Rocket Dollar: Self-Directed IRAs and 401ks for the Financially Savvy

One of the best kept secrets of the rich and famous is the existence of self-directed 401ks and IRAs.  Have you heard of these?  

Well, up until a few years ago, I hadn't either.  But it is one of the greatest discoveries I've made.  And now, I gotta tell somebody that know somebody to tell somebody.

Gotta love Martin!

If you are like me, you may have always wondered how the rich can be taxed much less than the working man.  Well, for sure clever write-off are at work but this may be another piece of the puzzle.

Self-directed investing is not known by many and is used by few.  Probably because to open such accounts are tedious and time-consuming.  Not to mention, you really should know what you are doing before you just dive in.

But there may be a way around all that.  Well, at least the tedious, time-consuming part.  There's a new company in town, and it goes by the name of Rocket Dollar.

What are Self-Directed IRAs and 401ks?

Self-directed investment accounts are retirement accounts in which you have control over what you will invest in.  With these accounts, you can invest in assets not normally included in a regular 401k or IRA such as real estate and cryptocurrency.

The best part is because these are retirement accounts you still get all the tax benefits that come with it.  So, with a self-directed 401k, your investments are tax-deductible and are allowed to grow tax free.  You are only taxed at withdrawal.

The trick with these self-directed retirement accounts is that you need to find someone to correctly set it up for you.  You don't want the tax repercussions that come with a retirement account that is not set up correctly.

Also, you will need to appoint a qualified trustee or custodian who will administer your account for you.  That is one IRS requirement you can't get around.

So do yourself a favor, if you do choose to go this route and find a good financial institution or company who can do all this for you.

How Do Self-Directed IRAs and 401ks work?

Self-directed IRAs and 401ks work essentially the same as traditional IRAs and 401ks.  They have the same contribution limitation and offer the same tax advantages as their traditional counterparts.

So the yearly contribution limit for a self-directed IRA would be $6000 (or $7,000 if you are over 50).  And for a self-directed 401k, it would be $19,500 (plus $6,500 if you're over 50).

Contributions made to either account can be done with pre-tax dollars and you won't be taxed until you withdraw money from your account during retirement.

There is still a 10% early withdrawal penalty if you withdraw money from your account before age 59 1/2.  And there are the required minimum distributions that you will have to deal with when you turn 72.

Roth versions of these self-directed IRAs and 401ks do exist should you prefer to go that route.  In this case, the money you contribute will be taxed but you'd be able to withdraw your money in retirement tax-free.

The Benefits of Self-Directed IRAs and 401ks

The main benefit of self-directed investment accounts is that you have control over your future.  You get to decide what you will invest in.  Whether it be individual stocks, bonds, index funds, real estate, or cryptocurrency.

In contrast, with company-sponsored 401ks or traditional IRAs, you don't have much control and your investment options are limited.  

You don't get to decide what funds are included in your list of potential investments.  Your company or financial institution does.  Then you are left to choose from whatever funds they included in your plan.

Futhermore, if you invest in funds, it will be the fund managers that decide which stocks to buy and which stocks to sell and when.  Not you.

Another perk of self-directed IRA and 401k investment accounts is that they give you the opportunity to diversify your investments.  In these self-directed accounts, you can invest in assets not allowed in regular retirement accounts such as real estate and cryptocurrency.

These assets have the potential to give you greater returns.  Plus, with it being a retirement account you get all the tax benefits that come with it.

The Cons of Self-Directed IRAs and 401ks

The downside of self-directed IRAs and 401ks is that they require a lot more time and attention.  It's not just a one and done sort of thing like with a traditional retirement account.

And that is because these non-traditional investment options require a lot more knowledge and expertise.  You can't just wing it when buying real estate or you may end up losing a lot more than your shirt.

When you make a decision to buy or sell, you're going to need to do so with confidence and clarity.  Which means you are going to need to know your stuff.  So putting in that time and effort to acquire the knowledge you need is a must.

