The spotlight is shining on Swiss banks and offshore investment accounts. The strategy of wealthy Americans moving assets overseas in search of safety and stability in uncertain times is back in vogue. What’s causing the flow of U.S. savings across the pond? Acute economic uncertainty in the U.S.

With the dollar losing value, tariffs causing financial angst, and some economists warning that the Trump administration's economic policies will push spiraling U.S. debt even higher, high-net-worth (HNW) Americans (defined as having at least $1 million in liquid assets) are paying attention. Many are looking to protect their money and diversify their portfolios, and are moving assets — including retirement account balances — to Swiss banks. Switzerland, of course, is known for its financial, economic, and political stability as well as its secure, stable, and trustworthy banking system.

The Swiss franc is often regarded as a haven, offering investors currency diversification. “We indeed see an increase in demand (from American investors), like we had seen during Covid,” said Pierre Gabris, founder and managing partner at Swiss-based asset manager Alpen Partners International. “It’s mostly the fear that the U.S. dollar may devalue even more due to the large budget deficit and federal debt that has gone up dramatically.”

Why Swiss banks are attracting U.S. dollars

A weaker dollar reduces Americans’ purchasing power and signals that global investors have less confidence in the U.S. outlook. A recent story in the British daily, The Financial Times, headlined, “Wealthy Americans seek refuge from Donald Trump in Swiss banks,” highlights the trend. In the story, Pictet, a Swiss private bank and investment firm, said they’ve seen a “significant uptick” in American clients.

The desire of HNW Americans to manage risk by moving money to offshore accounts is due in large part to the high level of unpredictability surrounding U.S. politics and economic policy as the trade war drags on in President Trump’s second term, according to a recent blog post by global wealth protection firm The Nestmann Group, which has an office in Phoenix. Interest in Swiss banks tends to rise during periods of financial uncertainty.

“Switzerland isn’t just popular because of political concerns,” the Nestmann Group blog noted. “Swiss banks offer real advantages that become even more apparent when times are uncertain.”

Pros of offshore accounts

Diversification

One advantage of this offshore strategy is greater diversification. “Having all your money in one country, one currency, and one banking system is risky,” the Nestmann Group said.

Security

Just as Americans can open a Swiss bank account, they can also transfer their retirement savings to a Swiss financial institution that adheres to U.S. rules set forth by both the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS).

A big reason why it’s fashionable to move retirement funds to Switzerland is its robust and secure banking system.

Privacy

HNW individuals, and especially those with ultra-high net worth (assets of at least $30 million), often seek out Swiss banks for their discretion. Swiss banks are famously known for limiting the ability of third parties to gather significant information about account holders.

Cons of offshore accounts

It can get complicated

The only type of retirement assets that Americans can transfer to Switzerland are self-directed IRAs, according to Gabris. The major difference between a self-directed IRA and a traditional IRA is that it offers greater investment flexibility and diversification. While traditional IRAs invest in publicly traded stocks and bonds, self-directed IRAs allow investments in alternative assets, such as real estate and private equity, among others.

401(k) account balances, therefore, must first be rolled over to a U.S. self-directed IRA before all or part of the account balance can be transferred to Switzerland. Foreign investment firms based in Switzerland, such as Alpen Partners International, collaborate with U.S.-based self-directed IRA administrators who have experience in sending U.S. retirement savings overseas. “It is relatively easy,” said Gabris. “There is a bit of paperwork, but nothing too bad.”

But taking your pension offshore is not as easy as simply transferring the funds, Gabris stresses. This is one financial transaction that requires assistance from professionals to navigate international financial rules, tax laws, and guide you to the most trusted banks in Switzerland.

Exchange rates, interest rates and fees

Still, unless you are bearish on the U.S. and think the dollar will continue to lose significant value versus the Swiss franc, moving your retirement assets to Switzerland and going through the process may not be worth the trouble or cost, says Ingo Walter, a professor of finance, corporate governance and ethics at the Stern School of Business at New York University.

