employees can ask their HR department to implement self-directed 401ks.
(PRWEB) June 07, 2012
"Many more employees are requesting information on self directed retirement investment, and more are adding self direction to their benefits package," said Catherine Wynne, principal and founder of New Direction IRA. As more retirement investors learn that they can invest beyond the stock market via a self directed IRA from New Direction, they often hit a wall when they want to do the same with their funds in a 401k. Most companies have put in place a list of investment choices for their 401k plans which allow only offerings from the securities industry. Some employees may think their 401k retirement funds are captive to the investment offerings of Wall Street, but there is hope. With encouragement, any size company can change the parameters of their retirement plan to also include the option of offering retirement fund investment freedom, and many more companies are expanding their benefits package.
Wynne explained that most account owners are selecting non Wall Street based investments such as real estate, gold bullion, private company stock, hardwood trees, and more. These investments represent an “alternative” to what the securities-based IRA providers offer, and are ones that many New Direction IRA clients can understand and control much better than securities. Wynne said, "To some outsiders these investments seem “creative, but to our account owners these investments are the ones that make sense. They are assets that our clients feel will maximize the value of their IRA."
15 to 20% of all retirement money is held in IRAs, which can easily be shifted to a self directed IRA. The rest of the retirement money, primarily company controlled plans such as 401ks, is still locked up behind the “Securities Only" wall of Wall Street. The typical 401k account holder today has no ability to direct the purchase of investments that they would choose for themselves and for their retirement future.
Wynne explained that each 401k has a plan document which contains a plan rule book. That rule book describes what investments that particular plan can purchase, and thus what you can direct your individual funds to purchase. The employer selects the plan document based on a variety of factors, including cost and flexibility. Then the company selects a plan trustee to implement the plan rules, subject to their own oversight. Since they are filtering the plan’s investment options and face potential responsibility for protecting the interests of the individual participants, they tend to limit options to just mainstream or non-alternative investments. Acknowledging that the limits they impose restrict creativity, they elect to stress the protection of the less sophisticated investor.
Wynne said, "That is the way it is today. If you want more investment options for your retirement funds, you can tell your plan trustee or provider. You can demand that your employer open the door for you to grow your retirement assets based on your own belief in the economic future." Although employers, by default, have the ultimate control over the plan, in most cases, they don’t want to define or limit investment choices; it is just the path of least resistance.
Some actions employers can take:
- Change the plan rule book to allow self direction of all or a part of retirement fund balance.
- Instruct the trustee as to what investments to allow.
- Change the plan rule book to allow in service distribution of plan assets to IRAs, which can be self-directed.
Wynne said, "Employers won’t realize that anyone wants more options until the employee insists." Defined contribution plans, such as 401k plans, define what can be contributed to the plan. From then forward, growing the plan is up to the trustee. Wynne said, "Who do you want to choose investment options for the assets you are counting on to give you a happy stress free retirement? You or someone else?"
Wynne said, "If the employee wants to self-direct their retirement funds, the next call should be to their employer requesting that they allow freedom in retirement funds investing. If someone else, the next call should also be to their employer, requesting clear explanation of why they chose the investment options that they provided. Someone has to do the homework on investments, if it is not going to be you…who will it be?"
New Direction IRA can help any employer with record-keeping for any plan assets that employee chooses to buy. Wynne said, "We can help you roll all or some of your assets out to an IRA if the employer will allow it."
New Direction IRA, Inc., a self-directed IRA plan administrator with half a billion dollars in assets, also offers self-directed Health Savings Accounts and can be reached at 303-546-7930 or toll free at 877-742-1270. New Direction IRA teaches hundreds of free webinars and classes to educate new and experienced real estate investors and real estate professionals, so even a person with a small IRA fund can make big money for their IRA. Visit their website at NewDirectionIRA.com.