Thinking of opening up your investment portfolio or saving for retirement? Consider signing up for a self-directed individual retirement account (IRA) through a consulting firm that enables you full control over your investment decisions.

IRAs present immense tax advantages over many traditional investments like stocks and bonds that are subject to capital gains and wealth taxes. IRAs also offer a greater range of investment opportunities than mutual funds, leading to their recent rise of popularity among savvy investors.

Not only can IRAs be invested into nearly endless assets, but they can be significantly more profitable depending on your style of investing. Of course, as with any investment, there’s rules and regulations you need to understand so you don’t lose your tax advantages. That’s why we’ve prepared this brief guide on the most important facts you need to know about opening up and managing a self-directed IRA.


1. The Difference Between Roth IRAs and Traditional IRAs


Both self-directed traditional IRAs and self-directed Roth IRAs offer a unique set of tax advantages that most assets and investments don’t provide. Choosing between the two depends on both your short-term income and long-term investment strategy.

You can choose to set up a self-directed traditional IRA with a qualified consultant as long as you have enough income to contribute to an account. There are certain eligibility requirements for investing in an IRA, such as filing status and income requirements, as well as IRS stipulations over prohibited investments. The biggest advantage of a traditional IRA is that all interest and capital gains generated in the account are tax-free until the time of withdrawal. Contributions can also be deducted on both state and federal taxes.

A traditional IRA is recommended for anyone whose employer does not currently offer a retirement plan or 401k. Many people choose to roll over their funds from existing 401ks and IRAs into a self-directed IRA to get a better range of investment options.

Roth IRAs were established in 1997 to provide a more flexible tax structure for IRA holders. Roth IRAs have many of the same eligibility requirements as traditional IRAs and can be accessed after 59 ½ with a five-year account. All earnings on Roth IRAs are free from taxes, and account holders can withdraw Roth IRA funds tax free, unlike traditional IRAs.

Choosing between one or the other comes down to your personal investment strategy. All earnings in both accounts are generated tax free. Qualified Roth IRA withdrawals are completely tax free, unlike traditional IRAs, whose contributions are tax deductible.


2. Self-Directed IRA Rules and Regulations


Both traditional IRAs and Roth IRAs have contribution limits of $5500 and $6000 a year, respectively. These accounts are also subject to eligibility requirements based on your modified adjusted gross income (MAGI). Single filers can only fully contribute to a Roth IRA if they earn under $116,000 and joint filers can only contribute to a Roth IRA with a MAGI of less than $183,000. Traditional IRAs also have eligibility requirements of $118,000 after MAGI for single filers and $186,000 for joint filers.

There are also more specific rules and regulations related to how you can invest and manage both IRA accounts. For example, you can’t use your IRA to rent to yourself, nor can you enter into a transaction with a disqualified party (spouse, parent, yourself, etc.) using your IRA. Setting up an LLC or investing in property with qualified IRA investors can be complex, so it’s key to do your research beforehand.


3. IRA Investment Opportunities


Of course, this shouldn’t scare you from investing in an IRA. The investment opportunities for an IRA are nearly endless, providing you more choices than most traditional financial instruments. Here’s a list of some of the assets you can invest in with a self-directed IRA:

  • Stocks
  • Bonds
  • ETFs
  • Mutual Funds
  • Certain derivatives
  • Unit investment trusts (UITs)
  • Bitcoin
  • Real estate
  • Mortgages
  • Precious Metals
  • Businesses
  • Collectibles



Consult with Horizon Trust

4. Self-Directed IRA Investment Process


It’s important to note that consultants only act as that consultants. You are responsible for your investment decisions, although there is a specific process and documentation you must fill out to make an investment with a self-directed IRA.

  1. Identify your investment and perform due diligence.
  2. Complete a direct of investment (DOI) form with Horizon Trust to request funds and specify where to direct them.
  3. Horizon Funds will approve or deny your request and allocate funds accordingly.
  4. Manage your investment thereafter. All funds related to the investment must come from the IRA, and all gains contributed back to the IRA.


5. How to Balance Risk and Long-Term Goals


Remember two important things when managing an IRA account. First, you are responsible for the IRA and all investment decisions, so you take on all of the risk. With that said, it’s important to balance risk with long-term investment decisions. Secondly, an IRA is still a retirement account. That means funds can’t be withdrawn until a certain age or time, so short-term trading is often not recommended.


6. Choosing the Right IRA Consultant


Finally, find a consultant you trust and will work with you. Perform your due diligence to see what experience a consultant firm has, what customers are saying, and what fees they charge.

At Horizon Trust, we have a knowledgeable staff ready to provide you with guidance on investment decisions to better manage your self-directed IRA. Working with the self-directed retirement account industry for so long, we can provide you with a road map on how to achieve a happy retirement and make the most of your tax advantage.