Self-Directed IRA Investment Options
Investing in an individual retirement account is the first step in taking personal control of your wealth for retirement. As you explore your investment options for the future, sometimes the best way to handle your financials is by taking the reins.
Self-directed IRAs open your investment options, allow you to place your funds as you see fit, and can create lasting wealth for you and your family. Before making any investment decisions, here are some ways to utilize your IRA investments for long-term growth.
Investing in Multiple Options
As you research your investment options, keep in mind that you are not limited to owning one IRA. If you want to get started with a more traditional investment in stocks, bonds or mutual funds, it’s possible to begin with a bank trust investment. It’s possible to roll your IRAs into one-another should you choose a different option further down the road. Be sure to discuss these options with a financial advisor and find out if your funds are compatible.
As you build funds over time, a self-directed account may be more appealing. SDIRAs allow you to extend your reach to other possibilities and secure your retirement with more growth options.
As a directed account holder, you can decide where to allocate your funds, what types of assets you want to invest in, and benefit from the tax-advantages these accounts afford. Research and take advantage of the alternative assets and build a diverse portfolio. Again, it’s not a bad idea to have more than one IRA generating funds.
When deciding on an IRA, regardless if you are going the traditional route or if you plan to use a directed retirement account, you can choose between a traditional IRA or a Roth IRA. Traditional IRAs benefit from tax-deferred investing. You can make contributions that grow tax-deferred until you reach retirement age. Alternatively, with the newer Roth IRAs, your contributions are made post-tax and are withdrawn tax-free when you reach retirement. With so many options open to you, it’s important to perform your due diligence when selecting the best option for your future, especially if you are interested in taking on the task yourself.
Guiding Your Own Investments
Opening a self-directed IRA grants you the ability to take control of your own account. You can decide where you allocate your funds, which assets to invest in, and setup your account according to your wishes. While the IRS has some requirements and keeps a wary eye on self-directed accounts, having one opens the door to assets that can bring in a high return. One requirement of an SDIRA is that it must be overseen by a certified IRA custodian.
All transactions and documents must be handled by your custodian, including any purchases, account changes, and reporting. Even with a custodian, you as the account holder still have the freedom to run your fund as you see fit.
Additionally, account holders can consider opening a limited liability company, or LLC. Doing so will allow you the freedom of “checkbook control.” LLCs grant you the ability to write checks in the name of your IRA account, which can be beneficial depending on what you are investing in. Using this method avoids the hassle of waiting for a custodian to approve the transaction. While it does allow you to purchase investments more quickly, all changes still must be reported to your custodian. If you avoid the IRS pitfalls when setting up your account and appoint a certified IRA custodian, you can run your account successfully.
Exploring Alternative Assets
While traditional accounts allow you to invest in stocks, bonds, and mutual funds, SDIRAs allow a plethora of different options. The most common alternative asset that many select to create lasting wealth is real estate. Buying up real estate with your directed account can generation substantial income with rental properties, fixing and flipping homes, or purchasing residential or commercial property, or raw land. There are many ways to invest in real estate; you can be a landlord, you can have multiple properties, or you can utilize trust deeds or tax liens.
Another way to generate income is with different types of currency. SDIRAs allow account holders to invest in precious metals like gold, silver, platinum or palladium, depending on your IRA provider. Additionally, you can invest in a new-age currency for the digital world: cryptocurrency. Select IRA custodians are specialized in investing in digital currency like Bitcoin, which can provide your account with quick growth
If you are less interested in owning real estate or precious metals, private lending may be the asset for you. You become the bank, lending to borrowers from your IRA. As the “bank” you come up with the terms of the loan and create a promissory note. Account holders decide the life of the loan, interest rate, how much, payment schedule, and all the details.
The benefit of using private lending is that your borrower can have physical collateral in the case of default, and it could create steady income for your IRA. Some additional alternative assets include purchasing trust deeds, tax liens, notes, investing in private equity and many more. There are limitless options. Be sure to perform your due diligence and be certain to choose the right assets for a secure and diverse portfolio. Having knowledge of your assets is a plus. With any investment, it’s important to do your research to avoid any missteps that may end up disqualifying your investments.
Avoiding Potential Account Hazards
Before making any investment decisions, make yourself aware of the potential hazards that may influence your savings. With self-directed IRAs, there are certain prohibited transactions that can do devastating damage to your savings if you aren’t careful. As an account holder, you cannot engage in self-dealing by lending yourself money from your IRA, nor can you benefit from your account assets until you reach retirement age. Likewise, you cannot use your personal funds or actions to improve any of your IRA owned properties. Doing so can result in heavy tax penalties or the disqualification of your account.
In addition to avoiding self-dealing, account holders cannot engage in any transactions with anyone considered a “disqualified person.” The list of off-limits individuals includes parents, spouses, children and their spouses, grandchildren and their spouses, and anyone involved in your financial advisory. Anyone considered disqualified cannot be involved in any account deals, be loaned IRA funds, nor take advantage of any IRA assets.
Though SDIRAs allow for most types of investments, the IRS has a list of items that are considered forbidden. Account holders cannot invest in most collectibles, life insurance, or tangible property. Additionally, to avoid fraud, any account assets or alterations must be reported to your IRA custodian. Any errors in paperwork or failure to report property or asset values can result in a fraud charge. As you explore your options, it would be wise to seek investment advice from a financial advisor to be certain all your accounts are in order.
Partnering Your IRA
Saving for your retirement is essential for a comfortable future. As you start your journey to create lasting, long-term wealth for your golden years consider what steps need to be taken to own a secure retirement fund. Take advantage of your options, open your investment opportunities, and perform your due diligence to build a partnership that works for you and your family. Seek out investment advice and start saving for your retirement. Contact us today.