“Not unless you take a bleak view of the (U.S.) dollar and Swiss franc exchange rate and are willing to pay the fees and transaction costs involved,” said Walter. Moving money from the U.S. to Switzerland now means you will earn lower yields on your cash. Money in cash accounts earns much more in interest in the U.S. than it does in Switzerland. The current U.S. Federal Funds Rate, the central bank’s key short-term borrowing rate, is in a range of 4.0% to 4.25%. In contrast, the Swiss National Bank (SNB) policy rate is 0.0%, down from 0.25% in March.

The Swiss franc is now stronger than the dollar as well. Currently, 1 Swiss franc equals $1.25 U.S. dollars, which means the franc is trading at a 25% premium to the dollar. Said another way, $1 translates to only 0.8 francs after currency translation.

How to move a retirement account offshore to Switzerland

You can’t move your 401(k) account offshore. But you can roll retirement assets into a self-directed IRA to get the process going. Here’s a basic step-by-step guide to move a retirement account offshore, according to HFS Offshore (formerly Harbor Financial Services), a firm specializing in offshore investments.

1. Open a self-directed IRA

This new, more flexible IRA must be opened with a U.S.-based custodian or administrator that facilitates international transactions. Gabris of Alpen Partners says he uses Advanta, a self-directed IRA administrator.

2. Establish an off-shore company in Switzerland

The international business company or LLC will act as your self-directed IRAs international banking arm. Foreign banks and brokers can’t open an account for an IRA directly, but they can open offshore accounts in the name of the offshore company.

3. Open an offshore Swiss bank or brokerage account

That may sound daunting, but you don't have to open an offshore account on your own. "These are bank forms we prepare," said Gabris.

4. Transfer funds via wire from your self-directed IRA to the offshore account

Once the funds are received by your offshore Swiss financial institution, they are in your hands and under your control, and you can start investing and benefit from tax-deferred growth just like in the U.S.

You’ll want to touch base with an accountant expert in foreign matters before proceeding, too. One downside is that while U.S. tax law allows certain tax-free rollover transfers between U.S. retirement accounts, such tax treatment does not apply to transfers to “non-U.S.” retirement accounts, according to Greenback Expat Tax Services.

Banks typically require a deposit of $250,000 to $1 million or more to open an account.

Can you use offshore accounts to "hide" assets?

It is illegal to use a Swiss bank or other offshore account to hide assets from divorce proceedings or from the IRS. Although some Swiss banks facilitated this behavior, the IRS and the U.S. government have intervened to shut it down. For example, Credit Suisse was fined over $500 million in 2025 for its role in hiding U.S. accounts. Reporting is now robust, and you must disclose your accounts.

Before you leap

Moving large sums of retirement savings to Switzerland shouldn’t be taken lightly. It’s a big decision. And it’s something that should be done with the help of a financial professional with expertise in offshore accounts, says Rimma Portnova, global CEO of ARI Financial Group, which specializes in advanced life insurance planning for HNW clients.

“IRAs are something people work really hard for, and making a move without doing your due diligence and working with people with global experience in asset movement is too high a risk,” said Portnova.

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A gold IRA or ETF may be just the inflation hedge you need in your retirement plan. In fact, many investors are flocking to safe-haven investments like commodities to protect their portfolios. Such moves may counter market volatility as well as inflation. One asset class that has shone through some of the darkest economic times is gold.

Gold has held steady against periods of high inflation by many accounts. It has outperformed inflation by 3% on average annually over the past four decades, according to data from the World Gold Council.

In addition, Goldman Sachs analysts expect gold to reach $5,400 per ounce by the end of 2026, citing sustained demand for countries around the world to increase their gold reserves, as reported by Trading Key.

But do precious metals like gold belong in your retirement portfolio? The answer to that depends on several variables. Those interested in incorporating gold into their retirement savings can consider a gold IRA.

What is a gold IRA?

A gold IRA is a self-directed individual retirement account (SDIRA) that holds precious metals like gold, silver and platinum.

