Not your Average 401K: Self-Directed 401K Q&A

SD401K - normPut simply, a 401K plan is a retirement plan that meets the standards set by the Internal Revenue Code for tax-favored status. If offered by their company, an employee can contribute a percentage of their wages either Traditional before tax plan or a Roth after-tax plan, depending on the options offered by their employer. In some plans, the employer also makes contributions known as matching contributions, and the match is generally based on contribution percentages that the employee has made themselves.

Now, a self-directed 401K plan operates on similarly to a Traditional or Roth 401K plan that was mentioned above, but the difference is that you, as the owner of the 401K can choose to direct where your 401K funds are invested. You’re no longer restricted to the list that’s set by the plan provider, like mutual funds and stock options, you can now invest your money outside of traditional investments and diversify your portfolio.

Q: What can I invest in with a self-directed 401K?

Since your 401K is now self-directed, you’re able to invest in an array of assets. Most common investments are:

  • Real estate (residential, commercial, farmland)
  • Trust deeds
  • Precious metals
  • Private notes and loans
  • Small businesses
  • And much more!

Q: I haven’t heard of a self-directed 401K before, why is that?

Whether a custodian, broker or your company holds your 401K, you may not have heard of the self-directed option because they may not offer it. There are a lot of hoops that brokers, custodians, and employers have to jump through to be IRS compliant, and a lot of companies decide that it’s just not worth their time, since they won’t make much money off of them.

Q: Do I really get total control of my 401K?

Yes, with Accuplan, your self-directed 401K is truly self-directed. No strings attached.

Q: Can I roll my current 401K into a self-directed one?

That all kind of depends. If you have the 401K through a custodian or broker, then yes, but if your 401K is held by your company, then most likely not, since that company owns the 401K. Consult the provider for a thorough answer.

Q: What are the downsides?

A self-directed 401K takes a lot of know-how and patience. You’re not managing your money, so you have to be prepared to invest, and shoulder the responsibility of making decisions for your financial well-being. It’s definitely not for everyone, but at Accuplan Benefits Services, we are here to guide you and help you reach your potential.