With a traditional 401k, account holders often have their retirement fund managed by a custodian service company. With an Individual 401 k, however, account holders can choose to act as the trustee of their own plan. Let’s take a look at how becoming a trustee can benefit account holders.
Lower cost and fees
As with any other service, a trustee will charge a fee for the time and effort they spend on managing the fund. When account holders spend their own time making decisions regarding the fund, there will be no cost associated with that.
As the trustee of their own Individual 401 k, account holders are able to hand pick different assets they want to invest in, and not limited to only stocks and bonds. A trust company or a bank would more likely to restrict investment options to products they offer, or prioritize their products. Account holders, on the other hand, only have their own interest at stake and will be able to consider the best options to fit their investment goals.
Since the trustee is the manager of retirement plans, account holders are required to get approval from a trustee before making any changes to their investment. When the account holder is also the trustee of the fund, this approval process is eliminated. Thanks to that, it simplified the process. For certain assets, quick decisions also mean account holders will be able to catch better deals, which they would have to miss otherwise.
How to become the trustee of your individual 401 k
These three reasons above make self-directed individual 401k an attractive self-employed retirement plan. By taking charge of their plans, experienced investors can grow their fund and reach their retirement goals much faster than having it taken care by someone else.
Keep in mind that not all individual 401k plans allow account holders to act as the trustee. Often, banks, trust companies, or other financial institutions will offer individual 401k plans that require custodian services. In order to become a trustee of your individual 401 k, you will need to make sure your retirement plan is truly self-directed.
Also, once you act as the trustee of the retirement plan, it is your responsibility to make sure the plan and its investment are in full compliance with IRS regulations and applicable laws. This requires research on your own, or make sure your plan provider offers services and supports you needed.
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