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Timing Can Be Everything

When it comes to investing with your self-directed retirement account, timing can be everything.  I received a phone call from a young investor who was concerned about missing an investment deadline he thought had to fund on June 20th because he had just started the process of opening his self-directed IRA and was told there was a 7-day window in which he could cancel or rescind the opening of the account.  He, like most investors, was not aware of that.  Fortunately for him, the deal deadline was June 30th, well beyond the 7-day period.

I don’t know how many other investors have had issues with the timing of getting their self-directed accounts ready to do deals, but you need to have a runway of at least 2-3 weeks between when the account is set up and fully funded and the date the deal needs to fund.  If you are moving money from one custodian to another that allows you to self-direct, that timeframe can be longer depending on the attitude of the custodian you are leaving.  Some get things done quickly, and some are notoriously slow.

Another key timing element regarding your retirement accounts is making sure you have a set time every month when you make a contribution to your IRA and/or 401(k) plan.  The goal is to put a minimum of 15% of your after-tax income into a retirement account.  Those of you with a solo 401(k) can put in a lot more than 15% if you are earning well over $100,000 a year.  Since the average earned income for a family today is around $77,000 per year, 15% of that would be $11,550, which could be easily handled by his and hers IRA accounts being funded at $6,500 per year or by putting it all into one or more 401(k) plans depending on what is available through your employment.

People have a lot of theories about saving for retirement, but what is really telling is how few people talk about the importance of consistently funding their self-directed retirement account, and I mean every month like clockwork.

Imagine three people running a race.  One person runs the entire race using both legs, one person hops on their left leg, and one person hops on their right leg.  Who do you think won?  Obviously, the person who used both legs. 

When applied to retirement accounts, that’s the person who not only does investments consistently, but they make consistent, monthly contributions.  The person who is only doing one or the other is hopping on one leg.  You have to make the contributions along with doing the investments to get an optimized outcome.

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