Avoiding the Pending Social Security Crisis with an IRAs Set Up for Alternative Investing

Avoiding Social Security Woes

alternative investment
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 Individual Retirement 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, with which  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 IRAs.

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 individual account 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 a new account from scratch. This is because the cash already existing in your 401k is already at work for you. IRAs, especially those that are self directed could benefit you if you already know how to invest. Before rolling over your 401k to a individual plan you should know the differences between a standard self directed Roth and a truly self directed Roth account.

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

While a self directed Roth opens up a wider number of investment options to the plan holder, in the end, the truly self directed Roth is easier for most people to manage.  Since you don’t have to pay a fee for every transaction in and out of the retirement account, 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 retirement savings program, 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 individual retirement account LLC (Limited Liability Company) truly offers more investment diversity, depending on the custodian that is not available to a standard plan holder.

When shopping around for IRAs, the traditional plan-type and standard Self Directed IRAs should not be mistaken for a retirment account 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 them as an LLC IRAs, truly self directed IRAs, checkbook IRAs or a self directed IRA LLC.

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

A custodian’s role in self directed IRAs is to provide the IRAs holder with regulatory and administrative support related to the 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 IRAs 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 self directed IRAs 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 IRAs facilitator or adviser 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 adviser and your custodian, assuming you have selected a plan with qualified status that has a custodian that allows for the LLC structure. Your IRAs adviser will assist you with all the details necessary in rolling over your 401k to a new custodian, setting up your IRAs LLC and help you fund your bank account with check writing privileges.

A plan facilitator or self directed IRAs adviser, 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 new company to match the Internal Revenue Service requirements for a Self Directed Retirement LLC; provide the Limited Liability Company Record Book, although most holders of IRAs 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.


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

This entry was posted in Rollover 401k To IRA. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *