Self Directed IRA | EquityRoots c

The Basics

A self-directed IRA allows you the freedom to have greater control of your financial future. How so? Well with a self-directed IRA you have the opportunity invest in assets you know and understand best. This utilization of a self-directed IRA allows an almost endless list of investment options; not just stocks, bonds and mutual funds. You are now able to invest in real estate, promissory notes, tax liens, private businesses, precious metals and much more. The best part of it all— you reap the asset protection and all of the tax advantages that come with traditional government sponsored retirement plans.

What is it Exactly?

On its face, a Self-Directed IRA is the same as other IRAs (or 401ks). The government created the IRA to allow investments to grow tax-free or tax-deferred, compounded over time, in an effort to maximize growth. In addition, an IRA may yield more benefits such as yearly tax-deductions, assets protection and assets may be passed on to future generations for certain qualifying accounts.

A self-directed IRA is unique through its numerous investment options and the account holder being in control of these options. Most traditional IRA custodians allow only approved stocks, bonds, mutual funds and CDs as investment options. In contrast, a true self-directed IRA custodian allows this type of investing in addition to real estate, promissory notes, private placements, tax lien certificates and more.

Why is it Important?

The goal of holding an IRA is to help provide for your financial future. The reality of today’s investing environment is that the stock market is extremely volatile. Leaving money in a savings account could cause a devastating effect to your finances.  Moreover, Social Security, pensions and other government programs designed to assist us are in trouble and could be an unreliable source to support your retirement. So, where should you turn to to secure your financial future? The answer is simple, you — through the power of self-directed IRAs.

The Power

The power of self-directed IRAs all stems from you. If you possess the knowledge, skill, expertise and have been successful with investments outside the market, this could potentially be the key to your financial dreams. If you are looking to truly diversify your investment portfolio and take control of your financial future, the self-directed IRA is a great tool for you to utilize. 

Financial Freedom

When thinking about financial freedom and the ability to take control of and have more input into your investments there are four main aspects to consider when dealing with a self-directed IRA: Diversifying your Investments, Tax-Advantages, Protection of Assets and Creating Generations of Wealth.

  1. Diversifying your Investment Portfolio:

    A self-directed IRA allows you the ability to diversify investments beyond the typical market. Utilizing this tool you can reach assets such as real property, tax liens, mortgage notes, precious metals and foreign currency, to name a few. In addition, if you have personal knowledge, skill or expertise with a certain type of asset you can invest in what you know best to help create and secure a financial future all your own.  

  2. Tax-Advantages:

    Who doesn’t like the idea of having a tax-deferred or tax-free account, plus the possibility of large tax deductions?  This aspect of tax advantages for a self-directed IRA can have an enormous effect on your future wealth. Not only are you obtaining tax-advantages, but you are creating lasting wealth that will span more than you thought possible.

  3. Protection of Assets:

    Worried about the protection of your assets? Don’t be.  Self-Directed IRAs are afforded protection under federal bankruptcy laws to ensure assets are secure.

  4. Generations of Wealth:

    There are specific self-directed IRAs available that allow the passing of assets to beneficiaries after death. These assets can transfer often time with little or no tax implications, depending on amounts invested and accumulation of assets. The self-directed IRA effectively now gives you the ability to pass on wealth and hard earned assets over generations.

Self-Directed IRA Model: Taxed and Non-taxed Investments

The FAQs

What is a Self-Directed IRA?

A self-directed IRA is an IRA or 401k that allows the custodian a broader range of investment opportunities. Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. A truly self-directed IRA custodian allows those types of investments in addition to real estate, notes, private placements, tax lien certificates and much more.

What are the benefits of a Self-Directed IRA?

In addition to the traditional IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), you are able to invest tax-free in investments that you know and understand through the power of compounding interest.

How new are the Self-Directed IRAs?

Self-directed IRAs have been around since the IRA was created in 1974.  Investing in alternatives to stocks, bonds, and mutual funds has always been allowed by the IRS (see IRS Publication 590).  The Self-Directed IRA has not received a great amount of attention, because most custodians typically only allow traditional investments. 

Are self-directed IRAs allowed under IRA rules?

Yes, as long as the proper rules and protocols are followed. As with IRAs, there are specific rules and prohibition against self-dealing that you should be aware of. In order to ensure you are in compliance you must have familiarity with the IRA and self-directed IRA rules. 

Are Self-Directed IRA investments guaranteed?

No, investments held within your self-directed IRA are not guaranteed. Cash balances however, are held in FDIC insured financial institutions. For this reason, self-directed investing may not be for everyone. It is imperative to understand the complexities of risks involved.

Are self-directed IRAs for everyone?

Self-directed IRAs are not for everyone. Self-directed IRAs are for those who want true diversity in their portfolio. It is for those who crave the ability to be in control of their financial future and creating wealth through their knowledge of investments outside of stocks, bonds, and CDs.

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