A sampling of basic and not so basic retirement account strategies

Please note that as you descend down this list, I move further from the practical toward the theoretically interesting but impractical, and potentially even illegal (ie, stuff I'd never do, never want someone else to do, and have no legal opinion on -- not that ANY of this should be construed as investment advice/legal advice -- but that I feel is cool to come up with). Furthermore, many of these are only appropriate for sophisticated and hyperrational investors with high risk tolerance.

1.Most obviously, tax-shield any security that throws off a lot of income. Any normal asset that you can hold w/o realizing gains or income, is essentially being held in a virtual tradtional IRA (albeit w/o the initial deduction), so putting it in your IRA to replace another asset in your IRA has little marginal advantage. (I assume throughout that people already know the difference between a Roth and a Traditional IRA, etc.)

2.If you have a large batch of securities, all of which are high risk and return and not that correlated, hold them outside your sheltered accounts (assuming #1 holds, and that this risk/return is almost entirely due to capital gains). You can selectively sell the big losers to realize tax losses, while holding the winners for as long as possible (though you may have portfolio rebalancing issues and have to sell winners).

Rationale: Because the asset class has high returns and high risk, you expect individuals assets within that class to be wide-ranging in returns -- some stocks collapse in value, some triple. Sell and realize capital losses on the stocks that collapse, but hold onto the ones that shoot up in value to defer taxation.

3.Borrowing from your 401k: When you borrow from your own 401k, there is typically a small adminstrative fee, along with interest on the loan; however, this interest is paid to yourself. As long as you take the borrowed money and sink it into long holding period/no income assets, and your 401k doesn't happen to offer private equity deals, etc, that are unavailable outside, you can essentially benefit from slightly overcontributing to your 401k (albeit not using pretax dollars). The marginal benefit is fairly small -- after all, the 401k assets can be churned w/o taxes, but if you were going to put money into long holding period assets outside the IRA anyway...

Entering speculative territory...

4.Consider that over the long time horizon, even risk averse individuals may (justifiably) care more about raw expected returns than risk-adjusted returns when looking at their retirement accounts. (In financespeak, Sharpe ratio is less important here.) If so, hold indexed, low-fee, but high risk (and hopefully, return) stuff. One example is Bridgeway's Ultra Small Company mutual fund.

5.Assuming that you believe in stock market premia going forward, and also want broad market exposure, there are some crappy Rydex index mutual funds and ETF's that expose you twofold to the S&P, but charge high fees. The only advantage to these is that if you wish to reserve your valuable retirement account slots, they do prevent you from continually realizing gains like futures do -- and you also avoid being stopped out w/S&P futures. I'd probably never buy them.

6.For the iron-stomached: blindly rolling S&P futures in your IRA, which allow you to take on what is effectively leverage (but is actually a performance bond, thus allowing you to trade it in your retirement account), raising your expected return drastically without ridiculous Rydex fees.

6.If you don't want to worry about being stopped out/wiped out by your futures in a really big downmove (and then being unable to catch the upmove unless you overcontribute immediately to your IRA), buying S&P options might be a slightly less crappy alternative. Transaction costs are higher, and option volatility may get more distorted than futures indices can get abnormally backwardated/or contango'd, but you can tailor your purchase to a maximum loss level -- namely, the cost of the options.

7.Be aware of self-directed IRA accounts, which allow you to invest in virtually anything -- personal loans, real estate (albeit w/o borrowing), but be wary of their ridiculously high fees.

8.Consider whether overcontributing to an IRA occasionally makes sense -- even after penalties, sometimes there is a large investment opportunity that is expected to rise sharply in value, but is fairly granular. Buying real estate before a bubble bursts, and selling at the perfect time might be one example. (In practice, that given example might not be perfect -- one might be able to strucure a real estate deal so that your self-directed IRA buys a slice of the equity, for instance.)

9.THIS MAY VIOLATE securities laws, or else just be ridiculously risky to implement, so don't do it unless you get legal advice first and are very risk loving. If you do get formal legal opinion on the matter, please let me know. Say you have a Roth IRA brokerage account. Pick a really, really low volume/low price/low market cap penny stock and buy lots of it in your IRA over a period of weeks, so that the price doesn't get driven up. At this point, put in a large limit buy order from outside your IRA that drives up the price substantially (again, very doable w/certain highly illiquid stocks, hence the spam that touts them to you). Simultaneously, sell the shares in your IRA. Done properly, you incur some transaction cost, but basically sell (mostly) to yourself, and in theory could easily increase the amount of money in your IRA 10-fold. Of course, 20 million things could go wrong, and you could just end up with craploads of delisted penny stock inside and outside your IRA account.

I mention the legal risk because an analogous, but not equivalent transaction would involve a self-directed IRA, and your selling a valuable house to your own IRA entity for $1. This is unlikely to result in IRS approval. When one trades penny stocks on the open markets, there is some duty on the part of the marketmaker (insofar as there is one for your penny stock), and less onus on you, to value the stocks "properly." Again, this MAY STILL be utterly illegal. For that matter, selling your IRA owned property to your non-IRA self, is typically a prohibited transaction. There are lots of such rules surrounding self-directed IRA transactions, so don't take the non-advice of some random guy on the web unless you enjoy audits and litigation!!!

Possibly acceptable variants on the $1 house scheme might involve your selling of non-publicly traded real estate to your IRA at the bottom range of acceptable market value (I don't know if selling in this direction is illegal as well). I'm also ignoring Unrelated Business Income Tax, and a whole host of other things that come part and parcel with buying real estate in your IRA.

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