You may have already heard of a Self-Directed IRA. You may already know that it’s a way for investors to take more direct control over what kinds of assets they hold within an IRA, which means yielding all sorts of tax protections for a wider range of diversification within a retirement portfolio. But what are the specific benefits that investors can realize when choosing to invest this way? And why might you consider doing the same? Let’s take a closer look at how the Self-Directed IRA suits investors who want a very specific strategy in their retirement investing plan.
Benefit #1: Diversification within a Self-Directed IRA
Diversification is a word that many people throw out without stopping to consider what it fully means. For example, many investors know that putting all of one’s eggs in one basket is a risky move. But what about diversification beyond simply thinking about one type of investment? Having money within an IRA means investors can access a greater range of investment types, which can potentially lead to even more profound diversification within a retirement investment portfolio.
For example, it might be one thing to have a well-diversified group of stock funds within a retirement portfolio. And that can be a great thing, if that’s your goal. But when the stock market in general goes down, you’re going to have to be capable of handling that, especially if your portfolio is in 100% stocks. However, if you added real estate assets and other diversified assets to this same portfolio, you might not be as affected by the stock market moving one way or another. And that’s the benefit of the full range of diversification you can access when you use a Self-Directed IRA.
Benefit #2: Freedom and Flexibility
Just how freeing can it be to invest in a Self-Directed IRA? Let’s take a specific example. If you were to use a Single Member LLC within an IRA, you would then use checkbook control in this LLC to potentially make quick, easy investments within the LLC. Since that LLC is owned by the IRA, this means you can invest in a wide range of retirement assets with what feels like the usual convenience and flexibility of simply taking out a checkbook and writing a check.
This is an arrangement that’s known as a “Checkbook IRA.” That’s simply the nickname for making your IRA more flexible via the Single Member LLC investment, which you hold in a Self-Directed IRA. This is a valid way to invest in retirement, but you’ll want to make sure that you work with a well-reputed Self-Directed IRA administration firm to ensure that all of the paperwork is properly filled out and administered.
Benefit #3: More Control
Sometimes, you simply need more control if you’re going to take over the reins of your finances. You can use a Self-Directed IRA and still talk to a financial adviser, of course. But this arrangement puts more control in your hands, and ultimately, it’s your retirement that you’re talking about. A Self-Directed IRA administrator won’t work as the adviser on this account but will instead simply carry out buy/sell orders and ensure the administration is handled properly. Beyond that, you’re the one calling the shots. You’re the one choosing what investments will end up in your Self-Directed IRA. And that’s how you can potentially steer the IRA in such a way that it generates a powerful return for your retirement.