Lots of people want or need a financial advisor to work with them for every financial decision. And that is ok. There is a time and place for that, and there are great advisors and brokers out there who do a lot of good for them. And then there are the kind of investors who use a Self-Directed IRA. These investors prefer to diversify or may just want all their retirement funds in alternative assets.
Self-Directed IRA Basics
Structurally and legally, a Self-Directed IRA is just a subset of Traditional IRAs or Roth IRAs. The difference is that the owner of a Self-Directed IRA has chosen to sidestep the Wall Street distribution system – the vast network of brokers and advisors that channel money into the stock, bond and mutual fund markets – and invest money directly, usually in one or more alternative asset classes or in direct placement opportunities that bypass Wall Street.
Assets Commonly Held in IRAs
|Conventional (Traditional or Roth) IRAs||Self-Directed (Traditional or Roth) IRAs|
|Mutual funds||Mutual funds|
|Publicly traded stocks||Publicly and non-publicly traded stocks|
|Publicly-traded bonds||Publicly-traded and privately-placed bonds|
|CDs and money markets||CDs and money markets|
|Publicly Traded REITs||Publicly and privately-traded REITs, direct ownership of rental real estate|
|Master limited partnerships||Any partnerships, MLPs or privately held|
|Publicly traded private equity funds||Private equity funds and direct private equity placement|
|Hedge funds and funds of funds (accredited investors only)|
|Oil and gas investments|
|Fix and flip real estate|
|Tax liens and certificates|
|Private mortgage lending|
|Hard money lending/bridge loans|
|Gold and precious metals|
|Closely-held C corporations|
|Partnerships and LLCs|
|Farms and ranches|
|Accounts receivable factoring|
|And much more…|
As you can see, the Self-Directed IRA is a tremendously flexible vehicle. If you are willing and able to look beyond the relatively narrow set of asset classes that Wall Street brokers have in their inventory, you can achieve a much more diverse portfolio than you can limiting yourself to paper assets.
In many cases, you can gain exposure to better performing investments, simply by virtue of the ‘go anywhere’ benefit of the Self-Directed IRA strategy. You may be able to reduce risk at the same time, either by investing in very safe and secure investments, or adding investments with a very low correlation to the S&P 500 or other paper assets you may hold elsewhere in your portfolio.
Custodians and Administrators
IRS rules do not allow investors to hold IRA assets directly. Instead, all assets in an IRA have to be held in trust for you, in the IRA’s name, by a custodian, trustee, or administrator such as American IRA, LLC.
The process is simple:
- Open an account with American IRA, LLC
- Transfer funds to the account
- Provide written instructions to American IRA, detailing what assets you want us to buy and sell on behalf of your IRA; what expenses you want us to pay with IRA funds, and what you want us to distribute to you.
You can invest in almost anything with a Self-Directed IRA. But you have to avoid just a few types of investments, and you cannot transact directly with certain family members.
For example: You cannot use IRA money to invest in life insurance, collectibles, alcoholic beverages, jewelry and gemstones, gold and precious metals of uncertain provenance or insufficient purity and mint quality (call us for specifics).
Additionally, you cannot use IRA money to buy or borrow from or lend or sell to yourself, your spouse, any of your lineal descendants, ascendants, or any entities they control. That means you cannot buy a property and let your son or stepdaughter handle the property management for a fee, and you cannot lend them money from your IRA to buy a home.
You also cannot transact with an advisor who provides advice about your IRA investments. Any of these would pose a conflict of interest and potentially be disallowed by the IRS.
Ready to learn more? Download one of our investment guides at www.AmericanIRA.com, or call us today at 866-7500-IRA (472).