Taking charge of your personal retirement fund can be exhilarating and nerve-wracking at the same time. It can be difficult to handle your self-directed IRA finances if you haven’t performed your due diligence and don’t have a plan in mind.

If you are considering an SDIRA and don’t know where to start, have no fear. We’ve compiled a list of frequently asked questions to help you get started on the right foot so you can start saving without fear.

Of course, before you make any investment decisions, you should speak with your financial advisor to see if self-directed saving is right for you. As you dive deep into your personal retirement savings, here are the top 15 frequently asked questions regarding self-directed IRAs.

1. What Is A Self-Directed IRA?

Before you consider investing, it’s a good idea to know what you are jumping into. A self-directed IRA is an account that allows the owner to have complete control of his or her investments. With a certified IRA custodian to report to, the account holder decides on his or her investments, whether traditional or alternative, and oversees everything: selecting the custodian, the assets, where the money is placed, and what sort of IRA they want. You are in control of every aspect of your self-directed IRA. Additionally, you are allowed a wider range of potential investments.

2. With An SDIRA, What Can I Invest In?

In addition to traditional stocks, bonds, and mutual funds, you can invest in many different alternative assets. This is one of the perks of self-directed investing. You can step outside the box and invest in real estate, secured loans, private small business, precious metals, private lending, or cryptocurrency. There are few limits to what you can invest in.

3. What Are The Restricted Investments?

While the IRS isn’t clear on what you can invest in, they are very clear on what you cannot. Restricted investments include collectibles, like art, stamps like art, stamps, coins, alcoholic beverages, and antiques. Additionally, you cannot invest in life insurance or S-corporation stocks. Of course, there are more complicated restrictions on investing, but these assets are considered forbidden for any account.

4. Can I Rollover My Traditional Or Roth IRA?

Simply, yes – you can transfer your traditional IRA to a self-directed IRA, or your Roth IRA to a self-directed Roth IRA. The rollover process can be very simple, but you must go through the steps to make sure you can transfer your account successfully. As far as IRA rollovers, you should have no trouble.

5. Do You Have To Have An IRA Custodian?

Yes, the IRS mandates that a self-directed IRA must be handled by a certified IRA custodian. Though you must have one, you can choose your own custodian. You can select a custodian based on your own specific needs and based on their experience with the assets you want to invest in. Choosing the right custodian is just as important as picking the right assets.

6. Can My Custodian Help Me Make Investment Decisions?

While custodians are certified to handle your account, they are not licensed, financial advisors. They cannot get involved or offer advice. Though they cannot give advice, it is wise to choose one based on their knowledge of the industry. Their knowledge of your assets can help you avoid investment pitfalls.

7. Are There Any Restrictions With SDIRAs?

In addition to restrictions on alternative assets, there are several prohibited transactions that can result in the disqualification of your account. First, as discussed, your account needs to be overlooked by a certified IRA custodian. If you purchase property using your SDIRA, you cannot do so with the intention of using it. Additionally, you cannot perform any repairs or invest personal funds into the property.

Aside from self-dealing, you cannot do business or invest in anyone who is considered a disqualified individual. Nor can they benefit from any of your investments. Failure to adhere to these rules can result in some hard penalties on your SDIRA account. It’s crucial to read into all the different restrictions before opening your account.

8. Are SDIRAs For Anyone?

While self-directed IRAs are available for anyone, they are not for everyone. SDIRAs require a great deal of research, personal knowledge, and patience to succeed. There is no room for guesswork when it comes to investing or restrictions, and there are a lot of pitfalls that can be devastating for your savings. However, if you put in the time, you could see long-term rewards for your efforts.

9.  Can I Invest In My Personal Business, Company, Or Deal?

No, self-dealing is strictly prohibited. Much like purchasing a home with your IRA for personal use, or performing maintenance on an IRA-owned property, investing in a personal business is not allowed. You, nor any disqualified individual, can benefit from your IRA until after you reach retirement.

10. Who Are Considered Disqualified Individuals?

This list is very specific. It includes the following: parents, grandparents, spouses, children, your children’s spouses, grandchildren, and their spouses. When it comes to companies disqualified entities include companies owned by 50% by the IRA owner, officers or directors of a disqualified company, or 10% more partners.

11. What Are UBIT And UDFI?

Unrelated business income tax (UBIT) and unrelated debt-financed income (IDFI) occur in very specific situations. IRAs that borrow money to purchase investments must pay tax on the income received based on the borrowed amount. This happens when you take out a non-recourse loan to fund the investment.

12. Can I borrow Money From My SDIRA?

Yes, you can borrow money via a non-recourse loan. This loan is owned by your IRA and is really a borrower’s loan. Should you default, you only need to surrender your collateral. Of course, the goal is to pay off the loan and increase your retirement fund. But it should be noted that this loan makes your account subject to UDFI.

13. If I invest In Real Estate And Want To Flip A House, Can I Work On It Myself?

No. As mentioned previously, working on property owned by your IRA falls under self-dealing. You cannot perform services on your own property, nor can any disqualified individual.

14. What Are Some Downsides To Self-Directed IRAs?

Self-directed IRAS can be a great deal of work, especially if you aren’t prepared to handle all the aspects of your retirement account. There is a lot of room for error if you don’t perform your due diligence. Additionally, these accounts may not be as regulated as traditional or Roth IRAs from a bank trust. Also, the assets aren’t as liquid as others; if they are failing, it can be difficult to get rid of them.

15. Do I Have Complete Control Over My SDIRA?

Yes – while your custodian oversees your account, you are still making the decisions. All the choices are yours, from the assets to the amount of money you put into them. As the account owner, you get to select your custodian, how you want to save, how you want to build your portfolio, and who will benefit from your account. If you want to take charge of your retirement, this is the best choice for you.

Selecting The Best Account For You

Selecting the best retirement for you can be a challenge, especially if you want to get started saving right away. There are many pros and cons with self-directed IRA; what it comes down to is whether they are the right choice for you. Consider speaking with your financial advisor and decide if an SDIRA is the best course of action to save for your golden years. Take control of your retirement by contacting a trusted SDIRA custodian today.