You might have heard of a brokerage account, which gives you access to trading the stock market. You might have heard of a Self-Directed IRA, which means that you take control of your own IRA to invest outside the stock market, handling diversified assets ranging from real estate to precious metals. But when you use a Self-Directed IRA with a brokerage account in it, what exactly is happening? As it turns out, there are some specific definitions worth knowing—and you’ll want to learn them if you want to take the reins of your own investments.
Self-Directed Brokerage Account: A Definition
First, let’s start with the definition of a Self-Directed Brokerage Account. If you have a taxable brokerage account, you might consider it self-directed, because you’re in charge of where the money goes. In this case, the broker’s only job is to execute the orders for you in a role like a custodian or administrator. They fulfill the orders you make, which is exactly what happens with a Self-Directed IRA.
But this isn’t an IRA. A brokerage account can be a taxable account, which means that it doesn’t have the retirement benefits of an IRA that includes tax-free growth (as in a Roth IRA) or tax-deferred growth. What if you want access to those retirement benefits, but still want to control how you invest your money inside a brokerage account?
If that’s the case, you’ll likely switch to a Self-Directed IRA with a brokerage account inside it. This brokerage account still leaves you with the ability to invest in the stocks and funds you choose, but with the retirement benefits of the IRA that holds the account. In other words, an independent Self-Directed IRA with a brokerage account can give you the power to invest in stocks, bonds, mutual funds, index funds, and anything else a brokerage account is capable of offering.
Why Use a Self-Directed IRA for Stock Investing?
The beauty of the Self-Directed IRA is its versatility. While you can use a traditional investing approach inside one, such as investing in mutual funds, you won’t be limited to those options if you work with a Self-Directed IRA administration firm like American IRA. When you work with American IRA, we can serve as the custodian on the account as you make investments in precious metals, real estate, private LLCs, and more.
Why is it possible? Because these investments are always available to retirement investors who follow the rules; they simply need to structure the custodian on their account properly. Many investors are simply not used to choosing options like this because the brokerage firm they chose does not offer them. However, working with a Self-Directed IRA administration firm can open all sorts of possibilities for diversified investing in a retirement portfolio.
It’s important to keep in mind that this arrangement puts the power in your hands. You’ll be the one taking over the account and making the decisions. A Self-Directed IRA administration firm is not an adviser, but instead a custodian on the account, handling administration and paperwork. That means that your investments are your choices—and your choices alone. You can always seek third-party financial advice from a qualified financial adviser. But your relationship to the IRA custodian will be limited to buy/sell instructions you place, for example.