How Much Control over Your Retirement Plan Do You Have?

Today we are going to tackle the self-directed IRA. We all know what an Individual Retirement Account or IRA is. Briefly, it is the retirement tool for those of us who may not have access to a 401(k) that defers taxes for retirement. The deferring part is not really as complicated as it seems. In a 401(k), you have your contribution taken out before you pay taxes; in an IRA, you pay with after-tax money and then take the deduction when you file, basically subtracting the taxes from your contribution to be paid later.

How is a regular IRA different than a self-directed IRA?
The differences are not as obvious as the title of these products sounds. An IRA is an investment chosen by you and you direct the funds to it for your retirement. It seems like this should be called self-directed but in reality, it is very different from what the IRS views as a self-directed IRA.

In a self-directed IRA, you become the manager of the whole process. Rather than simply sending money to a mutual, fund company, the most common sponsors of IRAs, you direct the underlying investments. In the previous example, the institution is the middleman. In a self-directed IRA, the institution, whomever or whatever one you chose, does what you tell them to do.

Learn more about self-directed IRAs.

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Take Risks with Your 401(k); Social Security has your Back

Far too many of us have moved into too conservative of a mindset when it comes to retirement planning.  Worried that we will lose our investments, we have chosen investments in our 401(k)s better suited for those who are much older, have greater accumulated wealth and need the protection fixed income investments provide.  Yet many younger investors have taken the same approach.  Avoiding risk is not what you should be doing.

You should consider Social Security as part of your retirement plan. For three reasons: one, the program offers those who pay into it – and you do so from the first dollar you make right up until the last one you earn – about a 5.5% return on your investment; two, this contribution, half by you, half by your employer or all of it by you if you are self-employed – up to $106,800 – is conservatively invested leaving you the opportunity to take a few more risks with your 401(k); three, no matter when you begin to collect it – and for the youngest among us, those first years will get pushed further back as we continue to assess the program’s solvency, which right now is good until 2037 – it will be there.

And that should be comforting thought for Boomers worried that they have not done well enough. More thoughts on the subject of Social Security and your retirement plan here.

Paul Petillo is the Managing Editor of Target2025.com

It's Time for Some Retirement Housecleaning

Every Friday morning, Paul Petillo of Target 2025.com offers his take on the world of finance and investing on MomsMakingaMillion radio.  This informative show offers listeners a unique look at the journey of retirement, the task of wealth accumulation and some simple explanations for those of us who are utterly confused.

Here is a brief excerpt from the show on 04.02.10 with a link to the entire script below.


MomsMakingaMillion: For some reason, spring is the time of year when we want to clean out the winter dreariness and usher in the new season.  This is also a good time of year to take a look at your financial house and see whether it too needs a little sprucing up.  Today, we are going to discuss the how-tos and what-fors of that task.

Paul Petillo:  There is nothing like the feeling of spring.  And we should use it to trigger some financial house cleaning.  A lot like figuring out what in your closet you should toss or give to charity, using this spring-cleaning feeling to look at your finances can and should become a regular habit.

MomsMakingaMillion: The toughest thing is figuring out where to start.

Paul:  Surprisingly, it doesn’t take that long.  None of us goes a day without thinking about where we are in terms of how much money we have, where it is going and how do I get more.  So we already know some of the answers to the question: does this old financial plan still fit?

It probably doesn’t.  Most of us are mid-career and probably have a house, kids, a job or a business (which is like a job only you get to pick the sixty hours a week you work).  Some of us have parents who may or may not live with us.  So basically, this spring financial cleaning is a way to reorganize that closet, reprioritizing what your will need to do sooner rather than later.  More...

Paul Petillo is the Managing Editor of Target2025.com