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INVESTORS’ CORNER: Are you maximizing your IRA/401k?

When we think about retirement, many of us assume that we will be able to quit our job based on some combination of our IRA, 401k, Social Security, and personal savings. I consider myself an optimist;  however, there are doubts as to whether Social Security will be a substantial source of income moving forward. This means that the other financial tools (personal savings and retirement accounts) may need to be a bit more robust to make up the difference.

Statistics show that the vast majority of our wealth is comprised of our IRA or 401k. This is fantastic news as they are tax deferred vehicles, which allow us to compound our wealth more quickly! My question to you is: Are you investing in assets that you are knowledgeable about?

Over 90 percent of retirement accounts are invested in securities such as stocks, bonds and mutual funds, and a primary reason for that is simply the misconception that we can only invest in those assets with our IRA or 401k. The reality is that IRS code outlines what cannot be invested in with our retirement accounts and frankly, it is a pretty short list.

According to IRS Code 4975, you cannot invest in collectibles and life insurance policies and that’s about it! This is fantastic news for those of us who are interested in investments such as real estate, privately held companies, precious metals and many more opportunities.

To be clear, when I mention real estate, I am not speaking about a REIT, rather I am speaking about your retirement account owning 123 Main Street, Charlotte. This might be a property that is rented for income or a home that is fixed up and sold to a retail buyer. Understandably, this is a new concept for most of us. However, I want to simply bring awareness to the possibilities available to us. The aforementioned investments are typically referred to as “alternative” assets and in order to acquire them you will need a specific financial services company that deals in “self-directed retirement accounts.”

As you plan for your retirement years, you are more likely to get optimal returns if you invest in assets that you understand. A mantra of the financial services industry has always been to diversify our investments, and there is no better way to truly diversify our retirement accounts than to consider adding alternative assets to our portfolio.

I wish you great success on your path to retirement!

Sean McKay is a member of the Metrolina Real Estate Investors Association, metrolinareia.org, which provides education, networking, and mentoring to investors in the Charlotte region. You can contact Sean at sean@AmericanIRA.com.

 

 

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