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Posted

I hope I can tap into the advanced expertise of some of our forum's members. I have a sizeable sum in my company's 401(k) plan. What I don't like about the plan is the lack of choices in investments, especially the inability to use options to protect the portfolio (i.e. the methods Chris has shared with us). At any time, I can roll about 50% of my plan's funds into an IRA. However, instead of rolling the money into an IRA like Fidelity, Schwab, etc., I would much rather have more direct control of the funds. So I've heard that one could create an LLC (say "Jim's IRA Holdings, LLC" for instance), which could qualify as an acceptable rollover for IRS purposes. I'd then open a bank account in the name of the LLC and deposit the entire rollover into it. From that point I could direct the funds as I see fit, like putting some money into Interactive Brokers for portfolio protection options trading, maybe depositing some at Everbank in a precious metals or currency CD, or whatever other investments I choose. What I like about this idea is mainly that, come hell or high water, the money would be in my control and not in some company like Bernie Madoff or MF Global where I wake up one day and it's gone.

My concern is if I don't do this right, the IRS won't recognize it as a valid rollover and I get hit with taxes and penalties.

Anyone who can share words of wisdom about this would be much appreciated.

Jim

Posted

Hi Jim,

What you want to do sounds pretty straightforward actually. I think you DO want to transfer the money into an IRA at Schwab, Fidelity, TD Ameritrade or any other traditional broker. IRAs don't have limited investment options in the way a 401k plan does. You should be able to buy any stock, mutual fund, CD or ETF that you'd like.

Also, many options strategies are also permitted, though any that require a margin balance will not be. So, long straddles/strangles should be fine.

The long and short of it is when you move the money to the IRA, it will come over as cash and will look and feel very much like your normal brokerage/trading account.

Please be careful that the 50% you are referring to can in fact be rolled over and is not a loan. Many 401k plans allow loans which you then pay interest on.

To be complete with this answer, the LLC you are referring to may apply if you want to hold certain hard assets in the IRA, such as real estate or coins. Those are generally not allowed in an IRA so loopholes are used to get around it.

Mike

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