In addition, investing in these non-traditional asset classes comes with higher risks.  When you invest in real estate, you run the risk of losing more than what you originally put into it.  This is not the case with regular stock market investing.

But, as they say, with higher risks comes greater rewards.  And maybe if you play your cards right, you'll end up with much more than stocks could have ever provided.

Also, one thing to keep in mind is that, sadly, even though self-directed IRAs and 401ks allow a lot of diversification to your portfolio, the IRS still doesn't allow everything.  This includes such assets as collectibles, antiques, art, etc.

What is Rocket Dollar?

Rocket Dollar is a company founded in 2018 with the desire to change the game when it comes to investing for retirement.  Instead of limiting people to the few options available in normal retirement accounts, they want to give people the freedom to choose.

With Rocket Dollar, you get to control your retirement savings and choose to invest in the things you want.  And everything can be done online.  Quick and easy.

So what do they have to offer?

Investment Accounts with Rocket Dollar

Rocket Dollar offers two investment accounts that you can open with them.

• Self-Directed IRA 
• Self-Directed Solo 401k.

There are numerous kinds of IRAs, or Individual Retirement accounts, including traditional IRAs, Roth IRAs, SEP IRAs, etc.  All of these accounts are tax advantaged, meaning you get tax benefits by keeping your money in them.

The only difference between those IRA accounts and a self-directed one is what you can invest your money in.  And the same goes for your 401k. 

One of the biggest complaints of the 401k is that your investment options are limited and they usually come with high fees. 

IRAs provide you with more options than your usual company-sponsored 401k but even then you are limited in your investment options.  For the most part, you would only be able to invest in stocks, bonds, ETFs (exchange traded funds), or mutual funds.

But with a self-directed 401k or IRA, you can invest in more, much more. Let's check out your options below.

~ If you want to learn more about IRAs and Solo 401ks check out these articles on retirement accounts and retirement accounts for the freelancers and self-employed. ~

What can you invest in with Rocket Dollar?

When you choose to open a self-directed IRA or solo 401k with Rocket Dollar, you can invest your money in any kind of investment that is approved by the IRS. Many of which, are not allowed in regular IRA and 401k accounts.

Here's what you can invest in:

What Does Rocket Dollar Have to Offer?

Let's take a quick look at what Rocket Dollar has to offer.

Quick and Easy Setup

With Rocket Dollar, you can set up your own self-directed IRA or solo 401k in just a few minutes.  Once that is done you will be able to start contributing to your account and investing with all the tax advantages that would normally come with a retirement account.

A Range of Investment Options

As you could see above, they have a wide array of investment options that you can choose from.  Making it easy for you to diversify your portfolio.

Transparent Fees and Pricing

Unlike when you invest in stocks and mutual funds through your employer-sponsored 401k, with Rocket Dollar there are no hidden fees or charges.  What you see is what you get.  

In a world that can put Shady Fay Fay to shame, it is nice to find a company that is pretty upfront about there pricing.

They offer no asset or transaction fees and are very transparent about their fees and costs.  A quick glance at their website will tell you all you need to know.

Fast Processing

They also offer fast processing.  So when you are ready to buy, sell, or lend, you can do so rather quickly from your dashboard.   There's no need to tell your custodian then wait around for their approval.  With Rocket Dollar, it is quick and easy.

Rocket Dollar Fees and Pricing

Rocket Dollar offers 2 plans for people looking to start a self-directed retirement account: Core and Gold.

With Core, there is a one-time $360 setup fee and then payments of $15/ month.  

This plan comes with no minimum opening balance, user friendly dashboard with performance tracking capabilities, online document storage, email support, no transfer or rollover fees, checkbook control (making it easier for you to invest), and an LLC to hold your investments

For those investors who want a more white glove experience, the Gold plan might be fore you.  For the Gold plan, the setup fee is $600 and your monthly payments would be $30 a month.  

