What is a Self-Directed IRA?
A self-directed IRA is an Individual Retirement Account in which the account holder is able to invest in alternative assets such as stocks, bonds, real estate mutual funds, etc. It is an IRA in which the IRA owner directs all investments in the account. To open a Self-Directed account you will need to use a licensed and accredited custodian to ensure a proper account conversion and to hold the IRA assets. A Self-directed IRA is no different from an IRA, what makes a self-directed ira ‘self-directed’ is the custodian or bank who holds the retirement account.
What is a TRULY Self-Directed IRA?
While many Americans may have Self-Directed accounts open, quite few know just how powerful their investment power is with their IRA. Typically, banks and brokers will not showcase the IRA holder the complete range of options available to invest in. For example, most brokers will tell the account holder that X or Y stock is available to purchase in their IRA, but in reality the range of stocks available for investment is as open as any normal investor
Why don’t people know about Self-Directed IRAs?
Big bank brokers don’t make any commission if you invest in real estate so they will always advise against self- directing your IRA. When IRAs were established in the 1970s when all the banks were already established along with their business models of investing in stocks bonds mutual funds and CDs so they had no monetary gain whatsoever to suggest clients to invest in alternative investments such as real estate.
Types of Self-Directed IRAs
Self-directed IRA Account plans have two main categories, tax-deferred and tax free.Tax-deferred most simply means that your withdrawals will be taxed and Tax-free means your withdrawals from the account will not be taxed. There are pros and cons for each different plan so it is best to contact to professional when choosing the best plan for your financial future.
- Spousal IRA
- SEP IRA
- Simple IRA
- Defined Benefit Plan
- Defined Contribution Plan
- Roth IRA
- Health Savings Account (HSA)
- Education Savings Account
- Roth-like 401k
The Self-Directed IRA Market
Currently there is $7.3 Trillion in IRA accounts, 96% are in Standard IRAs and 4% are in Self-Directed IRAs. This market is largely untapped because so few people know that they are able to self-direct in their retirement. For every dollar in an individual’s personal savings account, there are $12 in their retirement savings account.
3 Ways To Fund a Self-Directed IRA Investment
Outright directly purchase your investment with IRA funds
Partner you are permitted to partner your SDIRA with another SDIRA to make an investment
Leverage you can leverage against your SDIRA to make an investment
Prohibited Self-Directed IRA Investments
- Any work of art
- Any rug or antique
- Any metal or gem
- Any stamp or coin
- Any alcoholic beverage