What is a Self Directed 401(k) ?

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Did you know that you can invest in other things besides stocks and index funds inside of your retirement accounts? How about gold or real estate? These alternative types of investments can be inside tax-sheltered accounts such as your Roth IRA or even solo-401(k). For this post, we will focus on self-directed 401(k)s, but similar principles apply to any other self-directed retirement account.

They are called self-directed because you direct the investments. You open a self-directed account at a custodian that allows them. These custodians are not companies like Vanguard or Fidelity. There is a long list of possible custodians, and I will discuss the one I went with.

Why should you consider opening a self directed 401(k)?

Since the Jobs Act of 2012, real estate syndications and crowdfunding are becoming popular investments. They offer the diversification of real estate without the hassle of direct ownership.

They come in two major flavors: equity and debt investments. Equity investments are where you own a share of the investment along with other investors. You reap the benefits of appreciation.

Conversely, with a debt investment or debt fund, you are loaning money so that other people can buy real estate. Returns vary but can typically range from 8% and up. However, these returns are taxed at your marginal tax rates unless you invest in a tax-sheltered account. This is a perfect scenario for opening a SD-401(k).

You can invest in actual properties inside SD-401(k)s, but for the most part, it is generally not recommended since directly owned properties have very favorable tax treatment.

So which custodians should you consider? There are dozens of self-directed custodians. Through my research I discovered a very unique product that I ultimately decided to go with.

Introducing the eQRP

The eQRP is a customized retirement program that gives you the freedom to invest in alternative investments such as real estate (direct properties, syndications, debt funds), precious metals, notes, oil & gas, including being a hard money lender.

Two things that are totally unique to the eQRP is ERISA protection and checkbook control. ERISA stands for the Employee Retirement Income Security Act of 1974. In short, it ensures certain protections to the account including from creditors. A regular solo-401(k) is not ERISA protected!

Checkbook control means exactly how it sounds–you can write a check from your eQRP account to purchase assets (or more likely via direct wire or ACH transfer). With an eQRP there is no middle man, you are in total control of your account.

It was very easy to set-up. So far, I have invested in a syndication deal with Alpha Investing, who I currently invest in for real estate syndications.  M opened an eQRP as well and we plan to use his to start purchasing rental properties.

To find out more about eQRP and if it's right for you, click here to find out more.

Let me know if you currently have and love your self-directed custodian!