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BREAKING NEWS! A Group 401(k) Can Be Self-Directed and its Plan Participants Can Invest Directly in Real Estate and other Assets

By September 17, 2017 No Comments

Financial planners and stock brokers have convinced companies that the way to insure their employees have a decent retirement nest egg when they retire is to require them to invest their retirement savings in publicly-traded stocks such as mutual funds and index funds. Nothing could be further from the truth. When employees are limited to investing solely in bonds and stocks such as mutual funds and index funds, the people who get rich are the financial planners, the stock brokers, and the managers of the funds, not the employees.

Now a group 401(k) plan can be amended and restated to allow the plan participants to have self-directed accounts which will allow them to invest directly in real estate and other safe alternative investments. The process requires seven steps.

  • First, hire a competent attorney to amend and restate your existing group 401(k) plan
  • Second, set up a recordkeeping account with an approved stock brokerage company
  • Third, transfer the plan assets to the stock brokerage company who will permit each employee to manage their own account. There are a number of reputable stock brokerage companies who will permit the participants of the plan to manage their own funds.
  • Fourth, liquidate part of your stock portfolio
  • Fifth, set up a separate retirement account with a self-directed third-party administrator (TPA)
  • Sixth, transfer the liquidated funds to your self-directed account
  • Seventh, instruct the TPA to invest in an income-producing real estate investment of your choosing

The entire process takes about four weeks and is ideally suited for small group plans such as doctors, dentists and other professional small business organizations where the principals are the main contributors and want to take the decision-making authority away from the financial advisors who are putting them into investments they have no control over.

I am assisting a dentist through this process right now. His company’s group 401(k) plan has five plan participants and about $500,000 in the account. Most of the contributions are being made by him and his spouse, even though he has encouraged all his employees to participate.

Even with the stock market at record levels, he’s frustrated with the performance of his retirement account. The financial planners, stock brokers and money managers seem to be taking a big bite out of his return. Even worse, he basically has no control over the investments that are made. When he called me to ask for some help, I asked him to name the companies with whom his financial planner had invested his funds. He couldn’t name one company let alone tell me how each fund had performed.

The company’s amended and restated group 401(k) plan gave each of the plan participants the ability to self-direct their investments which, over time, will greatly enhance their returns and allow them to have some control over their investments in the plan.

Maybe it’s time to consider amending and restating your group 401(k) plan to allow for self-direction of the plan assets. It could make a tremendous difference in the amount of passive income you have available to live on during retirement and the assets you own. Instead of taking the old approach of slowly building up your retirement and then liquidating it over time during retirement, you can have the benefit of owning income-producing real estate that provides passive income during retirement and enables you to amass a portfolio of appreciating real estate assets to pass on to the next generation.

There is no doubt that income-producing real estate can accelerate the growth of your retirement savings. When you invest in stock, one dollar of investment capital buys one dollar of stock, unless you play the options game, which can be a risky business. When you invest one dollar of investment capital in real estate, it’s likely you can buy four or five dollars’ worth of real estate.

As inflation picks up steam and the growth of the economy accelerates, as it’s predicted to do, income-producing real estate investments will build your retirement portfolio five times faster than investing in stocks, mutual funds and index funds. Many small group 401(k) plans are making the switch. If you need assistance, give me a call. I can help you navigate through the process. My number is 801-231-6650 and my email address is kholman@overlandcorp.com.