Nobody would argue that there has been severe disappointment in the stock market performance. That has a lot of people looking for other options such as taking their retirement investment accounts into their own hands. Using the self-directed IRA allows you to enjoy the benefits of contributing to your retirement account while also being able to self-direct those funds into alternative assets such as real estate.

“The simplest way to invest in real estate with retirement accounts is with a self-directed IRA. An IRA has to have a custodian such as a bank or trust company that will hold the assets for the accountholder,” says Jeff Nabers, founder of IRA Association of American and CEO of Nabers Group.

“You can open a self-directed IRA and then roll your retirement funds into it and then you can ask the custodian to go out and invest based on your wishes,” says Nabers.

While this method of using your self-directed IRA to invest in real estate is becoming increasingly more popular, it has its downside. “It can become cost-prohibitive,” says Nabers. He says the fees that custodians charge can add up very quickly. And he adds, “The custodians can be slow to react to an accountholder’s needs. Sometimes they might not let you do an investment because of their policies.”

But Nabers says investors can create an IRA LLC (Limited Liability Company) which allows more freedom to invest in what and when they want. “You can pair your IRA with an LLC. The LLC is created and the IRA accountholder directs the custodian to invest some or all of its funds into the LLC. The accountholder then manages the LLC,” explains Nabers.

He says this method doesn’t require accountholders to get approval from a custodian to purchase real estate—with the IRA LLC the accountholders have complete checkbook control over their funds.

However, Nabers says another retirement vehicle that investors are turning to is the Solo 401(k). This investment vehicle provides checkbook control, allows 10 times higher contribution limits than the IRA, and provides the ability to borrow money from your retirement account, and, generally, it helps you avoid the UBIT (Unrelated Business Income Tax) — a tax that is often created through leveraged real estate ownership.

Unlike a self-directed IRA or IRA LLC, the Solo 401(k) allows you to be the actual trustee of the retirement plan directly. You manage the funds and you invest them in what you want.

“In an IRA everything about how it works is laid out in a section of the Internal Revenue Service code. With a Solo 401(k), the section about how it works describes how it can work, but how the Solo 401(k) actually works is determined by the plan documents. So, all IRAs work the same but Solo 401(k)s can vary a lot from one plan to the next depending on how the plan documents are written,” says Nabers.

“You can set up a Solo 401(k) anywhere; what it comes down to is how flexible and capable the plan will be. You could set up a Solo 401(k) with a stockbroker and then you’ll invest only in stocks, bonds, and funds. Or if you decided to invest in a less restrictive platform, then you open a Solo 401(k) at another company but all that company does is send you a binder on your account and doesn’t offer any real help,” says Nabers.

Here are five things to look for before deciding to open a Solo 401(k):

1. Expertise and knowledge. It is extremely important to find a company that is highly experienced in setting up a Solo 401(k). As the stock market plummets, the industry of self-directed investing is growing rapidly. Companies are popping up all over the Internet. It’s crucial that you find a company that has expertise and knowledge in this highly technical field. Without the expert support and financial intelligence, your retirement funds could be in jeopardy.

2. Additional services provided. Make sure the company that you use to create your Solo 401(k) plan documents offers you additional resources. Some companies will set up your Solo 401(k) but not offer any additional educational information on important issues such as prohibited transactions.

3. Make sure the company provides an IRS opinion letter to ensure the Solo 401(k) will receive favorable tax treatment as a qualified plan.

4. Review the Solo 401(k) plan documents. Don’t just open the account without understanding the limitations of the plan documents. Remember, these plan documents can vary drastically so it’s critical to discuss your specific needs with the company before you elect to set up a Solo 401(k).

5. Look for document provider rather than custodian. Custodians are not required for Solo 401(k)s. In order to have direct possession of your assets, you will want to make sure the plan documents offer more flexible terms than a custodian’s. If you use a custodian you will likely not have direct control of your assets and may have to go through the custodian in order to execute a transaction.

For more information on self-directing your retirement funds to invest in real estate, visit; nabers.com.