As many of you know, earlier this year I left behind my broadcast career to embark on a journey as a full-time real estate investor. As exciting as this transition was, there were a lot of details and nuances to take into account. One of the main things I had to worry about was what to do with my employer-sponsored 401k plan. Natali and I reached out to our friends at Advanta IRA, and they helped me convert my plan into a self-directed account. The experience was simple, smooth, and fast! I highly recommend Advanta due to their excellent customer service and efficiency. Today we're bringing you a guest post from Advanta IRA's director of marketing, Michael Cornetet.
Leaving one job and moving to another often involves decisions on what to do with your old employer-sponsored retirement plan. Too many people make the mistake of leaving their plan where it is and do not give it a second thought. Many people are not even aware that they can use these funds to invest in all types of real estate assets.
So, even if your new employer offers benefits, that doesn’t mean you can’t move your old 401(k) funds into a plan that allows you more control over your investing decisions. If you want a retirement plan that helps you achieve financial freedom, consider opening a self-directed account.
Self-directed IRAs and solo 401(k)s are retirement plan structures designed for account owners to have more flexibility and freedom in choosing their own assets. These plans are gaining traction and popularity among individuals who are dissatisfied with the returns they achieve in plans vested into stocks, bonds or mutual funds. Real estate in an IRA is a timeless, tangible asset, and by far the most popular investment in self-directed accounts. Residential and commercial property, tax liens, and private mortgages and notes are just a few examples of ways a self-directed 401(k) can earn quick returns and/or steady tax-sheltered retirement income.
For example, let’s say you open a self-directed 401(k) and purchase a two-bedroom cottage in a popular beach town for $289,000 with funds from the account. The cottage rents for $1,500 per week or $4,500 per month during peak season. Off-season weekly rates garner $1,000 or a monthly rate of $3,000. You hire a management company that achieves the goal of renting the cottage for 30 weeks each year, scoring your desired income exceeding $30,000. After paying the management company fees, your 401(k) earns almost 10 percent of that as profit.
Can you earn that much of a return on bonds or mutual funds? You might on stocks—if the ones your broker chooses are successful. Otherwise, you might earn nothing at all. Not to mention the stress that stock market upswings and downswings create. Which would you prefer? Boring bonds and mutual funds (and their even more boring returns)? The wild ride Wall Street presents? Or would you rather have a tangible asset like real estate that you can vet and choose yourself?
That’s the beauty of self-direction—the choices are yours to make. And, there are plenty of investing options that become available when you self-direct a 401(k).
Of course, there are IRS rules and regulations that all self-directed investors need to know. There are also many different plan types you can use to build retirement wealth. Plan administrators vary, as well, so choosing a self-directed plan administrator with experience that fits your goals and allows the investments you desire is critical.
Advanta IRA is a self-directed retirement plan administrator that serves clients across the nation who invest in alternative assets. Our staff members have various financial, legal, and investing backgrounds—making our expertise unsurpassed in our industry. We don’t give financial or investing advice, but we do handle hundreds of real estate investing transactions every year and ensure your investing process is simple and seamless.
Contact Advanta IRA at (800) 425-0653 if you’d like to learn more about how you can invest in real estate with a self-directed IRA.
Download the free Real Estate IRAs Made Easy guide to equip yourself and to learn how to get started.