self directed retirement

“Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again “

Author unknown but probably a 18th century English tax lawyer?

Please allow me to share one of the worst stories I have ever heard in real estate. A Missouri seller convinces a California buyer to “use her retirement money” to buy several rental houses. The buyer failed to obtain outside advice, and simply withdrew the funds to purchase the properties.

Rumors, innuendo and speculation are very dangerous in this arena and as a result the buyer was subject to all of the applicable penalties associated with withdrawals from her 401k. If I remember correctly it was about a $40,000 tax bill.

The worst part about tax planning is it looks like humpty dumpty some times… all the king’s horses could not unwind the transaction.

The teaching point from this outrage of a result: ALWAYS consult tax and legal counsel before acting to self direct your retirement funds.

That caution aside, I am a huge proponent of self directing retirement funds. I believe that Wall Streets capabilities are largely in marketing. Their financial acumen in general…ehhhh. Don’t even get me started on their transparency. You’re as good as they are.

So, as you can imagine I think self-directed retirement funding is very wise. As you know I am a staunch proponent of the wealth creation effects of real estate, because when done right – they are in many ways superior to stock investing.
The key competitive advantages in my mind are:

  • Less volatility
  • Opportunity to force appreciation
  • Easier to find an information advantage

So having said that its important to …read more