By Dr. David Eifrig, editor, Retirement Millionaire

Thursday, December 27, 2012

Don't trust your employer to do what is best for your retirement.

Recently, Hostess Brands – the bankrupt baked goods company – admitted to using workers' pensions to pay for company operations. Not only was Hostess misusing retirement funds, the company missed over $20 million in pension payments.

If you're over 40 years old, you may have a "pension," also known as a defined-benefits plan. It's a retirement account that your employer funds and controls. When you retire, your employer agrees to give you either a lump sum of money or monthly payments.

With a pension, you have zero control over what happens. You can't increase or decrease the amount that's being invested. Companies also hire managers who oversee where pension money is invested, and the fees they charge dilute returns. Plus, if you die right after you retire, your dependents might get nothing.

But there is a solution...

You can move money from your pension into a self-directed IRA.

This gives you total control of your money. You get to grow your money tax-free, just like a pension... but there's no limit on how much you can make.

A self-directed IRA is exactly what it sounds like... It puts you in charge of what you invest in. In addition to the conventional investments you can make in a typical IRA – like stocks, bonds, and covered calls (something I regularly recommend to my Retirement Trader readers) – a fully self-directed IRA allows you to invest in many other assets, including real estate, private stocks, businesses, and even precious metals.

You can invest in just about anything, as long as it's not employed for your personal benefit. This simply means you must avoid any conflicts of interest. You can't, for example, invest in companies you have a 50% interest in. But you can buy the house next door through your IRA and then rent it to a neighbor. You can also invest in a local small business (again, as long as it's not your own).

I use my self-directed IRA to generate income by selling stock options. When I use this account for options trading, I don't have to follow any accounting or tax requirements.

In fact, if you do all your trading inside a retirement account, you don't have to report any trades to the IRS. The goal is simply to maximize your total returns as quickly and as easily as you can... And get better returns than a pension could offer.

There are two ways to move your pension to an IRA...

One is to "roll over" the pension directly into an IRA. The broker or custodian you're opening an IRA with should have all the necessary forms for you to fill out. I have mine with Fidelity and TD Ameritrade.

You can also take a lump-sum payment on your pension and then move the funds into an IRA. If you do this within days of taking the lump sum, you'll avoid being taxed on the money and the 10% early withdrawal penalty. (If you can just roll over the pension directly, you don't risk incurring taxes and penalties.)

However you do it, don't wait. Why leave your pension – the money you're counting on for retirement – in someone else's hands?

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Further Reading:

This week, Dr. Eifrig is sharing the best ways to protect yourself from the changes taking place in America today. In the midst of the scary headlines and gloomy predictions, he has found a great investment and a great tax "dodge" that can earn you safe, tax-free income. Learn more here: One of My Favorite Ways to "Dodge" Taxes.

Market Notes

THE HOUSING TRADE IS VANISHING

"Get on it, if you haven't already! Because if you don't get on it right now, you'll miss it."

That was Steve Sjuggerud's message to readers earlier this month. He was talking about residential real estate in Florida, one of the states hardest-hit by the housing bust.

It's "housing week" in Market Notes. We've already showed you that U.S. homes are still at record levels of affordability. And we've shown you the beginnings of an uptrend in home prices. Today, you'll see how quickly a new uptrend can turn into real gains for folks who had the courage to follow Steve's advice.

Below, you'll find the past seven years of home prices in Phoenix and San Francisco. These two cities saw some of the biggest housing bubbles and some of the worst round trips. Phoenix, for example, saw home prices fall back to early 2000 levels… But as you can see, prices have finally turned higher. They're up 20% from the bottom. San Francisco is up 22%. And in both cities, housing prices are near three-year highs.

If you wait too long, you'll miss the early, easy money in real estate. Get on it!

– Amber Lee Mason