I have a 401(k), a SEP-IRA, and a ROTH-IRA accounts. I don’t know about you but it’s a pain to maintain so many accounts. I left my company over a year ago and I think it is time to move my 401(k) into a Traditional IRA account.

My SEP-IRA account hasn’t had any contributions in a few years, so I am going to roll it into the Traditional IRA account as well. I figure it’ll be easier to maintain one account with one brokerage firm instead of maintaining 2 separate accounts with 2 separate brokerage firms. Since ROTH-IRA is an after-tax retirement account, it’s staying the way it is.

My 401(k) was fully invested in a small-cap mutual fund. It has performed admirably well. It’s up 11.67% YTD; up 7.36% in 2006, and up 13.78% in 2005. I cashed out last Friday and move all the asset to a newly-opened Traditional IRA at TD Ameritrade. Well, the money won’t stay there for long because I am going to open a Self-Directed IRA and move about 80% of the funds there. I am still doing research on who I will have my Self-Directed IRA account with. If you have any recommendations, please use the comment forum.

(Update 06/20/2007) I have reviewed a few companies that offer Self-Directed IRA account.

What is a Self-Directed IRA?

A Self-Directed IRA is simply another type of IRA account. The main difference between a Self-Directed IRA and a Traditional IRA is that a Self-Directed IRA allows you to invest in a non-traditional investment that include but are not limited to real estate, franchises, mortgages, partnerships, and tax-liens. You won’t be able to do this type investment with your Traditional IRA account.

The investment you make with a Self-Directed IRA is not to be made for personal use or personal benefit (other than a return to the IRA account itself) or IRS will deem it as a distribution and tax you for it (on top of a 10% penalty that might be applicable.)

A friend of mine presented an opportunity to invest in a real estate project with the objectives of capital appreciation and cash flow generation. I reviewed the detail and I felt it’s a project I should invest in. Having missed so many opportunities in the past to invest in real estate, I will not let another opportunity passes me by.

I will use the fund from my Self-Directed IRA to invest in this project. Evaluating the risk-reward, I feel investing in real estate makes more sense in the long run than putting the money back in mutual fund; considering I will not be eligible to take the distribution for another 20-30 years. This will allow me to diversify my IRA portfolio as well.

Suggested Reading Material

Retire Rich With Your Self-Directed IRA: What Your Broker & Banker Don’t Want You to Know About Managing Your Own Retirement Investments

Disclaimer: I am not an investment advisor and I do not give recommendation of any kinds. Please consult your investment advisor before making any investment decisions.

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