For many people in retirement, the path is a simple one. Put money into a company-sponsored account, and don’t stop until retirement. And there’s nothing wrong with this path. However, you should be aware that there is more freedom and flexibility possible when using a Self-Directed IRA. In using an IRA, an investor has the potential to invest in a wide range of retirement assets, including options like real estate and precious metals. However, to do that, many people work with a Self-Directed IRA administration firm serving as the custodian on the account.
That’s what we do here at American IRA. But how does it all work? We thought we’d demystify the process by explaining what it can feel like to work with a Self-Directed IRA administration firm.
What a Self-Directed IRA Administration Firm Does: The Basics
Let’s start by reviewing the essentials. When you use a Self-Directed IRA, you have to maintain a certain degree of separation between your personal accounts and your retirement accounts; this is integral to making sure that you receive the tax benefits of putting money aside in a retirement account. After all, you wouldn’t receive tax benefits on personal investments you make; some personal investments, such as real estate, can generate you income in real time, which means you’re not saving that money for retirement. That’s why the IRS emphasizes the separation of personal and retirement assets for maintaining good standing in a retirement account and avoiding early withdrawal penalties.
A Self-Directed IRA administration firm serves as custodian on your Self-Directed IRA, which means it has the power to process the transactions you want to make. This means handling the paperwork behind the transactions. It may also mean handling issues like storage fees within a precious metals IRA, but not out of the custodian’s pocket. It simply means that there’s some degree of custodial service required on a Self-Directed IRA, and an IRA administration firm can come in and handle that.
This doesn’t only keep you separated from your retirement assets, which is essential, but will also help guide you through the world of alternative asset investing, which simply means investing in those retirement assets that aren’t stocks, mutual funds, or bonds, or any funds thereof. In other words, working with a Self-Directed IRA administration firm grants you access and flexibility.
How Does the Process Work?
This might sound more complicated than it really is. And that’s okay, because investing with a Self-Directed IRA administration firm isn’t something that people grow up expecting to do. However, once you know the basic steps, you can get through to a more flexible retirement portfolio in no time.
First, set up an account with the Self-Directed IRA administration firm of your choice. They’ll help you sign up for the appropriate retirement account that will be the source of your new investments. You can then choose your funding options for this account. In the future, you can then direct the Self-Directed IRA administration firm to make a purchase on your behalf. The IRA administration firm can then step in and make sure the paperwork is squared away. Think of it as having a guiding light in your journey; however, a custodian on the account is not typically an investment advisor. That’s a separate service, which requires its own sets of rules.