Overseas Properties in a Real Estate IRA

Many of our clients are actively looking to diversify their retirement portfolios by using Self-Directed IRAs to invest in overseas assets. Often, this includes investing in foreign property using a Real Estate IRA.

Is it legal to purchase overseas property in an IRA? 

Yes, since the birth of IRAs in 1974, it has been legal to purchase and own overseas property using Real Estate IRAs. You can buy and sell properties, collect rent, and do anything you can do with domestic real estate in an IRA, provided you observe all the rules concerning prohibited transactions.

Can I take out a mortgage or borrow money to buy an overseas property for my Real Estate IRA

Yes, you can. You can borrow from any willing lender who is not a prohibited counter-party. Prohibited counterparts include yourself, your spouse, your children or grandchildren or those of your spouse, your parents and grandparents or those of your spouse, or any entities any of these people control.

If you do take out a mortgage, it must be on a non-recourse basis. That is, you cannot sign a personal guarantee for the loan. Any collateral for the loan must come from within the IRA itself.

You should also be aware of any local laws and regulations that may affect mortgages in the country in which you are investing. Most other countries will not recognize your IRA as a legal entity.

How can I purchase an overseas property using a Real Estate IRA

To buy property for a Real Estate IRA, you need to establish an account with a custodian or administrator that will support self-directed/real estate transactions ahead of time. You cannot buy the property yourself, thinking that you can transfer it into your Real Estate IRA later. That would essentially be causing the IRA to purchase the property from yourself, and that constitutes a prohibited transaction.

Instead, set up an account in advance with American IRA, LLC, and fund it. In most cases, clients fund their Real Estate IRAs using rollovers from existing IRA accounts. You can also contribute up to $5,500 in new money per year to a Traditional or Roth IRA. If you are over age 50, you can contribute another $1,000 in catch-up contributions.

If you want to make larger contributions, and you have a business or self-employed income, you may consider setting up a small-business retirement plan like a SEP IRA or a Solo 401(k).

Set up a trust or local entity in the host country. 

Most countries do not recognize IRAs as a separate legal entity. That means that while you may have limited liability protection in the United States, you will not have any in the property’s host country. If a tenant sues you in local courts, they could go after you personally, and possibly seize other assets you own within the country.

Consider having a local attorney help you set up a limited liability entity that will help you limit your liability, just as you would set up a corporation or LLC within the United States to protect your personal assets if someone should sue the business.

Purchase the property. 

Again, it is best not to try to handle the transaction yourself, directly. Instead, send all necessary documentation and instructions to American IRA, LLC, to purchase the property on your behalf, using funds within your funded Self-Directed IRA account. Verify the purchase was completed correctly.

Note, the property cannot be titled in your name directly. The title has to go to your IRA, or to the entity within the IRA, with your IRA listed as the owner.

Disqualified parties may not reside in the Real Estate IRA property. 

Unless you are ready to withdraw the entire property from the IRA, and pay taxes on the transaction, you, nor any disqualified person to your IRA can physically stay in the property; even if market rent is paid.  You cannot use an IRA to own your own vacation home overseas. If the IRS finds out, they could force you to take the entire value of the account as a distribution, costing thousands in taxes, penalties and legal bills.

Return of Stock Market Volatility Underscores Need For Self-Directed IRAs and Diversification

February 2018 has been a stressful month for stock investors. Volatility is back with a vengeance: The Dow Jones Industrial Average components – what we used to call “blue-chip stocks” for their safety and staidness, took some big stumbles early in the month. This happens every once in a while, – but this time the declines triggered some program trading, computers were programmed to dump stocks as soon as the Dow, S&P 500 or some other signal dropped below a given level. The selling forces stocks lower, triggering even more program trade selling, and so a vicious cycle takes over.

And that, despite an economy that is prospering by most metrics, is how the Dow recorded a record 1,175 point loss on February 8th.

One might call it retribution for some bullish arrogance that has gripped stockholders over the last year. While we have seen a recovery since then (and stocks are setting new highs), the recent volatility has hopefully reinstated a healthy appreciation for risk: It is pretty scary to see 5 to 10 percent of your retirement nest egg disappear in a couple of days. Volatility can hurt.

Fortunately, the vast majority of our clients did not need to bat an eyelash. Indeed, some of them may even benefit from the volatility, as investors dump stocks looking for safer assets.

Self-Directed Investing means you do not have to worry about what the stock market does every day. Many of our clients have much of their long-term money invested in far more sound assets than stocks such as:

  • Rental properties
  • Commercial real estate
  • Tax liens and certificates
  • Gold and precious metals
  • Closely-held companies, LLCs and partnerships
  • Farms and ranches
  • Land
  • Private equity
  • Venture capital
  • Private lending
  • Mortgage lending
  • Equipment leasing

… and more.

While the value of each of these investments fluctuate, none of them are tied to the day-to-day fickleness of the stock market. Our clients have the luxury of being indifferent to most of the noise on Squawk Box and Jim Cramer’s Mad Money.

Most mature investors regard shows like these as a waste of time. The smart money is always way ahead of what the average consumer sees on TV.

As television and radio personality Dave Ramsey is fond of saying, “investing is a crockpot, not a microwave.” That is the approach taken by most Self-Directed IRA owners, who define holding periods in terms of years and decades, not hours and days. The longer your holding period, and the longer your investment time horizon, the less you have to worry about short-term volatility.

For alternative asset investors, there is no daily price index to track – and certainly no intra-day prices to obsess over. The focus is on the intrinsic value of the investment, and not on the opinions of millions of strangers – most of whom are not very smart anyway.

The lack of intraday pricing, and an overall more deliberate approach to investing and valuation, makes it much easier to avoid falling into the many traps of stock market speculation such as:

  • Focusing on the short-term
  • Panic selling on an impulse
  • Program trading causing you to sell when you should be buying
  • Thinking you are diversified when all your assets tend to move together

For many of our investors, the lack of correlation with the fickle stock market is a source of comfort. They derive piece of mind, knowing however fearful the talking heads on TV are behaving (generally at the wrong times), they do not have to participate in any correction or bear market.

Diversification is a fundamental principal of sound investing. Most individual investors do not do nearly enough of it, and find themselves over-exposed to a volatile stock market at the wrong time.  Self-Directed IRA strategies help you diversify, providing a much-needed hedge against stock market volatility – while still exposing you to opportunities for long-term growth and income.

If you want to do a thorough portfolio review, and find out how you can benefit from implementing Self-Directed IRA strategies in your own retirement investing, call us today at 866-7500-IRA(472).

Are You Ready for a Self-Directed IRA?

A Self-Directed IRA is a proven way for investors to gain access to alternative asset classes not normally offered by most Wall Street investment companies. Most of them readily offer access to trade stocks, bonds, ETFs and mutual funds. Some of them also support trading in options on stocks and margin trading. But for the most part, if you want to diversify your portfolio into other asset classes in order to increase your expected returns, decrease your exposure to volatility, or both, while preserving the tax advantages of a retirement account, you are going to have to look at Self-Directed IRAs.

Self-Directed IRAs is it the right fit for you? Some people just do not have the skills or financial sophistication to take personal charge of their IRA investments, pulling them from the control of a money manager. They may need the assistance of a professional mutual fund manager or stockbroker to help them manage their portfolio. Or, they may simply not have time for managing investments, because they do not enjoy it.

Who is Ready for a Self-Directed IRA?

A Self-Directed IRA can be an excellent match for certain investment minded people. If the following criteria apply to you, you may be ready for a Self-Directed IRA.

1.) You have professional-level knowledge of real estate, precious petals, private equity, technology, small business or some other asset that gives you a meaningful competitive trading advantage over the market.

2.) You understand the different kinds of risk that could affect your investments, including, but not limited to, market risk, systematic risk, interest rate risk, inflation risk, legislative risk and company or investment-specific risk.

3.) You generally have an independent or entrepreneurial spirit.

4.) You know how to read a cash flow statement and a balance sheet.

5.) You understand the rules governing prohibited transactions and prohibited investments in IRAs.

6.) You want to save hundreds and possibly thousands of dollars in fees every year, compared to the high assets under management (AUM), wrap fees, expense ratios, 12-b-1 fees and other fees the Wall Street firms charge.

If all these apply to you, it may be time for you to consider a Self-Directed IRA

There are some important things to understand before you invest:

Self-Directed IRA Rules

You cannot buy an investment in your own name, expecting to transfer it into a Self-Directed IRA later. The law prohibits your IRA from buying or selling to you, personally. Your IRA also cannot transact directly with your spouse, children, grandchildren, parents, grandparents, or any entities they control.

For example: John is an experienced real estate investor and finds a promising property that would make a great candidate for his first investment in a Self-Directed IRA. However, he does not have a Self-Directed IRA account set up with a custodian or third-party administrator. So he goes ahead and has his own real estate investment LLC buy the house. He cannot then transfer the house into his IRA. Since he controls the LLC, the IRS could disallow the entire investment, and force him to take a distribution on the entire value of the account. This would result in a big income tax bill and potential penalties for early withdrawal – plus a bunch of legal fees.

Making Your First Self-Directed IRA Investment

The correct way to go about buying your first Self-Directed IRA investment is to:

  • Contact American IRA, LLC directly at www.AmericanIRA.com, or by phone at 866-7500-IRA(472).
  • Fill out a couple of forms to open an account. You can choose to open a Traditional IRA, a Roth IRA, or if you have self-employed income or a small business, a SEP IRA, SIMPLE IRA or a Solo 401(k).
  • Transfer funds from a qualified source into the account. If you qualify, you can make up to $5,500 in new contributions to an IRA or Roth IRA per year – and you have until April 15th to make IRA contributions for the previous calendar year. You can also roll over money from another IRA or qualified retirement account. In most cases, the best way to accomplish this is via a trustee-to-trustee transfer. This way, you will not take personal possession of the assets – and risk making a costly mistake. If you are transferring money from a 401(k), you also will not have to worry about your old 401(k) custodian withholding 20 percent to forward to the IRS to pay expected taxes.
  • Identify the asset you want to purchase for your Self-Directed IRA (or other retirement account).
  • Provide American IRA, LLC with detailed instructions on what to purchase, from whom, and for how much.
  • Have any attorneys involved draw up the title naming your Self-Directed IRA as the owner, NOT YOU. Mistitling the assets in a Self-Directed IRA can lead to big problems down the road.
  • Confirm the purchase is made correctly.

American IRA will log the transaction and ensure it is completed according to the law.

Note, American IRA handles the transaction. We do not determine whether the investment is appropriate for you or your portfolio. That is between you and your financial advisors. We work with your existing advisors to make sure your directions to us are handled promptly and accurately.

That is part of what it means to have a Self-Directed IRA: You take more direct and personal control of your retirement investments. You may hire some advisors to help you, but ultimately, you, and not some distant fund manager who does not know you or your goals, are in charge of managing your Self-Directed IRA portfolio.

Study: Fair Sailing Ahead for Real Estate IRAs

Real Estate IRAs have had a very nice run over the past several years. And 2018 looks like another positive year for real estate overall. The Urban Land Institute’s 2018 Real Estate Trends Report predicts a smooth year of appreciation for real estate assets in or out of Real Estate IRAs.

Some of the highlights from the report:

A “sudden drop” in the housing market is unlikely. Real estate utilization rates are going up as millennial’s begin to gain traction in the housing market.

A “soft landing” is more likely to cap the current expansionary cycle than a real estate recession. The economic cycle has surely not been repealed, but there are no major economic trends that currently threaten real estate as an asset class in the United States. Part of the reason for the soft landing prediction is the modest to slow pace of the recovery. Real estate more or less kept pace with overall economic expansion, which means real estate prices did not get so far ahead of fundamentals and price supports as they did during the sunup to the 2008 mortgage crisis.  We are not seeing the late-cycle optimism that characterizes asset bubbles – at least in real estate.

Real estate is also getting a boost from the strong economy as well as a booming stock market. Granted, the stock market could take a nasty correction tomorrow – one important reason why we recommend using Self-Directed IRAs to help diversify your portfolio away from stocks. But the strong job market looks more permanent, as companies do not like to to through the expense of hiring people whom they are not confident will stay on board for a good while.

