Self Directed 401k or IRA? Which One Is Better?

Choosing retirement plans can be very vital to the life you'll have during retirement. The results of whatever life you'll have in the future lies in your hands and your retirement account. So, as early as now, you should be aware of the different accounts that are offered in the market.

If you work in a private company, I'm sure you've heard of a self directed 401k. A retirement account given to employees by the employer. This retirement plan is provided by the employer to ensure the security of employees' retirement. Since, not all people can afford to take retirement plans for themselves. In this case, the employer makes the move and makes them one.

The capital for the retirement account is taken from the periodic salaries of the employees. The employees, also, decide on how much they can contribute to their respective accounts. They will have to control their investments at the same time, the control of their contributions too. 

This 401k retirement account is allowed to engage in traditional investments (stocks, bonds, and mutual funds) and non-traditional investments (real estate, real estate notes, tax liens, small businesses, and mortgages). Having a very wide array of investment options compared to a traditional 401k.

I'm sure you are enlightened of what a 401k is. And, maybe curious of what a self directed IRA is.

A self directed IRA is an individual retirement account that a person subscribes too freely. The creation of the retirement plan is decided by the individual itself. So, either the employer or the employee, anyone can avail of this retirement account.

Like a self directed 401k account, a self directed IRA is also allowed to engage in traditional and non-traditional investments. The only difference is that the 401k is employee-sponsored and the IRA is individually subscribed to.

Both these retirement accounts are tax-deferred. Taxes will only be effective from the moment of retirement of the owner. Meaning, deductions will be made from every withdrawal from the account. Also, they are required to follow the rules and regulations of the IRS. The IRS has created such laws to protect the interest of the parties involved and to avoid fraud.

The best thing about the 2 retirement accounts is control. It is the ability given to the investor to manage the investments he makes. In short, the owner has the privilege to choose what investments he wants to venture into. So, account owner can engage in any investment that he is comfortable with. Hence, owner can decide on any investment that scopes his knowledge. This would make a safer, secure, and more profitable investment journey. And in addition, the accounts can also have checkbook control. A control wherein all investment transactions don't need the agreement of the custodian, all it takes is the set-up of a limited liability company or LLC.

So, which is better? A self directed IRA or a self directed 401k?

Well, I guess it all depends on how well you handle the retirement account. Always remember that the fate of your retirement account is all up to you. Either you did great or not, the failure or success of the account lies on what you do now. So, I encourage you to learn every aspect of investing regarding these retirement accounts. And have an ideal retirement life!

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