By Jeff Astor
One of the most common questions I get is: If Self-Directed IRAs or Solo 401(k)s are such powerful retirement vehicles, how come I’ve never heard of them until recently? And why don’t more people know about it?
The answer is straight-forward: The brokerages and investment houses that hold your retirement money are not happy at the prospect of you moving your money out of their hands and into your own control. They lose commissions. They lose income.
That’s not to say that they’re dishonest, scheming liars. No. It’s just not in their purview to learn about these plans and recommend them to their clients. One can assume that most of the employees who man these firms are as unaware about the existence of SD IRAs as the rest of the population.
Another reason that Self-Directed plans are not so well-known is that it took a 1986 lawsuit that wasn’t adjudicated until 1996 (and issued in 2000 to the IRS field agents) before the IRS acknowledged that individuals have the right to self-direct with checkbook control. That means that for 22 years (since 1974 when the concept of IRAs was first created), people thought they were forced to keep their money at brokerage and investment houses. SD IRAs came late to the retirement party. That’s why most people don’t know of them, and those who do, ask why they never heard about them beforehand.
The veil of ignorance is so pervasive that even many otherwise experienced accountants and financial people don’t know about them. They went to school and built up their careers before the landmark court decision. That has led to the irony that older more-established people in the finance world tend to know less about SD IRAs than younger financial advisors.
Either way, SD IRAs are here. And they’ve been so for a while.
They received an upsurge in interest after the crash-recession-depression (whatever you want to call it) of 2008 and 2009. People got killed on Wall Street. That led many to seek other ways to invest. In fact, that’s how Broad Financial came about. Its owners lost about 40% of the value of their retirement portfolios. They asked themselves why they were so invested in Wall Street. They knew real estate. Was there a way to use their retirement money in real estate? That’s when they discovered SD IRAs for themselves. Then they told family and friends about them. Then strangers. Before they knew it, they had a new business.
How many Americans Self-Direct? Some estimate that Americans have between $16 trillion to well over $20 trillion in retirement plans! Yes, trillion. Of that, estimates are that maybe only 2% Self-Direct.
Is an SD IRA for everyone? No. Nevertheless, some suggest that at least 10% of Americans can benefit from Self-Directing. The bottom line is that there are a lot of people that still don’t know about SD IRAs – people who can benefit from them in ways they never realized possible.
If Self-Directing your retirement is a revolution, then we are only at the beginning.
Note: “Self-directed” is sometimes used by brokerages and Wall Street firms to refer to their clients’ ability to invest in any type of stocks and mutual funds on their own. That’s not true Self-Direction. In the truest sense, it means the ability to go beyond Wall Street and into what is commonly called “alternative investments,” which includes but is not limited to real estate (not a real estate stock like a REIT, but actual property).