Starting a Self-Directed IRA When you Inherit an IRA

Many real estate investors and other people who prefer asset classes that don’t fit in well with most off-the-shelf retirement products usually purchased from investment companies eventually find themselves faced with a problem: What to do with an inherited IRA? The answer for these individuals is usually to take these inherited assets, create a Self-Directed IRA, and use them to invest in the assets you know and understand.

If you have inherited an IRA, and you are interested in investing the inherited assets in real estate, gold, private placements, private lending, or any other kind of investment not normally offered by most investment companies, and you don’t want to pay unnecessary tax penalties, then you may consider a Self-Directed IRA.

What is a Self-Directed IRA?

Let’s briefly review the concept: In conventional accounts, when you open an IRA, you hire money managers to oversee your assets in various funds and accounts. Each mutual fund or money market fund, for example, will have a money manager making specific investment decisions for you. They also handle all the record keeping and transactions.

In a Self-Directed IRA, you take control of those functions back from the money managers. The specific decisions – what assets to buy, from whom, and how much to pay – are yours to make in a Self-Directed IRA.

This allows you to potentially save substantially on fees, allows you to focus your Self-Directed IRA investing on assets and in industries where you have superior market knowledge, and potentially allows you to diversify more effectively against stock market risk.

What to do first?

If you’ve inherited an IRA, don’t be hasty. Making the wrong move now, such as prematurely cashing out the account, could cause you long-term tax headaches that are difficult or impossible to undo.

The first thing to do in most cases is to educate yourself. Get the lay of the land. Unless the account is a Roth IRA, you cannot let the account grow tax deferred forever. Eventually, you must take distributions – generally when the deceased would have had to take distributions. However, if you inherited the IRA from a spouse, you have more options.

Make sure you understand exactly when you must make any required minimum distributions, because the IRS assesses a substantial penalty of up to 50 percent on any amounts you were supposed to take out of the account that you failed to withdraw.

The rules can be complicated to explain for every particular situation, but if you have recently inherited an IRA, 401(k) or any other account and you are interested in the Self-Directed IRA investing concept, and you want to take more direct control of your investment portfolio, then call us today at 866-7500-IRA (472). We will be happy to walk you through some of the general issues involved, though we do not give individualized tax advice.

Once you know whether you must soon begin taking withdrawals, when they must occur and how much you need to take, you are ready to get started in Self-Directed IRA investing.

From there it’s very simple:

  • Establish a Self-Directed IRA account with American IRA, LLC.
  • Fund the account. In most cases, our clients who have inherited an IRA will simply sign an authorization directing the custodian of your current inherited IRA to your new account with American IRA, LLC in a trustee-to-trustee transfer or direct rollover. Identify a new investment opportunity that better fits your investment objectives and risk tolerance. Be sure to observe rules on prohibited investments and counterparties.
  • Once you’ve made the investment decision, provide us with written authorization to have your IRA purchase it on your behalf. Note: You cannot handle your Self-Directed IRA assets directly in most cases. The law requires you to use a custodian or third-party administrator, such as American IRA, LLC, to act as an intermediary in the transactions for you.
  • Monitor your account and direct us to make changes to your portfolio.

That’s it. You’ll have taken more direct and personal control of your retirement assets.

For more information, call us at 866-7500-IRA(472) or visit us online at

We look forward to serving you.