SDIRAs work differently from IRAs from major brokers that invest in traditional assets like stocks and bonds. SDIRAs allow you to create a retirement nest egg through alternative investments such as precious metals, real estate, and crypto.

However, SDIRAs operate on a buyer-beware basis. Custodians or providers of SDIRAs are not obligated to evaluate the quality or legitimacy of investments in your SDIRA.

SDIRA custodians also don’t sell investment products or provide financial advice. Many are not registered investment advisors (RIAs). So, they don’t fall under the regulatory scrutiny that major firms like Vanguard or Schwab do.

Still, gold IRAs have all the bells and whistles of more common IRAs. This means contribution limits, tax advantages, and RMD rules remain intact.

Contribution limits

For 2026, you can contribute up to $7,500 worth of precious metals to a gold IRA. Those aged 50 or older can contribute an additional $1,100 for a total of $8,600.

Tax advantages of a gold IRA

You can open a gold IRA as a traditional IRA or Roth IRA. With traditional IRAs, your contributions are tax-deductible. However, you’d owe taxes on qualified withdrawals when you reach age 59½.

Roth IRAs don’t allow you to make tax-deductible contributions. But you can make withdrawals tax-free as long as you’re at least 59½-years-old and you’ve been contributing to the account for at least five years.

Moreover, you can withdraw your contributions penalty-and-tax-free from a Roth IRA at any time. That’s because, unlike traditional IRAs funded with pre-tax dollars, Roth IRAs are funded with after-tax dollars. In other words, you’ve already paid income tax on your contributions to Roth IRAs.

However, withdrawing earnings from a traditional or Roth IRA before reaching age 59½ would generally hit you with taxes and a 10% early withdrawal penalty.

Required minimum distributions (RMDs)

If you have a traditional gold IRA, you generally need to make withdrawals or required minimum distributions (RMDs) by a certain age, depending on your birthday. Here’s how it breaks down based on birthdays.

• Age 70 1/2: if born on or before 6/30/1949
• Age 72: if born on 7/1/1949 through 12/31/1950:
• Age 73: if born on 1/1/1951 through 12/31/1959:
• Age 75: if born on or after 1/1/1960:

The amount is based on factors like your life expectancy. You can calculate these using IRS RMD tables.

When it comes time to take a distribution, your custodian can help you liquidate the physical gold and transfer cash to you, or it can send you the physical precious metal. The latter may be best if you intend to sell the physical gold at a later time.

But before you commit, make sure you ask your gold IRA custodian how they handle RMDs. The process isn’t as simple as having your broker sell the stocks in your IRA. So you need to make sure the custodian has a reliable process in place to satisfy your RMDs and avoid any trouble with the IRS.

How to open a gold IRA

Before you open a gold IRA, you typically need to find a gold broker to help you purchase the physical metal. Moreover, gold in an SDIRA must meet specific IRA fineness requirements.

The gold must have a fineness of at least 99.5%. This gold must also be stored in an IRS-approved depository. In most cases, the gold broker can help you find an approved depository. The company can also help you find a gold IRA custodian to open an account and handle all the administrative work.

Risks of gold IRAs

As you can see, there are many players involved in running a gold IRA. With that can come various fees like the following.

• Gold seller’s mark-up fee
• Storage fee for depository
• Account set-up fee
• Ongoing custodian administrative fees
• Transaction fees

And remember, gold IRA custodians don’t undergo the same regulatory oversight as traditional brokerage firms. They won’t evaluate the legitimacy or reliability of the investments you put into your SDIRA. They merely handle the administrative work regarding your account. It’s entirely your responsibility to evaluate your investments, custodian, depository and everything that comes into play.

But there are other risks you should know about gold. For one, it’s not always a solid inflation hedge. In fact, between 1987 and 2001, when inflation hovered around 3% a year, the price of gold declined.

In addition, gold doesn’t always outperform other asset classes and has shown little in the way of long-term potential.

