Make Self-Directed IRAs Work For You

A self-directed IRA or a self-directed Roth can generate more wealth for you and help you cope with the financial realities of this bankruptcy boom era. More and more people are beginning to understand and appreciate how IRAs and Roths can help them save money on taxes and fund their retirement. The self direction part, on the other hand, continues to evolve but is today accepted as a viable strategy for diversifying your investments.Federal Reserve Bank

More Americans filed for bankruptcy last year than during the entire decade of the 1960s. As interest rates continue to challenge consumers already struggling against debt, we expect the numbers of bankruptcy cases to continue to rise in the next few years. In his book “Going Broke: Why Americans Can’t Hold On to their Money,” Connecticut College Psychology professor Stuart Vyse cites tests administered to American subjects to observe their attitudes and behaviors toward money. He arrived at these four conclusions.

  1. Credit cards encourage people to over-estimate the value of things they want to buy.
  2. People tend to splurge when they receive a windfall.
  3. People tend to be unwilling to sacrifice or be inconvenienced so they can save a few dollars off their purchases.
  4. People tend to pay more for the trappings of luxury.

These general tendencies coupled with the easy availability of credit and the incessant barrage of desire-inducing advertising make it difficult for people to resist getting into debt. And quite simply, uncontrolled debt is why many Americans are broke.

To counter the debt trap you need a financial strategy that gets you debt free aggressively. Part of this strategy should include choosing wise investments, particularly self-directed IRAs. Most investors opt for the popular investments such as stocks, bonds and mutual funds. But self-directed IRAs can accommodate a wider range of assets, including real estate and private business interests. American IRA is experienced in working with self-directed IRAs offering options other than stocks and bonds.

Besides the advantages offered by self-directed IRAs and self-directed Roth in deferred taxes, following are some reasons you may want to consider self directed.

  • The cash in your self-directed retirement account allows you to make an investment in alternative opportunities such as real estate, businesses, mortgages, and tax liens.
  • You can use your self-directed IRA to invest in a promising business and earn a nice, big payoff if the venture succeeds.
  • Investment opportunities abound that offer potentially larger returns than investing in the shares of these companies. For example, while many publicly traded real estate companies offer solid, stable returns on their stocks, these returns may be nowhere near the profit potential of investing directly in the properties these companies sell.

There are a few caveats you need to keep in mind, though. Self-directed IRAs and self-directed Roth may offer larger income potentials, but they are not free of pitfalls.

  • There are rules. There are restrictions on self-dealing, for example, which disallow you from investing your self-directed IRA in a business if you are an officer or if you hold controlling interest in the business.
  • There are specific Real Estate investment rules that need to be followed if you need to borrow money to complete your purchase in a self-directed IRA.
  • There are more rules. Check with your accountant or financial advisor before you get into any investments using your self-directed IRA.