Michael Needleman, a senior partner at Fusion Analytics Investment Partners LLC in New York City, has used his own self-directed 401(k) plan to invest in Fusion Analytics.
“I did not want to use taxable money so I directed some of my 401(k)” to the company, Needleman says. “It was an opportunity for diversification away from equities.” But he cautions that he thought of it as money he could risk.
“Each individual is different. It depends on the person and how much of their assets they are risking” whether it is a good idea or not, he adds. “Each individual before doing this should sit with an advisor and go over what they want to do. They need to have an understanding of what it means to put money into private equity.”
Self-directed 401(k)s work well for someone coming out of corporate America, someone who was laid off or who wants to come out of retirement, says Daniel Gleich, chief operating officer of Broad Financial LLC in Rockland County, N.Y., who helps set up the funds.
About 3 percent of retirement money is used for self-directed funds and it is growing, says Gleich.
“The use of self-directed 401(k)s is growing every year. How many times can someone see the stock market crash before they think they can do a better job themselves?” Gleich adds. “But when someone calls us, we want to make sure they are do-it-yourself people. You can’t bring someone in who is not comfortable with the concept.”