Self-Directed IRA

How Does Investing in a Self-Directed IRA Actually Work?

You might have heard a lot about Self-Directed IRAs. You may be familiar with the concept of using one to invest in nontraditional retirement assets such as real estate and precious metals. And with how precious metals have been performing in 2020, not to mention the overall uncertainty caused by the COVID pandemic, more and more investors are flocking to Self-Directed IRAs in search of some financial breathing room. But how do they literally work? Let us take it back to basics and tackle how a Self-Directed IRA might help someone invest in retirement.

Selecting the Account for a Self-Directed IRA

First things first: A Self-Directed IRA is not a type of account. In fact, it is the style of retirement investing you will use. For instance, a Self-Directed Roth IRA is possible, as is a Self-Directed Traditional IRA, or even a Self-Directed Solo 401(k). And knowing this, you will be able to choose the best account type for you.

We at American IRA feature a lot of information about the various accounts, which you can review here at our website. But before you get started, it is important to know what your goal is for the retirement account. Are you simply looking to maximize how many tax deductions you have per year? If that is the case, something like a Self-Directed SEP-IRA might be more your speed. However, if your goal is to have an account with a lot of longevity, a Self-Directed Roth IRA might make sense, because you can continue keeping money in it during retirement age.

These individual questions are key to your first step in the process. Know your account types. Know what you want out of them, and then consider moving forward.

Funding the Self-Directed IRA Account

Next, you will want to think about what you can do about the account in terms of getting money into it. There are generally three strategies that investors flock to: rollovers, transfers, and direct contributions.

Direct contributions are the simplest. Using either post-tax or pre-tax dollars (depending on the type of account), you will be able to put some of that money directly into the account. This immediately gives you the ability to invest through the account. With other types of funding, such as a rollover, there may be a time period that you’ll have to go through.

How do you decide which funding method you want to use? We cannot give out blanket recommendations, because the truth is that each investor’s situation is different. For example, if you have a company 401(k) that you want to roll over, then it is important to take that into consideration if you are thinking about funding a Self-Directed IRA next.

Choosing How Your Self-Directed IRA Will Work

You will work through a Self-Directed IRA administration firm after that, but they serve as the custodian of the account. It is you who will make the decisions. And that brings us to the final point: you are the one who is in charge of your Self-Directed IRA, ultimately. You get to pick what investments you use. That is why it helps to brush up on the rules, understand the options, and get used to the idea that you are in control of your financial destiny.

What does that mean you should do next? We recommend that you do not feel like you have to accomplish everything today. It is as simple as picking up the phone and learning more. Take one small step today if you are interested in setting up a Self-Directed IRA. You do not have to feel overwhelmed by the process.

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