3 Reasons You Should Consider Self-Directing Your Retirement Account

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Americans today believe they need to invest more in their retirement due to the impact of inflation and other financial pressures. However, retirement planning is an expensive undertaking.

According to Northwestern Mutual’s annual Planning & Progress Study, the average amount that U.S. adults have saved for retirement is $88,400, but they believe they will need $1.46 million to retire comfortably.

Employer-sponsored 401(k)s and individual retirement accounts (IRAs) are financial plans that provide income in retirement but are administered under different rules. They are similar in that they offer the opportunity for tax-deferred savings — and tax-free earnings, if you invest in a Roth 401(k) or Roth IRA. You can have both a 401(k) and an IRA at the same time. In fact, the best retirement plans typically include both.

Although many people choose to set up and fund their retirement savings through traditional banks or brokerage firms, you can opt to self-direct your IRA or 401(k) accounts, making contributions and decisions without financial guidance. Self-directing your retirement account helps you to protect and grow your savings for a secure financial future and empowers you to take charge of your financial future and build wealth on your own terms.

Here are three reasons you should consider a self-directed account.

Fewer Costs

Some self-directed IRA and 401(k) accounts charge maintenance or management fees or have trading or transaction costs, regardless of how your account is performing. However, depending on your plan and the investments you choose, you’ll likely pay much lower fees by managing your account(s) than paying for an advisor.

More Control

The second advantage of doing it yourself is control. With self-managed IRAs or 401(k)s, you can invest whenever you want and make changes as you grow your retirement wealth. With greater flexibility and autonomy in decision making, you can actively monitor and adjust your portfolio to align with your financial goals and risk tolerance.

With an IRA or 401(k), you can purchase investments using pretax dollars and contribute each pay period or each month until you either reach your annual savings goal or hit the annual investment maximum limit. This approach is beneficial for those looking to dedicate set retirement savings amounts into their monthly budgets. 

A Diversified Portfolio

One key reason to consider self-directing your 401(k) or IRA is the ability to diversify your portfolio and investment options in an effort to bring greater returns. With a self-directed account, you are not limited to traditional investments such as stocks, bonds and mutual funds. Instead, you have the freedom to invest in a wide range of alternative assets such as real estate, precious metals, private equity and more.

This flexibility allows you to take advantage of unique investment opportunities that can increase potential returns over time, such as:

• Real estate (and foreign land)
• Undeveloped land and livestock
• Precious metals (gold, silver, platinum, etc.)
• Cryptocurrency
• Private businesses, franchises and startups
• Limited liability companies (LLCs) and partnerships
• Crowdfunding opportunities
• Energy and natural resources (water or mineral rights, oil and gas, etc.)
• Tax lien certificates and promissory notes

Choosing the investment freedom of self-directing your retirement account comes with risks that might lose you your hard-earned savings due to unsuitable investment choices; however, if you understand the benefits and you’re confident in your financial decision-making, self-directing your retirement IRA or 401(k) accounts can lead to greater control over your investment choices.

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