As retirement approaches, many workers start to think critically about how to maximize the final decade of their careers. The last 10 years are crucial. These years are often the highest-earning of a career. This is the period when savings accelerate. It is also the time when investment choices can significantly influence retirement readiness. One increasingly popular strategy is rolling over a traditional 401(k) into a Self-Directed Individual Retirement Account (SDIRA). This move offers flexibility, diversification, and control that can lead to stronger overall returns in the final stretch before retirement.
1. Expanded Investment Choices Beyond Wall Street
Traditional 401(k) plans are usually limited to a narrow menu of mutual funds and target-date funds. They also include some bond or stock options. While these investments can grow steadily, they often lack the diversification and return potential available outside traditional markets.
A Self-Directed IRA opens the door to a wide range of different investments, including:
- Private equity and venture capital funds;
- Real estate (rental properties, commercial properties, REIT alternatives);
- Private loans and promissory notes;
- Precious metals and commodities;
- Startups, small businesses, and even franchises.
These asset classes can offer higher returns than traditional mutual funds. They are particularly beneficial over a 10-year horizon. Additionally, they reduce reliance on stock market volatility.
2. Potential for Higher Risk-Adjusted Returns
The last decade before retirement is a balancing act: you want growth, but you also need protection from downturns. With an SDIRA, investors can build a portfolio tailored to their risk tolerance. For example, allocating a part to real estate can offer steady rental income. This can also give appreciation. Private equity or private lending can deliver higher yields compared to bonds or money market funds.
By diversifying beyond the stock market, retirees reduce exposure to sudden downturns. Such downturns severely impact retirement income if markets crash right before withdrawals start.
3. Greater Control Over Retirement Funds
The employer’s plan administrator controls investment options in a traditional 401(k). They also manage fees. They decide how accounts transition when you leave your job. An SDIRA gives you full control over your retirement dollars. You decide where, when, and how to invest.
This control is especially valuable in the last 10 years of work. During this time, investors want to aggressively rebalance portfolios to meet personal goals. This means generating income, building growth, or preserving capital.
4. Tax-Advantaged Growth on Substitute Investments
An SDIRA maintains the same tax benefits as a traditional IRA or Roth IRA. Investments grow tax-deferred (or tax-free in a Roth). This means real estate income, private equity gains, or lending interest accumulate without immediate tax obligations. Over a decade, this compounding effect can make a significant difference in retirement readiness.
For example, earning 10% annualized returns in an SDIRA through private lending or real estate can have significant advantages. These returns, compared with 5–6% in traditional mutual funds, double the account balance in 10 years.
5. Shielding From Market Volatility in the “Retirement Red Zone”
Financial planners often refer to the final 10 years before retirement as the “retirement red zone.” A severe market downturn during this period can permanently reduce your retirement income. There is less time to recover losses before withdrawals start.
Retirees can roll into an SDIRA to reduce reliance on equities and bond markets. They can diversify into hard assets and other investments. This creates a cushion against volatility while still maintaining opportunities for strong returns.
6. Estate Planning and Legacy Advantages
Self-Directed IRAs also offer more flexibility for estate planning. Real estate, private equity, or small business ownership within an SDIRA can be structured to pass on. It can be part of a broader wealth transfer strategy. For families seeking to build multigenerational wealth, this control is an added advantage.
Conclusion
Rolling over your current 401(k) into a Self-Directed IRA can be a strategic move in the final decade before retirement. An SDIRA offers expanded investment opportunities. It provides higher potential returns. You gain greater control and protection from market volatility. These benefits empower individuals to take charge of their retirement future.
For workers nearing retirement, the last 10 years are the most important time to make smart, impactful financial decisions. A Self-Directed IRA offers flexibility and growth potential. A traditional 401(k) simply can’t offer these benefits. This helps guarantee that your retirement years are secure. They will be comfortable and prosperous as well.
