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3 min read

A Comprehensive Guide to Understanding the Self-Directed Solo 401(k)

A Comprehensive Guide to Understanding the Self-Directed Solo 401(k)

Historically, creating a Solo 401(k) as an investment vehicle was a complicated process — but no longer. Rocket Dollar streamlined the process of creating a Self-Directed Solo 401(k), making it easy for people with money locked in standard retirement accounts to access those funds for a wide range of investment purposes.

So why aren’t more people using the power of Self-Directed 401(k)s to diversify their portfolios through non-traditional investments such as precious metals, real estate or private placements? Because these types of investments don’t provide any financial incentive for financial managers.

Spreading the word: Why people with retirement funds should consider creating Self-Directed Solo 401(k)s

One of the main reasons there hasn’t been much attention drawn to Self-Directed Solo 401(k)'s is because these accounts don’t benefit large financial institutions. They don’t profit when people create retirement accounts — those accounts are merely a means to funnel clients into their funds, where they make commissions or charge fees for access. It’s not in their best interests to share this type of asset with their client base of investors because there’s just no profit in it.

Moreover, you can’t truly diversify. With the large brokerage firms, even if you have 100 percent of your retirement funds in traditional investments, you still can only choose from the basic asset-class funds those companies offer. You lack a full range of investment options. It’s another reason why Self-Directed Solo 401(k)s doesn’t fit into their business model.

Stockbrokers and financial advisers aren’t shortchanging clients on their options; rather, they are symptomatic of their training and certification. They have been trained to recommend certain brokerage accounts because those are the products that make them money. That’s where their training ends.


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You are Capable of Handling Your Own Money

People who are unsure about a financial product such as a Self-Directed Solo 401(k) might be hesitant to open an account through Rocket Dollar. Perhaps they’ve come to depend on the safety (and indoctrination) provided by financial advisers who’ve been telling you for decades they know what’s best for your money.

However, you are perfectly capable of making your own investment decisions — especially when it comes to local and regional real estate or business investment opportunities. You are the master of regional market demographics. Likely, you know the yearly appreciation of not only your home but also that one down the street that was sold in foreclosure on the courthouse steps a few years ago. Or the growth of that fledgling business you wished you could have invested in a few years back that’s now going gangbusters.

With a Self-Directed Solo 401(k), you can easily tap into these opportunities (and still maintain the tax shelter provided by your current retirement account). By creating a Self-Directed Solo 401(k), you unlock the power of retirement account investing so you won’t find yourself sitting around a holiday barbecue ten years down the road talking with friends about investment opportunities you couldn’t act on because you lacked the liquidity to execute.

You can use funds in your Self-Directed Solo 401(k) to buy that foreclosed property down the street, make a quick 10 percent return on a business loan to a friend who needed cash to flip a house or invest in a startup that’s going to take off. We all have missed these types of opportunities because we didn’t have the cash. A Self-Directed Solo 401(k) puts you in a position to make these plays. It’s a way to avoid missing out on the opportunities outside of traditional investment routes with financial institutions that come across your desk.

Don’t be afraid to handle your own money; instead, worry about missing out on the investment opportunities that pass by you every day.


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Learn the rules

It’s essential that people who open Self-Directed Solo 401(k) accounts through Rocket Dollar take a few minutes early on in the process to determine what types of investments are allowed and what kinds are prohibited by the Internal Revenue Service.

There’s some education required on the account holder’s part, and taking time to learn the intricacies of the account will pay off in the long run — you’ll be more confident when making investment decisions. You want to maintain “arms-length” from the investment. That means you don’t want to buy a house and rent it out to your parents, children or someone in your nuclear family. All investment transactions should be at arms-length — none of your nuclear family can be involved in the investment.

By understanding regulatory guidelines, investors will be more apt to pull the trigger on investment opportunities.

The Takeaway

By creating a Self-Directed solo 401(k), investors can place their retirement funds into traditional assets but also diversify their portfolios with alternative assets that they control. If anything, that should make investors less anxious about their financial future because they can expand their portfolios through a broader range of asset classes that can lead to a more secure retirement.


Still not sure if the Self-Directed Solo 401(k) is for you?

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