Between June 1986 and June 2026, the S&P 500, with dividends reinvested, returned an inflation-adjusted annualized total return of 8.18%. In the same time frame, gold generated an inflation-adjusted annualized return of 3.628%.

Gold ETFs

You could avoid high fees and other hassles that come with investing in physical gold by investing in gold ETFs (exchange-traded funds).

A gold ETF tracks the gold markets and aims to mimic their performance. But you can buy shares of a gold ETF through a standard brokerage account in the same way you’d purchase shares of a company’s stock. Plus, you won’t have to hold any physical gold. This would allow you to bypass the costs associated with purchasing and storing gold, as well as the extra legwork of evaluating an SDIRA custodian and other providers.

ETFs have long been known for their instant diversification and low fees. In fact, the iShares Gold Trust has an expense ratio (management fee) of 0.4%, or $40 for every $10,000 invested. The typical annual maintenance fee for a gold IRA alone ranges from $75 to $250.

However, investors should know that paying taxes on gold and other commodity ETFs can be complicated. Depending on how the ETF is structured, you may owe taxes even if you haven't sold shares. Be sure to consult a financial adviser or tax expert before you purchase a gold ETF.

Is gold for you?

Gold has historically stood strong against inflation and other periods of economic and geopolitical turmoil. This precious metal could add a layer of diversification to your portfolio and protect you from downside risk.

However, investing in gold as a retirement asset is different from building a nest egg with stocks and bonds. Gold IRA providers aren’t subject to the same rules and regulations as traditional brokers. It’s up to you to do your due diligence when it comes to vetting a custodian as well as the actual gold you’re investing in. The process can also involve high fees. So, you must ensure gold aligns with your risk tolerance and long-term financial goals.

Read More

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• Gold Investments Continue to Shine
• The Best Gold ETFs With Low Costs
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Endowment funds such as Yale University’s, which focuses on investment alternatives, have been great examples of multi-asset-class investing strategies over the last two decades. Case in point: Yale’s endowment experienced $759 million in investment gains for the year ending June 30, 2023, according to its 2022-2023 financial report.

In addition to diversification, alternatives also offer potential investment opportunities that often have a low correlation to volatility in traditional markets.

Yale’s fund has access to top-tier fund managers, but by adopting investment principles in relation to alternatives, individual investors can design their own portfolios so that they have the potential to achieve similar risk-adjusted returns. This strategy has paid off for the endowment, particularly when traditional equity and bond markets experience economic fluctuations.

While one may invest in alternatives in many ways, an often-overlooked strategy is investing your tax-advantaged retirement savings. This can be done through an investment vehicle known as self-directed IRAs, or SDIRAs. These accounts aren’t distinct IRA types, but rather, “self-directed” refers to the account’s management style, in which investors or advisers take on management duties.

Traditional IRAs or Roth IRAs can be self-directed, but the main difference is that with SDIRAs, people can invest in alternative assets. Alternative assets may help reduce exposure to market volatility, as many have low correlations with public markets, and may be more suited for long-term strategies since many of these assets are less liquid.

Specifically, SDIRAs can hold alternative assets like private equity, hedge funds, commodities and marketplace loans, but real estate has historically been one of the most popular investments. Although there are restrictions on using a real estate property held in a SDIRA for personal use, you can invest in any type of property assets, including rental properties, land and commercial properties.

Access to alternative markets

Historically, many alternative assets required an accredited investor, an investor with a special status under financial regulation laws. However, we have seen many types of alternative investments that do not require an accredited investor. Today, many alternative investments are more broadly accessible. So, for example, if someone wants to put a $5,000 investment into alternatives, they have many options to choose from.

However, the opportunity for greater diversification comes with greater responsibility, as the investor does need to manage SDIRAs themselves. If managed prudently, this vehicle also offers the opportunity for greater returns, due to the wider variety of investment options, especially if you have expertise with a specific asset type.

