There is a crisis that is looming over the future of social security. According to the Congressional Budget Office (CBO), social security is predicted to become insolvent by 2037. Also, according to a NY Times article back in 2010, there is NOW more money going out through the social security system to pay benefits than there is being put into the system by new workers. I am curious what you would call that other than indefensible? Leave your comments below. Whether this is due to gross negligence, mismanagement of our Social Security funds or that people are now living longer or all of the above, we are headed for a crisis unless there are some changes made to the current social security program.

So what can you do? Well, one way to take care of yourself during your retirement years is to establish a personal retirement 401k or an IRA account and contribute to it regularly.

Generally speaking, those who get their retirement accounts from an employer have a retirement account called a 401k. Usually, this is a hands-off investment plan, where you merely contribute funds to it and somebody else chooses how to use the contribution to grow your account. Those who decide to get their own retirement accounts outside the corporate structure where they work may set up what is called an Individual Retirement Arrangement or an IRA account.

Should you decide to no longer work for an employer, you can rollover your personal 401k account. Generally this is possible no matter how you leave your employer - whether you quit, your company goes out of business, or you get fired. Since the 401k is in your name, you should be able to rollover your 401k whether you voluntarily or involuntarily leave an organization.

Usually, people do a rollover when they leave one company and move to another one. Alternatively, one can rollover a 401k into an IRA and independently take charge of one’s own retirement planning with the help of an outside advisor. After years of contributions and having an existing 401k in place that you roll over is usually a better starting point than starting an IRA account from scratch. This is because the cash already existing in your 401k is already at work for you. An IRA, especially one that is self directed could benefit you if you already know how to invest. Before rolling over your 401k to an IRA you should know the differences between a standard self directed IRA and a truly self directed IRA.

Other than the fact that one is standard and one is truly self directed, there are some important differences to consider.

While a self directed IRA opens up a wider number of investment options to the IRA holder, in the end, the truly self directed IRA is easier for most people to manage.  Since you don’t have to pay a fee for every transaction in and out of the IRA, it allows you to keep more of your own money in the account working or invested versus being swallowed up by fees.  As well, you don’t have to wait for the custodian in order to make a transaction.

With a traditional IRA, account holders are generally advised to stick to the same kinds of investments they have always had. If you are self directed you are obliged to do so, however, you can make investments in alternative tangible asset investments that are made on Main Street if you want to.

Diversifying your funds into as many sectors of the marketplace as possible should invariably, although it is not guaranteed, help diversify your risk since you are able to spread your retirement funds into more places. After all, isn’t that what most of the so-called experts say – just diversify and in the end you will be OK. The self directed IRA LLC truly offers more investment diversity, depending on the custodian that is not available to a standard IRA holder.

When shopping around for an IRA, the traditional IRA and the standard Self Directed IRA should not be mistaken for the IRA that has a Limited Liability Company status.

These LLC types of IRAs are known by a variety of names. For instance, a broker may refer to it as an IRA LLC, a truly self directed IRA, a checkbook IRA or a self directed IRA LLC.

An IRA Custodian’s Role Is Extremely Limited, So Why Will You Still Need a Custodian?

A custodian’s role in a self directed IRA is to provide you with IRA regulatory and administrative support related to your IRA account. However, their role is extremely limited in its capacity; they can’t, for example, offer you or should not offer you, investment advice. Contrary to popular belief, an IRA custodian can’t prevent you from entering into a prohibitive transaction or into a bad transaction as this still can happen and admittedly does occur; just read the newspapers. Does the name Madoff ring a bell? Speaking of which you must be very cautious of those who would try to use the credibility of the self directed IRA as a means of investing in their quote-unquote deal. Just as with every type of investment if it is too good to be true it likely is and the deal might be risky. Generally speaking, the better the return, the higher the risk involved. In the end, you should stay away from those who tout that they can guarantee you anything as if they can control or predict the market.

An IRA facilitator or advisor is separate from the custodian and plays a role exclusively during the 401k to IRA rollover process. They work hand in hand with your attorney, your financial advisor and your custodian, assuming you have selected an IRA custodian that allows for the IRA owned LLC structure. Your IRA advisor will assist you with all the details necessary in rolling over your 401k to a new custodian, setting up your IRA owned LLC and helping you fund your bank account with IRA check writing privileges.

An IRA facilitator or self directed IRA advisor, such as the IRA LLC Partner, will handle all the details related to this conversion for you. This includes, but is not limited to the following. Your facilitator will help you identify a name of your LLC; file Articles of Organization for your LLC (Limited Liability Company) in any state you like; assist you in getting an Employer Identification Number from the IRS for your new LLC; create an IRS and custodian compliant Operating Agreement for your LLC to match what the Internal Revenue Service requires for a Self Directed IRA LLC; provide the Limited Liability Company Record Book, although most IRA holders get this on their own (this has Minutes and a Binder for your LLC Record, a Transfer Ledger, LLC seals, and LLC membership certificates); assist you in setting up your LLC with the bank of your choice. Think this is all easy?  Think again! There are a lot of pitfalls involved in doing these steps accordingly. The last thing you want to do is to set this up improperly as this can cost you a whole lot more in the end.

Summary

There are many benefits to rolling over your 401K to a Truly Self Directed IRA, but one major one is that it allows for a good number of diversification opportunities.