The report also identified a stubborn shortage of housing supply that will continue to boost real estate for some time to come. Even high real estate appreciation and price levels is not leading directly to new supply in some Real Estate IRA markets. The study identified these markets as experiencing high price appreciation but very low supply expansion:

  • Washington, D.C.
  • Brooklyn
  • Orange County
  • San Francisco
  • San Jose
  • Miami
  • Fort Lauderdale
  • Seattle
  • Portland, OR
  • Inland Empire, CA
  • San Francisco


The Institute also recommends that investors focus more on rental income than price appreciation at this point in the cycle. Many markets are comparatively mature, as investors have bid up prices to match expected rental revenues. Some areas may be fully priced. But as long as employment remains strong, rental income should be steady and reliable, for the most part. Concentrate on cash flow and careful asset management.

One opportunity for a Real Estate IRA investment is senior housing. As of 2016, there were 49.4 million U.S. residents aged 65 or older, or about 15 percent of total population. By 2030, that figure is projected to grow to 75.5 million, or 21 percent of the population, according to the U.S. Census Bureau.

Yes, an individual landlord can devote some or all of a real estate portfolio to homes or condominiums that may have appeal for older Americans. Another way to play it would be to invest in private equity or private debt placements or REITs that focus on senior housing development.

Private Equity In Your Self-Directed IRA

Own tomorrow’s Dow components today! Or we hope, anyway. But you did not have to invest with Steve Jobs while he was still running Apple out of a garage in the 1970s to do well with private equity or private placements in a Self-Directed IRA. Just invest in solid, well-managed companies with good accounting and controls, who have a viable business that provides a good value and you can do just fine – and even get better returns over the long run, in many cases.

What is private equity?

When a small company wants to raise capital, it can borrow the money, or it can sell off a piece of itself to investors, who are then entitled to a share of all future dividends the company issues. If the company is publicly traded, it can sell shares over the stock market. But if the company is not publicly traded, it will seek out investors anywhere it can, and negotiate a share price privately.

Many companies do not want to go through the time and expense of issuing a publicly-traded security. Just maintaining a listing on boards like Nasdaq or the NYSE can cost tens of thousands of dollars per year. Unless they are getting major investment bank support to help them place their shares, it is just not worth it to these smaller companies.

Many smaller companies with no regular earnings cannot get traditional lender financing, either. Most traditional lenders just are not equipped to serve this market, as borrowers typically do not meet the lending criteria for the banks’ backers. They do not have the regular earnings to support income-based underwriting, and they may not have real estate or other kinds of readily marketable collateral that most banks rely on to justify a loan.

But Self-Directed IRA owners are not limited by these criteria. Moreover, Self-Directed IRA owners also frequently have the long time horizons that companies seeking investment need. For example, if you lend to or invest in a real estate developer, it may be years from the time you provide the financing to the time the real estate developer has a property completely built and sold off so that it has some cash to pay lenders and investors with!

Meanwhile, private equity seekers have to sweeten the deal, to compensate the Real Estate IRA investor for the cost of tying up their money for a long time. That usually means better terms, and better long-run expected returns. That is, private equity seekers (and private debt seekers as well) have to discount their offerings to attract investors.

Qualifying for Private Equity Placements for your Self-Directed IRA

Not just anybody can be a private equity investor and be eligible for direct placements. In order to invest in a direct placement of private equity, you must meet the definition of an accredited investor, according to Rule 105(a) of the SEC’s Regulation D.

Specifically, you must have a net worth of at least $1 million (not including your primary residence), OR;

You must have an income of at least $200,000 in the last two years if single OR;

Have an income of at least $300,000 in the last two years if married.

Reputable brokers or sellers will have you submit proof of your status as an accredited investor before selling you the shares or bonds, if it is a private debt placement.

Because of the substantial returns available in private equity (the potential is virtually unlimited), and the long time horizons involved, private equity placements can make excellent candidates for Self-Directed IRA investment.

Before you invest, though, understand that these investments, like many popular Self-Directed IRA assets, are frequently not registered securities, and are exempt from a number of SEC regulations and reporting requirements.

They also tend to be very early stage companies, subject to substantial economic risks. They may have unproven products, service offerings, inexperienced management teams, difficulty securing follow-on funding, and they could even be fraudsters. It is, therefore important to engage in a thorough due diligence process before you invest in any private placement offering within a Self-Directed IRA.