Everyday investors frequently know the market better in the region in which they live, so whether it's real estate or an opportunity for a new restaurant, if they’re familiar with that particular space, they’re likely more comfortable allocating some of their retirement capital to that investment.

2024 outlook

Nearly half of all Americans are at risk of a financially insecure retirement, up from one-third in 1983, according to a 2024 Senate committee report. And, as BlackRock CEO Larry Fink emphasized in his 2024 letter to investors: Longer lifespans mean Americans need to save more money to live on throughout their sunset years. SDIRAs offer Americans a great opportunity to put their retirement savings to work beyond the standard target date funds that many 401(k)s favor.

It is critical, though, to consult a qualified financial adviser. SDIRAs offer the opportunity for individual investors to correlate their investments with their risk appetite. However, every investment has its complexities. For example, some alternative assets have low liquidity, meaning it can be difficult to access them or sell them quickly — if at all — without a loss in value.

Also, the IRS has strict rules about SDIRA-prohibited transactions, which are aimed at preventing direct personal benefits to the account holder or other disqualified people, such as family members. (For example, using an SDIRA to invest in a business that is owned by the investor’s spouse.) Prohibited transactions can result in tax penalties or losing the account’s tax-advantaged status altogether.

SDIRAs can open the door to a wide range of alternative assets with a return pattern that can potentially benefit the end investor. Ultimately, better access to these investments, which have proven successful for endowments like the Yale fund, gives investors another viable avenue to help grow their retirement savings and improve their overall financial wellness.

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• Should You Use a Roth or Traditional IRA?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Self-directed IRAs are not for the average retiree or the faint of heart. These specialized retirement accounts let investors do things they can't in an ordinary IRA, like invest directly in alternative assets, including cryptocurrencies, real estate, gold or a private business. A second property, which many retirees invest in for income, could be purchased as an IRA asset using a self-directed account.

Like ordinary IRAs, assets grow tax-free inside a self-directed account, giving a real estate investor, for example, a way to rent properties or buy and sell them using IRA savings while postponing the taxes on any income or capital gains.

"A self-directed IRA would delay those taxes until you withdraw from your plan so you can re-invest all the profits from the sale without having to reduce the net gains by paying taxes now," says Grey Merryman, head of wealth planning at Atlantic Union Bank's Wealth Management Division.

This freedom, however, means more ways for retirees to land in trouble with their hard-earned savings by investing in something that isn't remotely suitable. In fact, partly because of the problems with alternative assets, these accounts have a lot more going against them than for them, and even investing in a second home this way has disadvantages.

Consider these risks.

Alternative assets are often touted as a way to diversify your portfolio because they don't move in lockstep with stocks or bonds, but many alternative assets, like cryptocurrency, are inherently high risk. What's more, buying some alternative assets directly often requires a sizable chunk of your savings.

A local business or real estate typically isn't a small purchase. Sinking a lot of money into one investment is the opposite of diversification. To diversify using alternative assets like real estate or commodities, stick to mutual funds that invest broadly in them. You can buy these funds with an ordinary IRA.

You can't open a self-directed IRA with mainstream brokerage firms, like Vanguard or Fidelity. Instead, you must work with a specialty custodian, like Equity Trust Co. or IRA Financial, without any guidance or advice.

Self-directed IRA custodians don't give investment advice "because they do not perform any of the due diligence or accept any responsibility for investment selection, suitability or best interest of the investor," says Merryman.

As part of their contracts, self-directed IRA custodians only agree to handle the administrative work for your account. It's up to you to make sure the investments are appropriate, safe and legitimate, but that won't be easy to do.

Alternative assets have less government oversight and are usually less transparent than publicly traded stocks and bonds. Consequently, you will need to hire and pay an independent professional, such as an investment adviser, accountant or attorney, to vet any major investment, says Chase Insogna, president of InsognaCPA in Austin, Texas.

Not only can the investments themselves be opaque, but the Securities and Exchange Commission warns that criminals prey on those with self-directed IRAs or encourage people to set one up in order to sell them a fraudulent investment.