This plan comes with everything in the Core plan plus priority support, expedited services and transfers, four free wire transfers a year, a Rocket Dollar debit card, a custom-named LLC, tax filing for 1099-R and Form 5500, and Roth IRA conversion assistance.

What are the Downsides to Rocket Dollar?

High Sign Up Fee

If you are a cheapo like me, you may look at that $360 sign up fee and think - Dang! That's expensive!

But with that sign up fee you are getting a self-directed retirement account set up for you, great customer support, an easy to use dashboard that will track your investments, an LLC and more.

And if you think about it, that's not bad at all!  Considering just setting up an LLC alone will probably cost you that much if not more!

Monthly Fee is High (If Account is Small)

Opening an account with Rocket Dollar does come with a monthly fee of at least $15 per month which can be bad if your account is small.

For instance, if you have only $10,000 to invest in your self-directed IRA, you will find that the fees just to maintain this account is costing you almost 2% annually. 

While this may not sound like a lot now, losing 2% every year can add up.  Not to mention, the loss of not having that 2% contributing to the beauty of compounding your original investment is enough to hurt anyone's feelings.

But if you check around to other providers you will find that this wee $15/month fee is not bad at all.  Especially when you realized that paying for a custodian could run you anywhere from $199 a year up to $2,000.

And that doesn't even include yearly fees of $199 per asset per year or transactions fees, or set up fees that other providers charge.  All of which could easily end up costing you over $1000 per year.

At this point, that wee $15 a month is looking better and better.  But one thing I would suggest is only start a self-directed retirement account when you have a large enough stash to make it worthwhile.

Who Should Invest with Rocket Dollar?

While I love self-directed IRAs and 401ks, I don't think they are for everyone. Here's a list of a few people who should start one.  

Overall, though, you must be willing to put the time and effort into making wise investments.  Otherwise, it will just be fancy gambling.

You Don't Trust the Stock Market

There are a lot of people who may have lived through or know someone who as lived through a couple recessions and, frankly, at this point, just does not trust the stock market.

If that is the case for you, then opening up a self-directed IRA or 401k can help you avoid the stock market-only plans of traditional IRAs and 401ks.

With self-directed IRAs you have a diverse set of assets you can invest in.  Now, you can save for your future while at the same time avoiding the stock market.

Looking for Diversification

If you are someone looking to diversify your portfolio, then starting a self-directed IRA or 401k with Rocket Dollar may be worth it for you.

Because at least this way you can take advantage of the tax benefits that come with these retirement accounts while getting the chance to invest in different asset classes.

You're Interested or Knowledgeable in a Specific Industry

If you are THE expert when it comes to cryptocurrency, you may want to consider putting them skills to work for your future.  

Open up a self-directed IRA or solo 401k and use your knowledge to help build you a sizable nest egg.

Even if you're not an expert in a specific industry if you are interested in learning more or diving in, starting a self-directed retirement account could be the push you needed to learn more about it and start investing in it.

You Have the Cash to Do So

Rocket Dollar is not for a small time investor just starting out in the investment world.  It is for people who have already starting investing and have a sufficient amount stashed away.

It is for investors who are looking to diversify the portfolio they already have with more investment options than those offered through more traditional brokerages or banks.

To make it worth while (and to make sure the fees are not eating into your investments), you will want to make sure the fees are less than 1% of the total funds in your account.

Anything more than that and it will just be eating away a lot of your capital.

All in All

Self-directed IRAs and 401ks may be an amazing tool that you can use to diversify your portfolio and build your wealth.  All the while taking advantage of the same tax benefits that comes with traditional retirement accounts.

However, self-directed IRAs and 401ks are not for everyone.  They take more time and knowledge than regular investments and so you must be willing to put in the effort.

Further, to make these accounts worthwhile you will need a size-able chunk of cash to get started.  So as always weigh your options.  Look at the pros and cons. And decide what is best for you.

Happy Investing!