Bitcoin, Is It Right for You?

The rise of cryptocurrencies is getting a lot of press lately, with Bitcoin – the largest of them by market cap – getting the lion’s share of the coverage. Do they belong in a Self-Directed IRA? Is there a place for a Bitcoin IRA? Or a Litecoin or Ethereum IRA? Or a Ripple IRA? Sure. But be very careful before you commit funds and try to actually add cryptocurrencies like Bitcoin to your IRA or other self-directed retirement account.

Let us consider Bitcoin and crypto in general from some different perspectives. Do cryptocurrencies such as Bitcoin warrant a place among other alternative asset classes as a way to help diversify a portfolio? A few months ago, people like Citigroup Chairman Jamie Dimon were dismissing Bitcoin as a fraud on the market. A Dutch tulip bubble waiting to happen.

On the other hand, a recent paper from a Johns Hopkins University professor and a Maryland pension fund officer is suggesting that it is time for pension funds and other institutions to consider cryptocurrencies like Bitcoin for their own portfolios.

Why? The answer lies in the volatility of the asset class: Cryptocurrencies like Bitcoin are subject to big price swings in short periods of time. Changes of up to 25 percent and more in a single day are not uncommon. In some currencies, they are routine.

They are also not yet closely correlated with any other asset class. A small event like Bloomberg adding a new cryptocurrency asset to its trading terminal can cause a massive price swing that has no effect on the rest of the market. A single big holder dumping shares can send prices plummeting – and again would have no effect on stocks, bonds, real estate, or anything else besides maybe other cryptocurrencies.

So someone with a Self-Directed IRA who is a big fan of Harry Markowitz and Modern Portfolio Theory might be very attracted to the idea: Adding a very small exposure of Bitcoin to your IRA – the paper’s authors recommend less than 2 percent – can potentially add a lot of alpha to a Self-Directed IRA portfolio without increasing the portfolio’s overall risk by much. Indeed, because the correlation between Bitcoin and other asset classes is so low, it may even reduce your Self-Directed IRA portfolio’s overall volatility.

Are Bitcoin IRAs legal? 

If you do it right, holding Bitcoin in an IRA is legal. The IRS only prohibits a few types of assets from being included in Self-Directed IRAs, and Bitcoin is not on the prohibited list.

But doing it right gets tricky very fast. Why? Because the law prevents individuals from taking direct possession of assets within their IRA. For example, you can own certain kinds of gold coins in your IRA. But you cannot keep them in a safe in your living room. If you do, and the IRS finds out, you could wind up losing not only the gold investment but also having the entire prohibited account distributed.

The same applies to cryptocurrencies. It is common, for example, for people to hold Bitcoin on a hard drive or digital “wallet” in their possession. But this would probably violate the law.

Chances are very good that a lot of people searching for “Bitcoin IRAs” now do not grasp this – and run the risk of making an illegal transaction.

Is Bitcoin or any other cryptocurrency a sound investment? Who knows? No one has a crystal ball, but its volatility and lack of any kind of ‘anchor point’ for its value suggests caution. But if you decide the risk is for you, and you want to hold it in an IRA, keep this in mind:

  • Cryptocurrencies are very young, and the rules and legal precedents for how they will be handled in an IRA have not yet been established.
  • You cannot hold the cryptocurrency directly. In practice, this probably means you can not hold the discs your cryptocurrency is stored on, directly, either.
  • Consider holding Bitcoin indirectly, through BIT (Bitcoin Investment Trust) or other intermediaries. You may need to be an accredited investor to invest. But it will eliminate the complication of holding it yourself. You can have American IRA, LLC handle the transaction, which will keep the cryptocurrency safely out of your personal possession.
  • Do not make any moves without a thorough understanding of prohibited transactions.
  • Be prepared to get a third-party valuation. This is especially important if you are subject to RMDs, or soon will be subject to RMDs.

What the Tax Cuts and Jobs Act Means for Self-Directed IRA Investors

The passage of the Tax Cuts and Jobs Act – the new, sweeping tax reform bill just signed into law by President Trump – means that those of you who contributed to Traditional IRAs over Roth IRAs in high-tax years may have made a very good bet. The new tax law means that income taxes on most middle-income retirees will be much lower than they otherwise would have been, had the tax reform not passed.