"Red flags for fraud can include brand new investment companies with no track record, claims for unreasonably high levels of return or a lack of third-party oversight, such as audits from a reputable CPA firm," says Ryan Shuchman, an investment adviser and partner at Cornerstone Financial in Ann Arbor, Mich.

Fraudsters often fool unsuspecting investors by telling them any investment that a self-directed IRA custodian accepts must be legitimate, which isn't true. Remember, the custodian doesn't verify the investment; it just handles the administrative work. To be clear, "this fraud isn't from the IRA custodians or the self-directed IRA, but rather the type of investments," Insogna says.

Self-directed IRAs aren't cheap. Along with transaction fees, the IRA custodian can also charge an account setup fee, an annual fee and a fee per asset held in your account.

These fees range from several hundred to several thousand dollars per year, depending on the account size, the number of investments made and the IRA custodian. The same investments made outside of a retirement account wouldn't have any of these extra fees.

As self-directed IRAs are retirement plans, you'll still need to take required minimum distributions once you turn 73. That can be tricky to do if you're investing in assets that aren't easily cashed in, although there is a Roth IRA version of a self-directed IRA. Like ordinary Roth IRAs, the self-directed version is funded with post-tax dollars for tax-free withdrawals in retirement and has no RMDs.

Even owning property in these accounts is only a good idea for an experienced real estate investor with a proven track record of successful deals, says Shuchman.

"You've got the risk both of the deal going bad plus the opportunity cost of not growing your savings in the market," he says. Real estate investors can also kiss goodbye many of the benefits associated with investing in property.

The IRS has rules for self-directed IRAs, and one of them is that you cannot use or manage the assets personally.

"If you buy a beach house as an investment, you or your friends can't stay there for free. If the wind blows off the storm gutter, you cannot fix it yourself but need to hire a professional, using cash from your IRA balance," says Merryman.

If you get caught breaking these rules, the IRS could void your entire IRA, forcing you to take out the balance, not just the problem asset, which could mean a sizable tax bill and the loss of future tax benefits on those savings.

You also miss out on tax breaks for owning the investments outright. It's the IRA that holds title to the property, not you personally, and your IRA doesn't pay taxes each year. That's a problem for real estate investors as they won't be allowed to claim annual deductions for repairs, mortgage interest, depreciation, property taxes or losses against other personal income. Meanwhile, the fees from a self-directed IRA can wreak havoc with your profit margin.

Insogna says the $600 fees his self-directed IRA charged annually ate into his profit margin for rental income, and the deferred taxes didn't seem to make up for it. Insogna regrets using a self-directed IRA for a 2009 real estate deal. "I would have been better off just cashing out my IRA balance, even with the 10% penalty [for someone younger than 59½], given the fees and missed tax breaks."

A self-directed gold IRA is your only option if you want to own or invest in physical gold or other precious metals through an IRA. To set up a self-directed IRA that holds precious metals, you’ll need to pay for more than a custodian.

In addition to the initial setup or administration fee charged by the IRA custodian, you'll likely pay an annual maintenance or storage fee each year to the custodian or depository vaulting company for the secure storage for your physical precious metals.

You’ll need to follow two IRS guidelines to include gold in a self-directed IRA:

1-You can only invest in IRS-approved gold. To avoid buying a prohibited item, consider purchasing from a company that specializes in gold IRAs. They often label qualified precious metals as “IRA-eligible." The IRS says it must be “highly refined bullion.”

• Gold must be 99.5% pure, silver must be 99.9% pure, platinum must be 99.95% pure and palladium must be 99.95% pure
• Produced by a company that’s nationally accredited
• It must be encapsulated in original packaging and include the certificate of authenticity
• Coins are uncirculated and damage-free
• Bars are manufactured to the exact weight

2- You can’t hold the gold in your possession. You are its owner, but the gold must be stored off-site in an IRS-approved depository. Your gold IRA custodian should be able to help recommend an approved depository for your investments. This is a critical aspect of investing in precious metals though an IRA.

