Investing in a Self-Directed IRA is an obvious choice for retirement. It means tax protections that allow you to build a more sizeable nest egg, utilizing the full value of your retirement contributions. But what happens when you use a Self-Directed IRA? Simply put, you will give yourself more options for investing. Rather than rely on a few select stock funds, Self-Directing means that you will be able to look across multiple asset classes for investment value.
Although we have seen some numbers suggest that a Self-Directed IRA is a relative rarity—comprising nearly half a million self-directed retirement accounts worldwide just a few years ago—it’s still popular enough that many people are enjoying the benefits of investing in a Self-Directed IRA. Determining whether it’s right for you, however, means knowing your options. Let’s look at some of the options you have when investing in a Self-Directed IRA:
- Real estate. Real estate is one of the most popular investments in a Self-Directed IRA because of its ability to generate powerful returns for anyone who has experience in this arena. Additionally, real estate allows investors to build a substantial cash flow when a property manager collects rent from tenants, providing a retirement account with a stable source of income. Keep in mind that real estate is in itself an entire category that can be broken down into other asset classes—raw land, rental real estate, single family homes, multi-family homes, etc. It’s even possible to invest in farm real estate for retirement.
- Precious metals. Why would an investor turn to precious metals when they historically do not return much for long-term investors? The truth is that precious metals are a different type of investment, designed to ensure that you hold on to your wealth even if the economic situation turns into a storm around you. Precious metals like gold and silver, in particular, are popular ways to store wealth that can weather these financial storms.
- Tax liens and deeds. Investing in a tax lien can be a powerful way to invest. Not only does it mean that investors will have access to high rates of return, but a well-placed tax lien investment could even mean that an investor ends up with the rights to a property. This does require a lot of specific knowledge, however.
- Private companies. Most of us are familiar with investing in public companies, even if we do not always think of it that way. Buying a stock on the New York Stock Exchange or investing in a mutual fund is a way of investing in one particular asset class—the public company. But private company stock can be valuable, too—and a company that takes off in value can be an impressive way to grow your retirement portfolio.
- LLCs. A Single Member LLC is an investment strategy in which you use funds from a Self-Directed IRA to purchase 100% of an LLC that you can have professionals set up. This gives you the unique ability to purchase assets and make investments through the LLC, even going so far as to write checks on behalf of this LLC.
In addition to those listed above, you will find that there are entire lists of “other investments” you can use in an IRA, including hedge funds, royalty rights, commodities, U.S. Treasury Bills, and more. The IRS explicitly states what you cannot use within a retirement account, which means that there is a wide berth of retirement investing available to you—so long as you know about it.