Those of you who contributed to Self-Directed Roth IRAs over the years, only to see this year’s tax reform bill bring taxes down, and not up, still have the consolation of tax-free growth on assets you leave in the Roth for at least five years. So you have not lost anything, but Self-Directed Traditional IRA owners may be much better off under the Tax Cuts and Jobs Act.

Here are the highlights of the new tax law as they pertain to Self-Directed IRA investors:

  • The standard deduction is nearly doubled, to $12,000 for singles, $18,000 for heads of households and $24,000 for married couples. However, the $4,050 personal exemption and dependent exemptions are repealed. The number of people who do not itemize their tax returns is likely to substantially increase.


  • The Child Tax Credit is increased through 2025. The law increases the maximum child tax credit from $1,000 to $2,000 per qualifying child. The refundable part of the credit is raised, from $1,000 to $1,400. That means taxpayers can qualify for a tax credit of up to $1,400, even if they have no tax liability for the current year.


  • The new law retains seven tax brackets, but the tax rate for each bracket except the lowest one is reduced. The old tax brackets were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The new brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%.



  • The corporate tax rate is lowered from 35% to 21%. The effects of double taxation on C corporations are much reduced.


  • The Child Tax Credit is increased to $2,000, $1,400 of it will be refundable. That is, you can get the benefit of it even if you have zero tax liability, or less than $1,400 of tax liability.


  • The alternative minimum tax (AMT) threshold is raised from $86,200 to $109,400.


  • Alimony is no longer deductible to the payer, but not countable as income to the recipient. This provision begins in 2019, and may have a substantial effect on divorce proceedings.


  • Section 529 plans may now be used to pay for K-12 schools. Previously, they could only be used for college/post-secondary expenses. Section 529 plans can also be used for homeschooling costs.


  • Businesses with up to $25 million in income may use the cash accounting method. Previously, businesses with $5 million or more in income were required to use the accrual method of accounting.


  • The Affordable Care Act penalty for not having qualified health insurance is reduced to zero under the Tax Cuts and Jobs Act.


  • Personal income tax preparation fees are no longer deductible.


For 2018, Use Self-Directed IRAs to Help Diversify Your Portfolio

2018 was a great year for Self-Directed IRA investors and stock market investors alike. A strong economy and the prospect of corporate tax cuts (made a reality by the newly signed Tax Cuts and Jobs Act of 2017) sent both the stock market and alternative asset classes popular among Self-Directed IRA investors soaring.

That is very nice for those who invest by looking in the rear-view mirror. But most people smart enough to use Self-Directed IRAs and other retirement accounts to diversify their retirement assets know that the bigger the returns in the past, the tougher it may be to find acceptable returns in the future.

Veteran investors know: As asset prices increase, so does risk. And with the S&P 5oo gaining 19.42 percent for 2017 – on top of an 11.96 percent return for 2016 – the bull market in stocks has got to be getting a little creaky.

This does not mean we cannot continue to have good returns for a while: It depends on what happens to corporate earnings and whether they are strong enough to support the recent U.S. stock market returns.

Investors should use Self-Directed IRAs and other self-directed retirement accounts as a vehicle to help diversify their assets going into 2018. While there is no shortage of mutual funds and individual securities you can stuff into a conventional, old-fashioned broker-sold IRA, some assets are only available as retirement assets to those who use Self-Directed IRAs. For example:

Direct ownership of gold, silver and platinum bullion and coins.

Direct ownership of real estate.

Closely-held, private C-corporations. This asset class, especially, got a boost from the Tax Cuts and Jobs Act because corporate tax rates applicable to C corporations were significantly reduced, from 35 percent to 21 percent. Since dividends are not tax-deductible expenses for corporations, the previous tax regime punished owners of C corporations who relied on them for income, as the effects of double taxation were truly pernicious. Dividends from C corporations took a 35 percent haircut before they were even distributed to the owner, who must pay taxes on them either on their current income tax return (outside of retirement accounts) or when they withdraw the money from a traditional IRA, 401(k) or other retirement account.

