Ask around about Self-Directed IRAs and you will likely learn that many investors like to use them to spread their wings and diversify their portfolio. And that makes sense. After all, with a retirement account with more freedom, investors have the power to invest in real estate, precious metals, tax liens, private companies, and more. But what if you simply want more control, and do not want to venture too far off the beaten path of investing in stocks and bonds? In that case, is it possible to use a Self-Directed IRA with a brokerage account? Here is what you will need to know.
Self-Directed IRAs and Brokerage Accounts: The Basics
Can you hold traditional stocks in a Self-Directed IRA? The easy answer? Yes! Many people so often associate Self-Directed IRAs with nontraditional retirement assets that they do not realize how easy it is to choose a more straightforward approach to their retirement while maintaining control over the IRA.
Remember: self-direction is not a unique account type, but rather an approach to managing the account itself.
Why do investors need self-direction if they just want to invest in stocks, bonds, and funds? The answer can depend on the investor. For some investors, the ability to control their investments with more flexibility is the key point. Other investors may simply have a unique situation that is more amenable to a Self-Directed IRA, as in the case of self-employment. Others may use a Self-Directed IRA because they are the employer at a small business.
Whatever the reason, many investors do not want to untether from the traditional approach of investing money in stocks and bonds for retirement. With a brokerage account within a Self-Directed IRA, it is not difficult for investors to take a more traditional approach while exercising more control over their retirement destiny.
What Rules Do You Have to Remember?
This is not to say that using a Self-Directed IRA with a brokerage account gives you carte blanche to do whatever you want. You will still have to play within the rules. Here are some of the rules and regulations you’ll have to adhere to if you use a brokerage account within a Self-Directed IRA;
- Time limitation: you do have to wait approximately 5-10 business days to open a brokerage account; do not expect things to move instantly. This is, after all, a retirement account we are talking about.
- Your account cannot be at the risk of going below a $0 balance. That means that while you can buy and hold stocks, a strategy like short selling would not be feasible within a Self-Directed IRA. Do not expect to make complicated stock option transactions within a Self-Directed IRA or using margin. And speaking of margin…
- Your IRA is indeed prohibited from making stock purchases using margin. That means that you will be limited to what you can purchase outright. However, it still leaves plenty of stock-buying freedom within the IRA.
- Keep the IRA a separate entity from your personal funds. Moving funds between a personal account and an IRA’s brokerage account is not something you can do. However, you can make a contribution to the IRA, and move the money from the IRA and to or from your brokerage account as often as you like. Remember that the IRA is what holds the brokerage account; your personal funds are considered separate.
As with anything, it is important to know the lay of the land. To read more about the rules involved with brokerage accounts within Self-Directed IRAs, click here. 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 www.AmericanIRA.com.