You Don’t Have to be Rich to Use a Self-Directed IRA Like the Wealthy

A recent article in USA Today pointed out the various ways wealthy investors use IRAs to maximize their investment dollar. But left out was one crucial point: with a Self-Directed IRA, anyone of legal age can use these tax protections to their benefit, diversifying their portfolio to include more than just stocks. Even so, there are enough tips and tricks for IRA usage here that investors of all income levels will want to know how they fit with the Self-Directed IRA.

Examples of Wealthy People and Their Self-Directed IRA Strategies

One of the most powerful ways to build wealth is to get in on the ground floor of a company that’s just beginning to realize its growth potential. In the Self-Directed IRA world, we call this holding equity in private companies. Max Levchin of PayPal was able to hold some share of the company before its Initial Public Offering—you’re free to guess at the results of that move. Some believe the retirement account ballooned to a worth of as much as $100 million to $200 million.

Private equity investment can be high-risk, high-reward—and it doesn’t mean that the next PayPal is around the corner. But it’s a great way to diversify some risk out of the stock market, if you know how to sniff out opportunities. The advantage of using a Self-Directed IRA is that you might have some wealth built up in order to make private company investments.

Leaving an IRA to the Youngest Beneficiary

Another example of how the wealth use IRAs: estate planning. If you leave money in your retirement account after you pass, these retirement assets can then be transferred to someone young in your family. According to USA Today, “The rules for inheriting IRAs allow a named beneficiary to stretch the annual minimum distributions that they’re required to withdraw from their inherited IRAs over the course of their lifetimes.” These strategies can grow complicated, so it’s best to talk with an estate lawyer before planning out who receives which assets from a retirement estate.

Going Beyond the Scope of One Article

Though the USA Today article is a great stepping stone for many to see the potential of using their Self-Directed IRA, because it shows the raw growth potential of assets outside of the stock market. Of course anyone with a Self-Directed IRA should exercise caution when putting their eggs in just a few baskets, but it’s important to remember that a Self-Directed IRA can be used to realize quick gains if you play your cards right.

Simply put, there are more options. Private company investing is great, and can realize huge gains before an IPO. But not everyone has access to these. Think of all of the options outside private equity that aren’t mentioned here. You can use an IRA to invest in:

  • Precious metals
  • Rental real estate
  • Commercial real estate
  • Tax Liens & Sales
  • Private lending
  • Partnerships and joint ventures

By placing his PayPal interest in an IRA, Levchin will realize maximum tax protection for his investment, potentially saving him millions of dollars. But you don’t need to be a well-connected Silicon Valley investor to see how a Self-Directed IRA can open up new possibilities in your retirement portfolio.

To learn more about Self-Directed IRAs, learn more about American IRA. We’re a Self-Directed IRA Administration Firm located in Asheville and Charlotte, North Carolina. You can continue reading posts and information here on our website, or feel free to call us at 866-7500-IRA(472) to find out more about what we do.

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