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What is a Self-Directed IRA?
A Self-Directed IRA is a retirement account that gives you complete control of your investments. Unlike with ‘traditional’ retirement accounts, self-directed investments are not limited to securitized products, like stocks, bonds, and mutual funds. Self-Directed IRAs offer many “alternative investment” options, such as residential and commercial real estate, trust deeds, tax liens, gold, private LPs, and many more, allowing you to diversify your retirement portfolio and maximize returns.
Who Uses Self-Directed IRAs?
Currently, traditional banks and brokerage firms are promoting non-trade investments to their ultra-wealthy clients. Based on the recent surge in the self-directed segment, it is likely they will eventually be forced to offer alternatives to their average client. In the meantime, people continue to seek Self-Directed trustees and custodians to take advantage of the options and benefits of self-directing.
How do I open a Self-Directed IRA account?
Federal law requires that you have an IRA trustee or custodian appointed for your IRA account. The majority of traditional custodians do not permit alternative investments (outside of stocks, bonds, and mutual funds), mainly because it is not financially feasible for them to handle the processing, maintenance, and management required.
In order to invest in alternative assets, such as residential and commercial real estate, trust deeds, tax liens, gold, private LPs, and many more, you must identify a “Self-Directed Custodian” to hold your account.
Self-Directed Custodians allow varying types of alternative investments – be sure to check up front to understand the scope of what each custodian will permit.
What types of investments are allowed for Self-Directed IRA?
The types of investments you can make with Self-Directed IRA funds are practically unlimited.
There is a very short list of prohibited investments, essentially anything outside of this list is permitted.
Examples of prohibited investments include: insurance contracts, and S-Corp capital stock.
Beyond that, it is up to you to find an IRA custodian that permits the investment you are interested in making. Popular investments include esidential and commercial real estate, trust deeds, tax liens, gold, private LPs – you can learn how to make these investments, and much more, in the Self-Directed Club Education Center, Blogs, and Forums.
If you have questions about starting a new strategy, or questions about your existing investments, Self-Directed Club offers many ways for you to find answers. Industry experts frequently contribute articles, webinars, podcasts and more in the Education Center. Otherwise, you can browse the blog for information on a wide variety of topics, or connect directly with other investors in the Forums.
With this level of ongoing support, you can confidently start or grow your self-directed investment portfolio now and into the future.
Why haven’t I heard of a self-directed IRA before?
There is a systematic defect in the retirement planning industry. The business of finance is to make money. Traditional banks and brokerage firms continue to sell mainstream IRA products that are most beneficial for their bottom line. They also continue to offer licensing and commission incentives to their representatives to reflect this agenda. When companies discontinued use of pension, a growing number of employees were forced into menu-style 401(k)/IRA investments. A new status quo emerged.
However, with the growing trend of displaced retirees in America today, many people are seeking options for expanding their saving options and escape the shortfalls of traditional investment methods. This, along with increased access to information and media attention, has made Self-Directed IRA the fastest growing segment of the market today.
What are my options for funding a new Self-Directed IRA account?
You have several options for funding:
1. You can initiate a direct transfer of cash or assets from existing IRAs. You may have to work with your bank, brokerage firms, insurance companies, etc to release held assets for this transfer).
2. After retiring or changing jobs for any reason, you may request a direct rollover from an existing employer-sponsored retirement plan.
3. If you have received a distribution of cash or assets from another IRA you can complete an indirect transfer, or indirect rollover, provided this is done within a required period of time.
4. You can fund your account with new contributions up to the maximum each year.
Can I be assured that Self-Directed IRA investments are allowed according to IRS rules?
IRS Publication 590 specifies the admission of self-directed, diverse asset types allowed for an IRA. Please see IRS Publications/Agencies and Trade Groups. There are specific rules and regulations that you should be aware of before you start your self-directed investing – as long as you adhere to these rules your investments can grow safe and secure.
Why isn’t my financial advisor familiar with Self-Directed IRA?
Hearing that your trusted financial professional is not familiar with Self-Directed IRA is not an entirely uncommon experience.
The Self-Directed option for IRA investing has existed since 1974 when IRA was created. However, because the industry was built around a system that favors traditional security trading many advisors/consultants were never presented with a professional demand.
As a member of Self-Directed Club you have access to knowledgable professionals and services to enable you to grow you Self-Directed Portfolio.
Why am I required to have an IRA custodian?
Federal law requires that you have an IRA trustee or custodian appointed for your IRA account. The appointment of a regulated trustee or custodian is part of the agreement when you establish any IRA. The duties of the custodian are limited, and mainly administrative in nature. The custodian will establish account set up, process your investments according to the direction you provide, issue periodic statement, fulfill IRS reporting requirements, and ensure that assets are titled correctly. A custodian is not permitted to advise you on investment strategies.
The above information is NOT intended to be tax or legal advice, as Self-Directed Club does not provide legal and/or tax advice. It is designed only to educate investors and to help factor in variables when making investment decisions.