An investor who wants to expand a retirement portfolio beyond the basic stocks-and-bonds available through most brokerages has plenty of options when they Open a Self-Directed IRA. But even if you know about the advantages of investing in a Self-Directed IRA—such as investing in precious metals, private companies, and real estate—it still leaves one fundamental question. How can an investor Open a Self-Directed IRA? In this post, we’ll take you through the ins and outs of opening a Self-Directed IRA for the first time, as well as what it means to do so.
The Benefits of Opening a Self-Directed IRA
First off, why Open a Self-Directed IRA in the first place? Many investors already know that using a Self-Directed IRA, in which you work through a Self-Directed IRA custodian, makes it possible for you to invest in a wide range of retirement assets. That includes real estate, precious metals, private notes, and more. These assets will then be protected the same way as stocks and bonds in any retirement account. You can use a Traditional IRA, Roth IRA, SEP IRA, and more—it all depends on your strategy as a Self-Directed IRA investor.
Self-Directed IRA investors are often looking for more freedom with their investments when they sign up for a Self-Directed IRA. And working through an established Self-Directed IRA administration firm, they can also be confident that they’re having someone administering the account who is capable of handling paperwork in an accurate way, resulting in a smooth process throughout. But that still leaves an important question. Just what does that process look like, exactly?
How to Open a Self-Directed IRA
The first step to opening a Self-Directed IRA is to know which Self-Directed IRA administration firm you want to work with. For example, does that Self-Directed IRA administration firm have a lot of experience in Self-Directed IRAs? When you look at the people they have working there, have they built careers in this style of investing, or are they knew to the idea?
You should also look for fees that make sense for building a retirement nest egg with a Self-Directed IRA. For example, some Self-Directed IRA administration firms might charge dynamic fees that go up the more you use them. At American IRA, however, we use static fees that allow you to grow an account without necessarily paying more in expenses on the account.
Once you know which Self-Directed IRA administration firm you want to work with, your next step will be to apply for a Self-Directed IRA. You’ll choose the kind of IRA you want, such as a Roth IRA, Traditional IRA, SEP IRA, or even a Self-Directed Solo 401(k)—there are a lot of options here. You can fill out the forms right away, but you typically need to know how you’re going to want to fund this account. There are transfers, rollovers, and direct contributions—which you choose will ultimately depend on your situation and what you can expect to do. Consult with a tax professional to minimize the tax consequences on the avenue you decide to take.
And then that’s it! You’ll have a Self-Directed IRA with a Self-Directed IRA administration firm, at which point you can begin issuing buy and sell orders to the custodian. The custodian will then, on the IRA’s behalf, execute the trades. You are now investing through a Self-Directed IRA and entitled to all of the tax protections they afford.