Self-Directed Roth IRAs

How Exactly Does a Self-Directed IRA Work, Anyway?

Using a Self-Directed IRA can be a foreign concept to many people, but the truth is that it can be as simple an arrangement as you want it to be. Just as it’s possible to set up a retirement account to which you can make regular contributions, setting up a Self-Directed IRA does not have to be a major ordeal. If you work with a credible Self-Directed IRA administration firm, you will find the paperwork intuitive. Moving forward, you will be able to start funding a IRA and taking advantage of this retirement strategy.

But why should you move forward with a Self-Directed IRA, and how does the process work exactly? Here are a few of the key facts you will need to know:

What is a Self-Directed IRA?

Let’s start at the beginning. A Self-Directed IRA is simply an IRA, arranged for yourself, allowing for your management and investing. In other words, it’s an IRA that you control, rather than using an IRA administrated by a popular financial service, which tends to limit the types of items you can buy and the volume of funds you can browse.

Self-Directing opens up an interesting possibility: you can start investing in a wide variety of asset classes. Because the IRS gives you a wide berth for the potential investments you can hold within an IRA, directing the IRA yourself gives you the independence necessary to try these different asset classes: real estate, precious metals, private companies, tax liens, and more.

Within these individual asset classes, you can also diversify even further. For example, you can invest in raw land in a Self-Directed IRA. You could also opt to invest in single-family rental homes to generate a regular income that funnels into your IRA through a property manager.

Funding a Self-Directed IRA

Funding a Self-Directed IRA works the same way you would fund any IRA, meaning that you have one of three options:

  • IRA rollovers. Either a direct or an indirect rollover allows you to take funds from a previously existing retirement account and bring it into a new one. For example, you can roll over a 401(k) plan into a Self-Directed IRA as a method of funding the new IRA.
  • IRA conversions. There are limited circumstances in which you can convert, say, an IRA into a Roth IRA.
  • IRA contributions. The simplest method of funding an IRA is simply to open it and begin contributing—however, it’s important to remember that you immediately have to keep the contribution limits in mind if you use this method.

Investing Within a Self-Directed IRA

In addition to funding your Self-Directed IRA, one of the first decisions you will have to make is where to invest it. That’s a topic too large to summarize now, but suffice it to say, a IRA gives you a plethora of options. Because the IRS only expressly says what you cannot invest in with an IRA, you can diversify your portfolio across a wide range of legitimate asset classes, from precious metals to real estate. The IRS does not allow owning collectibles like wine and fine art within an IRA, however.

You might also choose a more complicated arrangement wherein you create a Single Member LLC for the IRA, which the IRA then controls. This gives you “checkbook control” over the LLC, which can then make a wide variety of investments. Because the IRA owns the LLC, however, there is plenty of paperwork and tax knowledge you will have to take on before starting this kind of arrangement. But once you do, you will have a tremendous amount of investing freedom.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at