A Self-Directed IRA can be an intuitive way to invest, but if you’re new to the concept, it’s only natural that you’ll have questions. But rather than try to answer them with a long guide, we decided to take some of the most popular Self-Directed IRA questions and answers and put them in a convenient place for you to check out right now. Here’s what you’ll need to know:
Question: What is a Self-Directed IRA?
Answer: This is an individual retirement arrangement/account in which you can make any type of allowable retirement investment thanks to the use of a third-party custodian, who administers the account. Through an IRA, you can widen your range of investments to include real estate, precious metals, private company stock, and more.
Question: Can I roll over an existing IRA into a Self-Directed IRA?
Answer: It depends on your situation, but generally speaking, yes. For instance, if you have a 401(k) account with a previous employer, it’s relatively straightforward to roll that over into a Self-Directed account. However, if you have an existing 401(k) plan with a current employer, it may be more difficult, because many employer-sponsored plans may prevent you from rolling funds out of that existing plan. But generally, there’s good news in that it’s easy to get going with a Self-Directed IRA if you have an existing IRA of some sort.
Question: What can a Self-Directed IRA do?
Answer: A Self-Directed IRA can make valid retirement investments in real estate, precious metals, private company stock—in fact, there are so many options here that it’s probably easier if we tell you what you can’t do.
Question: What can’t a Self-Directed IRA do?
Answer: A Self-Directed IRA can’t be used to invest in life insurance or collectibles like art or wine. You also need to avoid prohibited transactions with an IRA, as these transactions can yield you a personal benefit. For example, if you were to buy a piece of real estate and then sell it to your daughter, that would be a prohibited transaction.
Question: Can I place a Self-Directed IRA investment in a personal investment, like companies or real estate?
Answer: No. Investing in your existing, personally held business with a Self-Directed IRA would mean that you’re getting personal benefit from the investment, transacting with your personal holdings with retirement holdings. Once you understand that, you’ll see that you also can’t do things like operate a business that your IRA is invested in. However, there is one option for holding a business with an IRA, as you’ll read about next.
Question: What is a Checkbook IRA?
Answer: This is a nickname for an arrangement in which a Self-Directed IRA holds a Single Member LLC as a vehicle for making investments like real estate. You can use this type of arrangement as long as you meet the rules of retirement investing, by keeping the LLC separate from the rest of your personal belongings. When you do, you can hold checkbook power in the LLC, because the IRA holds the LLC, ultimately reverting power back to you. This makes it easy and convenient to make retirement investments through the LLC. However, this is not a “workaround” that allows you to make personal investments with retirement money. Instead, it’s a way for you to use retirement money to make retirement investments more quickly and flexibly.