Taking possession of the physical gold would be considered a distribution from your IRA that is subject to tax and penalties. .

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We have ended up in a world where employees have to find ways to manage their own funds for retirement, at their own risk. Fortunately, many plans have begun to offer an option called a self-directed brokerage account (SDBA). Some plans even allow you to hire your own adviser to manage your account. And, with the help of a professional adviser, you can put yourself in an ideal position to optimize your retirement plan and meet your overall financial goals.

This self-directed brokerage account (SDBA) option gives you access to a broader universe of investments, such as individual stocks and bonds, exchange-traded funds, and many other mutual fund options — depending on your company’s restrictions. However, while you may want the advantage of those additional investment choices, you may not be comfortable with making all your own decisions, particularly since the investment risk is on you. Fortunately, a professional investment adviser can help you manage your self-directed 401(k) brokerage account.

Is using an adviser for your self-directed 401(k) worth the cost?

What many workers don’t realize is that most are already paying management fees for their company’s 401(k), without getting personalized guidance. Many employer 401(k) plans are managed by registered investment advisers, who act as fiduciaries to the plan and select the investment options for the plan, as a whole. Their obligation is to the plan sponsor — meaning your employer, not you — and they cannot manage or advise individual participants.

Using your own personal adviser for a self-directed 401(k) brokerage account may present more value than you think. Given that 401(k) fees can sometimes be rather substantial, according to Business Insider, and given that they can have a significant impact on your account's ultimate value, it is worth considering alternatives.

According to a groundbreaking study by Vanguard, using a professional adviser can possibly add about net 3% annually to the value of your assets, after fees are taken into account. In addition, the adviser can develop a plan for the self-directed account that is part of your overall financial plan to specifically tailor strategies to your personal needs and goals.

Having your own adviser means access to broader advice

Using an adviser for a self-directed 401(k) brokerage account can present more advantages than just increased performance and potentially lower fees. Selecting an adviser who will plan for and manage your overall financial strategy will lead to a coordinated plan that has all the assets working toward all of your goals, not just a single retirement account. For example, many investors have multiple investment accounts in different places, and an adviser can take a comprehensive look at all of them to see how those can fit into the investment mix to achieve the desired outcome. Most are invested without consideration to the whole picture; more of a piecemeal situation. An adviser can also advise on Social Security strategies and how to integrate other retirement income into the complete picture.

An adviser is likely to cost annually between 0.5% and 1% of the assets under management, but that may be less than the average fees you pay on plan investments — which include both the fees an employer’s registered investment adviser would charge and the fees that the mutual funds themselves charge — and the adviser’s fee covers much broader services. The adviser can help find ways to take the most advantage of the 401(k) plan (such as matches by employers) while not losing sight of your near-term goals. As you age and earn more, your goals and objectives will change, and your adviser can help manage these life changes.

Personal attention means a closer eye on your risk tolerance

Investor risk tolerance ranges from aggressive to moderate to conservative, and failing to understand where you fall on that continuum can be disastrous. A professional adviser will almost invariably begin a client relationship with some sort of risk analysis, both to assist them in understanding you and to structure your investments within that risk framework. Many portfolios are concentrated in company stock and not adequately diversified. Additionally, many portfolios are under invested due to the fear of losing money. But, the risk investors are taking is not being able to grow the investments to support their desired retirement lifestyle. An adviser can help diagnose that problem and rework your portfolio.

In the end, your 401(k) can make or break your retirement

Years ago, under the pension system, the employee did not have any responsibility for choosing and managing the investment — they simply received a monthly check after they retired that would last their lifetime. Today, only 15% of private-sector workers have access to such plans, according to the Bureau of Labor Statistics’ March 2020 National Compensation Survey. So now, the burden of retirement funding falls on employees rather than employers.

In the absence of a pension, and with the uncertainty surrounding Social Security's future, it is likely that your 401(k) will be your largest asset and primary savings vehicle. Since this account will essentially determine if and when you are able to retire, it’s crucial to talk with a financial adviser to see how to best manage a self-directed 401(k) brokerage account.

Working with an adviser can add value to your SDBA assets and improve the lifetime performance of your overall financial goals and objectives — that may be the most important service of all to enable success in your long-term future.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A self-directed IRA is a type of retirement account legally structured like a traditional or Roth IRA. Though the same annual contribution limits and potential tax advantages apply, self-directed IRAs allow individuals to utilize what is referred to as non-traditional or alternative investments, such as debt instruments, gold and other precious metals, businesses and real estate.

Banks, brokerage firms and insurance companies have historically controlled the type of investments made with IRAs and 401(k)s. They offer a more traditional approach to investing by limiting options to publicly traded stocks, bonds and mutual funds. Today, with information so readily available from a wealth of sources, investors can research and make sound investment decisions without relying exclusively on these traditional advisers.

People choosing the self-directed route are typically looking for diversification in their retirement investments.

Why Focus on Real Estate?

Real estate is REAL. It is tangible, finite and has historically been a multigenerational builder of wealth. Rather than an alternative retirement investment, real estate can be a key vehicle for growing one’s IRA account.

Why Would Someone Go the Self-Directed Route?

Ask yourself, “Do I want my entire retirement future to be left in the hands of Wall Street and money managers? Or do I feel confident that I can direct some of my funds and actually know where my money is invested?” Some investors believe that giving money managers or Wall Street complete control of their retirement is not the best path for them.

By researching real estate investments and sponsors, you can gain the confidence to make your own choices. You may also find that real estate provides diversification and the potential for better returns, more quickly, than traditional investments.

How It Works

There are two ways to go the self-directed route. You can place the money through a custodian that specializes in self-directed IRAs or open and place the funds via a checkbook IRA account. In either situation, given the investment is self-directed, you must do your homework in order to understand the investment’s opportunity and risks. If there is any debt involved, it must be non-recourse. Maintaining records is critical.

Many of the traditional brokerages that hold IRAs and 401(k) accounts will not move the funds to non-traditional investments; therefore, you will need to direct the funds from your current account to an IRA custodian who works with self-directed accounts. Custodians such as Provident and IRA Services Trust Company have successfully worked with individuals to direct their IRA investments. The key here is to follow the rules and work with a reputable custodian.

What Are the Rules for Investing Directly in Real Estate?

The first rule is to actually follow the rules. If you purchase real estate with an IRA improperly, you can disqualify the IRA, making all the funds taxable. The rules include: no self-dealing (selling or buying to or from a related party), no hands-on improvements via “sweat equity,” and no personal benefits such as living in the property yourself or renting to a family member.

For example, let’s say you invest $100,000 from your IRA, buy a rental property, and let your son and his family move in. Whether or not he pays rent, the investment would be considered disapproved, and if discovered by the IRS the investment could be deemed a full distribution with subsequent taxable penalties.

The real estate must be for investment purposes only, and normally both the invested money and dividends will flow through, and to, a custodian. When the property sells, the proceeds will also go directly back to the custodian or to the IRA checkbook account and can be reinvested once another opportunity presents itself.

What’s an Argument Against Using an IRA to Invest in Real Estate?

The primary argument against using an IRA in this way is that it cannot take advantage of the significant tax shelters provided by real estate, including depreciation and interest write-offs. Stocks and bonds, the normal vehicles driving IRA investments, do not have these special tax incentives either. So, for many people, the investments could be considered on par.

Real estate is considered an illiquid asset; therefore, investors older than 70½ must be aware of Required Minimum Distributions (RMDs) and how their real estate fits with the required withdrawals. See the IRS website for more details.

Getting Started

The first step is to do your research. With real estate, you must research the market, including demographics, income and job growth. Research the investment sponsor who will be managing the real estate on your behalf. The next step is to research custodians. If you go the self-directed route, you will still work with a custodian who places your funds for you. Any dividends or distributions must flow directly back to the custodian.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.