We've all heard the phrase, "Hindsight is 20/20." In this scenario, however, an "Early-Bird IRA" changed everything for my retirement investing trajectory.
At 22, I was just starting my professional journey after graduating from college with my bachelor's degree. I had done everything you're "supposed to do" to get ahead in life: study hard, earn a degree, get a good job.
With that job came something with which I had not had much experience: retirement planning. My employer recommended their profit-sharing trust that served as a pension plan, but I was skeptical and, honestly, did not fully understand how it worked. In a twist of fate, the HR reps were too overworked to explain the benefits of that plan to me, so I made a fateful decision. Unsure if my compensation package included a retirement plan, I opted to establish a Roth IRA instead.
As part of the "study hard" angle of my education, I had recently read a book on retirement investing. In it, the author stressed the importance of automating contributions, comparing it to the slow cooker saying, "just set it and forget it". Being a model student, I followed directions: setting up a Roth IRA, automating contributions to reach the annual maximum aligned with each paycheck from my promising new career job, and then promptly forgetting about the entire thing. In fact, I only logged into my account every few years to adjust my contributions.
Other than those semiannual online visits, I completely forgot about the entire thing until one day about 10 years down the road when I attended a real estate investing event. At that event, the presenter discussed something called "self-directed investing," which involved (in his examples) using retirement funds to hold actual property or even to make private loans to other investors. My mind was blown! How had I never heard of this? I had met with several financial planners throughout the years and none of them ever mentioned this option! Once again, I took matters into my own hands.
I called my custodian and asked them to help me make my Roth IRA a self-directed account. They assured me it already was: Didn't they "let" me choose from their menu of stocks and mutual funds? Then, they informed me if I wanted to hold actual property, they also had a selection of REIT options. Those REITs were not the options I was seeking, so I once again took matters into my own hands.
It cost me quite a few hours of research and several thousand dollars to "convert" my existing Roth IRA to a self-directed Roth IRA with a new custodian so that I could fund flips or hold rental property. It was really important to me that I be able to do those two things in particular, so I brought it up with every firm I considered. I recall it being particularly painful to pay out that money to move the account since, of course, my cookie-cutter account had cost me nothing during the set-up process. Fortunately for today's me, I justified the cost as part of doing business as a new real estate investor and kept the process moving. It would turn out that this was an extremely good decision.