For a lot of investors, the idea of making a mistake with an IRA is something to be feared. A lot of people are intimidated by the process of setting up an IRA for themselves, let alone a Self-Directed IRA, for the fear that they will make a mistake. But the truth is, if you exercise due diligence and go about it the right way, it is not difficult to avoid or clean up some simple mistakes. Here is what you will need to know if you want to simply fix some of the most common Self-Directed IRA mistakes:
Mistake #1: Not working with an experienced Self-Directed IRA administration firm.
The easiest way to avoid mistakes? Working with a trustworthy, experienced Self-Directed IRA administration firm. When you have experience in your corner, you will find it much easier to avoid the common pitfalls and mistakes that many people commit.
Why? For starters, a Self-Directed IRA administration firm helps inform you about all of the different forms that you have to fill out. And filling out these forms with an experienced administration firm means that you won’t be doing all of the work yourself…you’ll have someone in your corner that wants to make sure that all of the laws and regulations on the books are respected.
The easiest way to fix this mistake? Start working with a trustworthy Self-Directed IRA administration firm from the get-go.
Mistake #2: Not doing due diligence on your investments.
Many people think that with a Self-Directed IRA administration firm in their corner, they will have something like a financial advisor. That is not the case. In fact, a Self-Directed IRA administration firm is not able to help you out with specific investment recommendations. Instead, they serve as the “custodian” on your account. That means that you are on your own when it comes to the selection of the investments, provided that they’re valid investments that can be legally held within a Self-Directed IRA.
The big mistake investors make here is not doing their due diligence. Many investors might be used to the idea of putting aside money in a retirement account like a 401(k), trying to select from a limited amount of funds, and hoping for the best. But investors who use a Self-Directed IRA have to know that when they rely on themselves for their investment decisions, it’s important to be as educated as possible. That means not only understanding the types of investments they get into, but individual investment decisions as well.
Mistake #3: Not being thorough on paperwork.
It is not often you will find an investor who enjoys paperwork. But every investor should be as thorough on their paperwork as possible because it makes the rest of their lives easier. And that is not to say that paperwork has to dominate your life. If you use a Self-Directed IRA, you can still make investments that are minimal on paperwork while you sit back and collect money into your retirement account. However, being thorough on the paperwork required to establish this kind of arrangement is vital—and you will want to get it right.
That is why we think it is always a good idea to check and double-check your paperwork. Really take the time to make sure that you understand not only what you have to do, but why it is required. You will not only have a better knowledge of the Self-Directed IRA going into the future, but you will feel more secure about what you’ve already done. And after all, isn’t peace of mind the goal of every retirement investor?