Unlocking the Power of a Self-Directed 401(k)
As an investor, you’re likely always on the lookout for innovative ways to grow and protect your wealth. However, there’s one powerful tool that remains relatively underutilized—the self-directed 401(k). In a recent interview with Matthew Brauer from eQRP, we explored the many advantages of utilizing this retirement vehicle for those looking to take greater control of their retirement funds.
In this article, we’ll highlight the key points from the interview, answer pressing questions many investors have, and explain why a self-directed 401(k) might be the key to unlocking the full potential of your retirement savings.
What is eQRP?
eQRP is a company that specializes in helping investors set up and manage self-directed 401(k) plans. These plans allow investors to move beyond the limitations of traditional retirement accounts, which typically restrict investments to mutual funds, stocks, and bonds. With a self-directed 401(k), you can invest in a wide range of alternative assets, including real estate, private debt, precious metals, and even cryptocurrency.
The flexibility provided by a self-directed 401(k) puts control back in your hands, allowing you to make investment decisions that align with your financial goals and risk tolerance. This is a game-changer for investors who are looking for ways to diversify their portfolios beyond the stock market.
Why You May Have NOT Heard About This Before
One of the most common questions Matthew addressed in the interview is why self-directed 401(k) plans aren’t more widely known. Traditional financial institutions and Wall Street firms don’t promote these options because they make money by managing your assets. When you move your funds into a self-directed 401(k), you’re taking control, which reduces their ability to collect fees and commissions on your investments.
Wall Street’s “set it and forget it” model encourages people to invest in pre-selected portfolios and target-date funds, locking investors into the limited options they provide but still providing the illusion of choice. However, as Matthew highlighted, with a self-directed 401(k), you have the power to break free from these restrictions and invest in assets you believe in.
“With a self-directed 401(k), you have the power to break free from restrictions and invest in assets you believe in.”
Key Benefits of a Self-Directed 401(k)
Self-directed 401(k) plans offer numerous advantages that make them appealing to investors:
1. Diverse Investment Opportunities
With self-directed 401(k), you are not limited to the stock market. Instead, you can diversify into a variety of alternative assets, such as real estate, private equity, and even cryptocurrency. This opens up new avenues for growth and allows you to invest in assets that align more closely with your financial strategy.
Real estate, in particular, is an attractive option for many investors, as it offers tangible assets and consistent cash flow. You can invest in real estate, including private funds like the Kirkland Income Fund, which specializes in providing consistent returns through commercial real estate lending.
“ Through eQRP, you can invest in real estate, including private funds like the Kirkland Income Fund, which specializes in providing consistent returns through commercial real estate lending.”
2. Tax Advantages
One of the most compelling benefits is its favorable tax structure. Matthew explained self-directed 401(k)’s have an exemption from the Unrelated Debt-Financed Income (UDFI) tax, which is a tax typically imposed on profits earned from debt-financed real estate within a self-directed IRA. For example, if you use an IRA to invest in real estate and that investment includes borrowed funds, a portion of your gains could be taxed. With a self-directed 401(k), those taxes are avoided, leaving more money in your pocket.
Additionally, you have the option to set up both pre-tax and Roth components giving you flexibility in how your contributions are taxed now and in the future. You can even convert existing traditional 401(k) or IRA funds into a ROTH, allowing for tax-free withdrawals during retirement.
“You have the option to set up both pre-tax and Roth components giving you flexibility in how your contributions are taxed now and in the future.”
3. Higher Contribution Limits
A frequent concern for investors is contribution limits. Unlike traditional IRAs, which have contribution limits of $7,500 per year, a self-directed 401(k) for small business owners allows you to contribute up to $69,000 annually, if you meet the income requirements.
4. The Ability to Borrow from Your Own Account
Many investors ask whether it’s legal to borrow from a self-directed 401(k), and the answer is yes – you can take out a personal loan from your account. You can borrow up to $50,000 (or 50% of your plan’s total value, whichever is less) for any purpose, whether that’s to finance a new business venture or make a large purchase. The best part is that you’re paying the loan back to yourself, with interest, which goes back into your retirement account.
“You can borrow up to $50,000 (or 50% of your plan’s total value, whichever is less) for any purpose.”
Can You Convert Existing IRAs to Self-Directed 401(k)?
One of the most common questions investors ask is whether they can roll over existing retirement accounts into a self-directed 401(k). The good news is that many types of retirement accounts, such as traditional IRAs, 401(k)s, and 403(b)s, can be rolled over into a self-directed 401(k). However, there are a few exceptions, such as Roth IRAs and inherited IRAs, which have specific rules around rollovers. Matthew clarified that most accounts can be transferred easily and without tax consequences, giving you the freedom to take control of your funds.
Self-Directed 401(k) vs. Self-Directed IRA: What’s the Difference?
While both self-directed IRAs and self-directed 401(k) plans offer more control than traditional retirement accounts, self-directed 401(k) has several key advantages:
UDFI Exemption: Self-directed IRAs are subject to UDFI tax on debt-financed real estate, while eQRP’s self-directed 401(k) is exempt.
Higher Contribution Limits: Self-directed IRAs have much lower contribution limits than a self-directed 401(k).
Loan Options: Unlike self-directed IRAs, a self-directed 401(k) allows you to borrow from your account.
For investors looking to maximize their retirement savings and have more control over their investments, self-directed 401(k) is a superior choice.
Ready to Take Control of Your Retirement?
If you’re ready to explore the benefits of a self-directed 401(k) and how it can help you invest more strategically, contact Kirkland Capital Group today. We’ll connect you with Matthew Brauer and his team at eQRP to walk you through the process of setting up your account and getting started on your path to financial freedom.