Changing Course
Using Self-Directed IRAs to
Move Your Money from Wall Street to Your Street
Ken Streater
Copyright Ken Streater 2011
Published by Toolkit To Change at Smashwords
Publications from Ken Streater/Toolkit To Change
Changing Course: Using Self-Directed IRAs to Move Your Money from Wall Street to Your Street
In Our Hands: Seven Simple Tools to Control Corporate Greed
*A Tighter Grip: Getting a Government Of and For the People
*This Land is Your Land: Making Commerce Eco-Conscious
(*Available Spring, 2012)
Also Available from Ken Streater
The Gift of Courage: Stories of Ordinary Heroes and the People Who Share Their Lives
Toolkit To Change: Making a World of Difference
P.O. Box 1716; Redmond, OR, 97756
www.ToolkitToChange.com
Copyright, Ken Streater, 2012. All rights reserved.
Thanks to David Moore, Rene Nelson, and Nancy Gregori for your help with this project!
The contents of this publication are to provide you with information only. Information provided in this publication does not constitute any particular investment recommendation. In preparing the information, we have not taken into account your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. Any investments described herein should be considered only after consulting with your investment advisor and/or other financial counsel. Nothing in this book shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any specific investment advice or service to any person in any jurisdiction.
Introduction
What corporations are your 401k monies invested in? Where are your Individual Retirement Account (IRA) funds going? Who is reaping huge fees with the trading of your Mutual Fund stocks? Is it just a coincidence that most retirement account legislation promotes purchasing stocks as opposed to real estate or other easy to understand investment products? What alternatives do you have that do not fund Wall Street firms? Have you considered putting your money into investments that are historically secure and do not feed the largest financial institutions in the world? Would you like to invest in your financial future using personal strengths and knowledge you already have?
These are important questions to ask yourself, as is this one: Should you exercise greater control over your retirement accounts? Doing so can simultaneously make you more money, reduce the impact of monolithic investment companies and banks on your life, and benefit your community. We recommend that you change how you are handling your investments to make your life and financial situation better.
An investment tool you directly control, easily oversee, and more clearly understand is available. It is the Self-Directed Individual Retirement Account. A Self-Directed IRA is a tax-deferred investment device that gives you, the owner, wide latitude choices and personal oversight of your retirement money. This means that you can invest in just about anything and have hands-on control of that investment. Self-Directed IRAs allow you to put your money in real estate, stocks, bonds, notes, mortgages, franchises, partnerships, and more. You are not required to invest in large corporations, but you can. You can invest in the Internet, a business, or just good old dirt. You cannot, however, invest in fancy rugs, cheap gold coins, alcoholic beverages, or life insurance.
There are countless benefits to Self-Directed IRAs. You can use expertise or knowledge that you have in order to understand and appreciate how your investment is working for you. You can apply what you know about your community’s real estate, utilize things you do every day at work, or turn it all over to a stockbroker who has an office across the street instead of across the country. You can put your money into causes that feel socially correct or more morally satisfying. You can invest in Wall Street, Main Street, or your own street. You are allowed to choose what works best for you.
There are various names for Self-Directed IRAs. Some are called Checkbook IRAs. Others are known as Real Estate IRAs. You may have also heard them called Custodian IRAs. While accepted by the IRS as a legal tax-deferred investment plan, the term “Self-Directed” is not an IRS-derived name. It is a label that was created by the industry of investment choice to best describe the intent of the fund. Regardless of name, the effect is the same: your retirement account is self-directed—by you. And, there are companies in place that allow for a seamless and very economical transition from a traditional retirement account to one that you control.
Why don’t more people know about and use this tool? There are two simple reasons: First, large financial corporations and banks do not market Self-Directed IRA options because these IRAs do not allow them to control your money and get significant fees from transactions associated with your account. They prefer that you use mutual funds or savings accounts so they have your money to play with. Just the name itself scares financial institutions that depend on you not to think too much for yourself. “Self-directed” means you don’t blindly follow the advertising to the national bank’s front door or naively trust someone in New York to best invest your money.
The second reason is that Self-Directed IRAs may require some of your time and energy. If you choose to move your investments into something new it can take time to decide which vehicle to use. However, these IRAs do not have to be more time intensive. You have freedom to pursue whatever investments you prefer including those you may already have through a large brokerage firm, or something completely different.
There are dozens of companies around the U.S. whose sole purpose is to make your transition to a Self-Directed IRA seamless and cost effective. These companies provide you all of the tools and referrals necessary to create as much independence as you like with your retirement accounts. Their offerings range from full creation of the Self-Directed entity with ongoing financial advice, to simply helping you set up the account for your completely autonomous use. With the latter option you can work on your own or with a real estate broker, business/franchise consultant, accountant, or anyone else you prefer. You invest as you see fit.
Regardless of your investment counseling preferences, these businesses make setting up a Self-Directed IRA economical and very, very simple. It literally can take as little as a couple hours of your time, a few days to process the change, and a few hundred dollars to move your money from Wall Street to your street!
Retirement Accounts and the Self-Directed IRA
In order to see the benefits of switching to self-directed investment accounts it is important to understand the most common financial and investment tools. At the end of this booklet you will find a summary of these devices, including traditional IRAs, Roth IRAs, annuities, and mutual funds. Examination and analysis of these more traditional retirement accounts indicates three options as most preferred in terms of controlling your own funds, having a better understanding of how to use your money, better potential returns, and shifting benefits from Wall Street to your street. These are regular savings accounts, employer-augmented 401(k) programs, and Self-Directed IRAs.
The amount of time, energy, and personal expertise you want to dedicate to your investment should be considered when investigating these three options. This, combined with the degree of autonomy from Wall Street and connection to your street you seek, should dictate which of these options you choose. If you prefer to spend virtually no time or energy on your investments, put them into a local bank or credit union savings account or Certificate of Deposit (CD). Generally speaking, when you help a local bank by being a depositor you are helping your community, as this entity returns some of those funds to your town in the form of jobs and loans to local businesses. Your rate of return, or interest rate, is going to be the same at My Local Bank as it is at JP Morgan Chase, which has no real interest in supporting your hometown.
If you are an employee, as opposed to working for yourself, and you want to maximize economic input into your retirement account, chose a 401(k), but only if your employer augments or matches your deposit. If your employer does not match funds, there is no financial advantage to a 401(k) program over other retirement accounts. If they do match, this “free money” is invaluable as long as you like your employer and plan on staying for a while. While you typically do not have much control over how that money is invested, you do get something more for your dedication to your employer.