Today we are going to talk about a *special* type of account. It is the type of account that you have to have if your goal is to become wealthy.
I want to answer some questions like – what is this account – what makes it so attractive – and why or how are wealthy people taking advantage of it.
With those that are familiar with how to build wealth, you often hear they invest in real estate, they are entrepreneurs, they are investing into companies, private equity…..you hear all these different ways that they are building wealth. And all of these are true.
But the one thing you have to realize is it is not just what they are buying, but how they are buying it. You always hear that the rich always take advantage of all the loopholes and tax breaks, and there is some truth to that, but these are not secret things. These are all things that are public information.
I share all of this because this is what led me to opening the type of account that I opened.
It is a self-directed 401K Plan. Now you can have a self-directed 401K or a self-directed IRA.
We will talk about that a little more.
All of this became popular back when Mitt Romney was running for office. When it became public that his personal IRA was worth over $102 Million.
This was phenomenal – you know there are limits to how much you can put into an IRA annually. Right now that number is $5,500. So with these limits in place, how do you grow an IRA to that magnitude? 💵
A self-directed IRA or 401K is an account that you have full discretion over choosing where your money is invested. There are two things you cannot invest into with an IRA and those are Life Insurance and Collectibles. So what can you invest into? Real estate, Gold, options, hedge funds, limited partnerships, tax liens, private stock, and international real estate are all options. 🏡
Right now there are only 47 custodians that will let you open a self-directed IRA or 401K. Out of that 47, a lot of them do not offer all of these choices.
There are over 791 Individuals that have IRA balances between $10 and $25 Million.
All of these figures are from 2011, so I am sure the numbers have grown since then.
So what’s the catch? What are the risks in having one of these accounts?
The first risk is cost. You can expect to pay a lot higher fees for this type of account. Another concern is IRS filing requirements, meaning there are more stringent regulations you have to follow. The third is prohibited transactions, some examples would include using IRA money to purchase your personal property or a vacation property.
So the investments within a self-directed 401K and IRA are the same, the difference is the amount of money that you can put into this account. With the IRA the max you can put in per year is $5,500 so if you want to invest in real estate it will take quite a while before you have enough money to make that type of investment.👛
Having my own business I was able to invest in my own self-directed 401K and the investments that I make inside of that include peer-to-peer lending, real estate notes, and things like that. But because I am a business owner and I have a 401K, I am able to put in a lot more money than that $5,500. There are some years that I am able to put in up to $50,000. With my wife also as an employee, we are both able to max out our accounts. 💰💰
I am more or less just sitting back waiting for these opportunities. I know they are coming and I know I can write a check when these investments come up. That is what makes this type of account more powerful. You don’t have that flexibility with eTrade or something like that.
I hope you enjoyed the video!
I am curious, have you ever considered opening up a self-directed IRA or 401K? Do you already have one established?
I want to hear your experiences and hear what you have learned while setting up your account.
▶ Check out my gear on Kit: https://kit.com/jeffrosecfp
★☆★ Want More Good Financial Cents? ★☆★
💻 Check out my blog here: https://www.goodfinancialcents.com/
Listen to my podcast here:
Pick up my best selling book, Soldier of Finance, here:
Connect with me on Twitter:
My most favorite inspiration T-shirt line, Compete Every Day: