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How to Manage The Tax Benefits of Your Retirement Funds

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How do we keep more of what we have, rather than paying it out in taxes or to creditors?

Obviously, there are many, many ways to do this. A couple of ways that may seem to be a well-kept secret that some employers and 401(k) plan administrators don’t talk about much are called Self Directed In-Service Rollovers or a Self-Directed Rollover IRA.  But the fact is, many workers 59 or older can rollover 401(k) funds while they’re still working and contributing to the plan into a Self-Directed 401(k) or IRA, and can do so without incurring any costs or a single penalty.

Not long ago I was introduced by my partner, Etan, to the idea of a self-directed IRA or 401(k).  This is an IRA or 401(k) where, instead of having a few mutual funds and bond funds to choose from to invest your hard-earned retirement into, you can actually choose to invest in things like gold or silver, real property, either land or a rental property, hedge funds or other stock-type options, tax liens or deeds and the like.  Now this option is not necessarily for the person that wants to put their money into a traditional trading account and have someone else watch over it, and never look to see what is happening on their account, but if you want to have a larger say in what your assets are invested in, this may be something to consider.  Now realize, I am not a financial planner or broker, nor am I licensed to tell you whether this is right for you or not, thus, this is not legal or financial advice, I just know that in my situation, it seemed like the right thing to do, and maybe it is something you could consider.

In fact, if you want to rollover your IRA or do an In-Service Rollover, some companies will allow you to keep your current 401(k) which will not be affected at all. You can still participate exactly as you have been and make the same contribution and collect company matches. Although not every company allows it, more than 70% of companies, and 89% of those with 5,000 or more employees, allow these In-Service or IRA rollovers.

This is a huge gift for people preparing for retirement for several reasons:

First: People no longer have to keep their money in a 401(k) or Rollover IRA with only limited and expensive investment options, with no control over their own monies.

Second: Because there is a legal “built in” protection on most qualified retirement accounts from most creditors, as long as what has been placed into your IRA, 401(k), or other such qualified accounts is not more than is “reasonably expected to be needed for retirement”, your retirement accounts may be reasonably safe from creditors.  However, if you have “more than is reasonably needed” for retirement, the excess funds over the reasonably needed amount may be attached by unwanted creditors, so you must manage your accounts wisely. Once you get close to retirement you need to protect your savings and investments because you can’t make it back!

An In-Service or IRA rollover can make a lot of sense for people who are close to and preparing for retirement. Once you are retired there are no second chances. You cannot replace this money nor do you want the stress of worrying about it. There are many reasons to consider an In-Service rollover such as:

  • Better control of your risk exposure
  • Unlimited investment options
  • Lower cost funds
  • Professional or self asset management
  • Downside protection on your portfolio

Of course, we all understand that this is only one of the many planning options that people should consider. As you get closer to, and into retirement, it becomes more important to work with a qualified financial advisor or fiduciary to help you in your investment strategies. In order to retire comfortably and stress free, your goal should be how to:

  • Protect your assets so they are not lost to taxes, creditors, or other predators
  • Create a retirement income stream that you cannot outlive
  • Optimize your social security
  • Implement distribution strategies to put you in the lowest tax bracket possible
  • Make sure your assets are in the right place before you need to start taking distributions for tax, growth, and protection reasons.

For more information on how self-directed In-Service or Rollover IRAs work, and to see if they make sense for you, simply contact your financial advisor.  It might be just the tool you are looking for.