The Tax Cut and Jobs Act does have the effect, though, of lessening the incentive of income-sensitive investors to direct money into REITs and Business Development Companies. This is because the tax benefit of treating these entities as flow-throughs is reduced by about a third, from a 35 percent tax to a 21 percent tax on their C corporation alternatives. It remains to be seen how this may affect capital flows to REITs and BDCs. We expect the impact to be relatively small, though, as the best reason to invest in REITs and BDCs is because of the investment properties of the real estate and microcap/VC-stage asset classes. Most people do not let the tax tail wag the investment dog, as it were.

At any rate, the case for diversification into real estate, precious metals, tax deeds and certificates, partnerships, LLCs, oil and gas investments and pipelines remains strong. A good economy should support a wide variety of asset classes, though it may force the Fed to continue to boost interest rates, which will tend to hurt existing bond portfolios.

How to Lower Retirement Account Fees Using a Self-Directed IRA

The big Wall Street investment firms are very good at maximizing their own profits. Unfortunately, they are not very good at delivering market-beating returns for their own customers. This is part of the reason more people are turning to Self-Directed IRAs and other types of self-directed retirement accounts.

Say ‘No’ to the Assets Under Management Fee

If you are a buy-and-hold investor who does not trade much, and tends to hold onto investments for a long time, assets-under-management fees (AUM) can tear a chunk out of your retirement nest egg over time. If you are a long-term real estate IRA investor or you tend to hold securities for a long time, and you do not need a broker’s advice for all your trades, you may be able to save thousands of dollars by holding IRA assets with a Self-Directed IRA administrator that charges a set fee schedule for individual transactions, rather than an AUM or ‘wrap fee’.

For example, a $500,000 portfolio with a 1.5 percent AUM fee would cost you $7,500 just to keep the account open, even if you never made a trade. That is a lot of money to pay someone to send you a statement every month.

If they are not adding $7,500 worth of value to you each year, you may be better off moving buy and hold assets to an administrator like American IRA, LLC. In many cases, your total fees would be a fraction of that amount.

Consolidate Accounts

It may make sense to consolidate IRAs and previous employers’ 401(k)s by rolling them into a single IRA – Especially if the investment company charges you a monthly statement fee, or if the expense ratios for the funds within an old 401(k) are relatively high.

According to Morningstar data, here are average mutual fund expense ratios as of 2017:

Large-Cap Stock Funds: 1.25%
Mid-Cap Stock Funds: 1.35%
Small-Cap Stock Funds: 1.40%
Foreign Stock Funds: 1.50%
S&P 500 Index Funds: 0.15%
Bond Funds: 0.90%

If your old 401(k) is charging you much above these levels, it may make sense to roll assets over to an IRA or self-directed IRA where you have the flexibility to find assets that have comparable expected returns over time, while charging a much lower expense ratio.

Think of it: In an era where many bonds have yields of 5-6 percent on a good day, it does not make much sense to pay a Wall Street firm 15-20 percent of your yield every year.

Consolidating may also help you qualify for better pricing. For example, some investment companies waive under-minimum fees once you reach a certain threshold with them, or waive their monthly statement fee. You may be able to qualify for a better expense ratio, as well.

Eliminate 12b-1 fees

12b-1 fees are fees an investment company charges every year to pay their fund marketing costs. But they do nothing for you, the investor. These fees can range from 0.25 percent to 1 percent of assets every year. If you are paying 12b-1 fees to your current investment company or IRA custodian, it may make sense to find a better solution.

Manage your own investments

Money managers make a lot of money – at your expense. Expense ratios in mutual funds have been inexcusably high for many years. Especially when lower cost alternatives are available. Funds with high expenses, in the aggregate, have failed to even match the returns of an unmanaged index over time.

That does not mean a good advisor cannot add value: Every year, the DALBAR organization publishes a study that finds investors with professional advisors outperform those that do not, because investors that do not receive professional advice tend to get greedy or fearful at the wrong times, and make poor market timing decisions.

If you are able to be greedy when others are fearful, and fearful when others are greedy, as Warren Buffett likes to put it, you may well be ready to declare independence from Wall Street and manage your own money using a Self-Directed IRA.