Wall Street’s recent wild ride has severely changed the retirement plans of many 50 and 60 year olds.  It has not been uncommon for a future retiree’s stock portfolio(s) or 401k to have been reduced by as much as 50% in the first ten months of 2008.  October is on schedule to be the worst performing month Wall Street has had in 60 years.

 As we all heard, CNBC is screaming to pull your money out if you plan on retiring in the next 5 years but there is still option to help rebuild your retirement account faster. 

Traditionally the S&P 500 has averaged over 7% over the last 75 years but will this continue?  There is a chance to improve the returns on your retirement funds.  As with any reward there is work involved.  What adjustment have you made to your portfolio since the market has dropped?  Do you continue to ride out the Wall Street rollercoaster or take control of your assets?

 There is an opportunity to grow your retirement assets.  It is called Self Direction.  How would you like to earn 10, 15, or 20% on your retirement account?  Let’s look at some simple examples on how getting these higher returns will have a dramatic impact on your financial future.

 Let assume as of January 1 this year you had $250,000 in your IRA account, you were 50 years old and as of October 11 your account balance is $125,000 because of the Wall Street Dive.   If you keep your money in the Stock market and you average a 5% return for the next 15 years, you will have approximately $260,000. 

 Now let’s assume you have a Self Directed IRA and you take control. Your new investments average is 10%, just to be conservative.  At age 65 your account balance will be $522,000.  The compounding effect and tax free status of an IRA is an opportunity that you don’t want to miss.

 So what is Self Direction and how do I get started?  Self Directed Retirement accounts allow the Owner of the account to control and direct how to invest their assets.  A true Self Directed Account allows you to place your assets in almost any type of investment.  Of course you can Self Direct with stock and bonds but as we have seen, there are additional opportunities. 

 These additional opportunities available are called nontraditional assets.   Nontraditional assets include real estate, note investing, private LLCs, tax certificates, gold and more.  Wouldn’t it be great if you could loan someone you knew a private mortgage and they paid you a 12% return on the note and best of all, the interest income is tax free to the IRA account?  First of all, you know the person, secondly you know where the property is located, and thirdly your note is secure because you have a first mortgage with plenty of equity in the deal.

 Self Direction is not hard to get started.  Typically you need to find a Self Directed IRA custodian; there are about 5 national ones, with The Entrust Group being the largest.  There are other ways to Self Direct assets like a Checkbook IRA, but usually these are overpriced and additional work for the average investor and you still need to find a custodian to hold the LLC.  A pure Self Directed IRA Custodian or Administrator will be able to handle the transactions for 99% of nontraditional assets at a reasonable price.

 Money to fund a Self Directed Retirement usually comes from one of three sources; new contributions to the account, a transfer from an existing IRA or a rollover from a 401k.  Transferring from an existing IRA is a nontaxable event.  You can have as many custodians as you like and usually the most common way that investors get started in Self Direction.  Self Direction is an opportunity to diverse your current portfolio.

 Choosing the right type of account is based on your current employment or financial situation.  Traditional IRA accounts are definitely the most popular.   Roth IRAs have the benefit of investments growing tax free and being non taxable when the money is withdrawn after age 59 ½.   All types of retirement accounts can be set up for Self Direction including Health Savings Accounts and Coverdell College Savings Accounts.

 So now that you have set up your Self Directed Account, how do you find these great investments?  Entrust calls their clients appropriately “Control Freaks”.   The only way to make money with a Self Directed Account is to find investment, which is not all ways easy to do.

 Invest in what you know.  I would say Self Directed Investors, invest in an area that they have worked in or have a lot of experience.  Let me give you a few examples, for a realtor it has never been a better time to buy.  Prices are at record lows.  Realtors are on the street and they see the deals.  Invest in what you know best.  Realtors can invest in real estate. 

 There are opportunities locally through private companies and developers looking for investors.   I just recent spoke with a Private Equity Lender, he is looking for investors in many of his new deals.  In many new hotels that are built, developers raise money from private individuals and IRA accounts.   Go on the web search for private lenders and private asset managers in your region, they are not that hard to find.

 Invest in Gold and Silver. Investors like the security and via the internet are able to buy and trade gold and silver based on its value.  There are many companies that allow you to buy gold certificates so you don’t have to own the physical gold.

 Private Bank Stocks are very popular in a Self Directed IRAs.  Clients like the security of a local bank, and nice dividend flow they can produce once a bank is profitable.  An easy way to find out about new banks that are raising capital is to go to the web and search for de novo banks in your state.

 The possibilities are endless with Self Directed Accounts.  Unfortunately, traditional investments like stocks and bonds are not going to have the steady growth they have shown over the last 50 years.   We live in a different world where we are influenced by many factors and there is an increase in global demand for profitable investments.  

Now is the time to take an interest in your future and find the local or national non-traditional investments that fit your goals.  Will Rogers was once quoted saying, “Even if you are on the right track, you will get run over if you just sit there.”  Now is the time get moving and take control of your future, no one else will.

 Dave Owens, CPA, CES is the managing member of the Tax Strategies Group, a company that specializes in Self Directed IRAs and 1031 Exchanges.  Dave can be reached at 239-333-1031 x203.