA that you have control of, you must make sure you’ve got the right assets in there. Certainly, there are going to be stocks in there, but did you know a self-directed IRA you can have real estate, real estate that you own, or that you could have precious metals like gold or silver? That adds asset classes that many times you don’t have the option to include when it’s a 401K with a company.

When you’re looking at your self-directed IRA, or you’ve got a 401K that’s just sitting out there that you can roll over, make sure that you manage the investment properly. It’s not without risk. There’s a market exposure on all IRA’s. If the stock market goes down, and you own stocks, it’s going to go down. If you are concentrated in one or two stocks or one or two markets or industries, then you’ve got a lot of exposure, and you really aren’t staying on top of balancing your portfolio and balancing your long-term retirement account.

So remember, a self-directed IRA gives you a lot of flexibility. You can continue to add money to it. You can manage that portfolio by investing in other asset classes like real estate and precious metals, and you can take control of your long-term retirement. I hope this helps as one other way for you to manage your long-term retirement and to manage your investments. I’ve always said that if you’ve got the right assets, and you’ve got the right information, you’ll make the right choices for your investments.

Scott Carter

Author Scott Carter

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