How New Investors Can Avoid Self-Directed IRA Common Pitfalls

Although investing in a Self-Directed IRA doesn’t have to be a complicated mess in the slightest, there are some investors out there who are new to the concept. And when people plunge into new things they don’t understand, mistakes sometimes happen. The prudent investor is willing to take his or her time, have patience, and get to know a strategy before jumping in the deep end of the pool.

That’s why it’s important to take some time out and talk about the common Self-Directed IRA pitfalls…and how new IRA investors can avoid these same pitfalls.

Common Self-Directed IRA Mistake: Not Understanding the Withdrawals

According to USAToday, which recently wrote an article on this very topic, one of the most common mistakes was actually on the back end of investments—when investors start to take the money out of the account. Or, rather, when they forget that they’re actually supposed to.

Taking the proper RMD’s includes an onus on the taxpayer, which means that the IRS isn’t going to send you a letter and tell you exactly what to do. You’ll have to know that it’s time. Hopefully, you’re talking to an adequate tax professional on a regular basis that can help you in this regard, alerting you to the issues at hand. This is the kind of thing that you need to plan for well in advance, as well, because it means that those playing “catch-up” have to be aware that they’ll have to take distributions at a certain age. And, yes, you can face stiff penalties and fines if you don’t follow through on your end of the bargain in this regard.

Choosing the Wrong Type of IRA

Perhaps the most overlooked—and most important—mistake is made at the very beginning. This happens when someone chooses an account type that may not be right for their specific situation. For example, a Roth IRA means you put in taxed money on the front end. Other accounts may let you deduct your contributions, so you’re putting in “pre-tax” money into the account. Is one better than the other? Not necessarily. Your own financial situation and your goals for retirement will have an impact on the type of IRA you should choose.

If you’re unsure, it’s important to consult with a professional to get an idea of what you need. Not only will this professional help fill you in on the rules, but will help recommend the ideal vehicle for your investments—one that lines up with your goals and strategy more than the other options on the table.

Failing to Start

Perhaps one of the most important mistakes investors can make is to never get started in the first place. Sure, it’s true that there are some “catch up” rules in place with the IRS that allow late investors to get some money into their retirement accounts before reaching retirement age. But if you don’t invest early, most of the gains that come about as a result of exponential growth are left on the table. Those are gains that should ultimately go into your pocket—they shouldn’t be left out there for no one to enjoy.

That’s why it’s important to develop an investment plan and to get started as soon as possible. That means asking questions as the first step, even if you’re not sure where you want to put your money yet. Especially if you’re not sure where you want to put your money yet. You can continue to visit to learn more about the Self-Directed IRA, or you can call 866-7500-IRA to learn  more.

Get Started Flipping Houses in a Real Estate IRA

The fix-and-flip real estate strategy is a popular one among investors. But many people aren’t sure how to get started because most of their available investment capital happens to be in retirement accounts. But this shouldn’t dissuade you. If you happen to have a strong interest in fixing and flipping houses, and you have the capital available in retirement accounts, you can easily get started flipping homes using a self-directed IRA, also called a Real Estate IRA.

The concept is simple: The law doesn’t restrict IRA investments to Wall Street investment products like stocks, bonds and mutual funds. Your IRA money doesn’t belong to Wall Street. It belongs to you. And you are free to invest your Real Estate IRA funds and other tax-advantaged retirement account funds as you see fit, with just a few small exceptions.

Advantages of Real Estate Investing Within A Self-Directed IRA

  • All gains are tax-deferred until retirement (or tax-free, if you use Roth accounts and hold the assets within a Roth account for at least five years.
  • All positive cash flow (income and non-income) is tax deferred or tax-free.
  • There is no requirement to hold property for 1 year to qualify for better tax rates.
  • Assets in retirement accounts enjoy substantial creditor and bankruptcy protection.
  • Expense ratio/AUM fees can be minimized, compared to the fees charged by most Wall Street firms. Because real estate transactions are relatively large but relatively infrequent, you can pay a fee-per transaction for much less than a company charging you 1 or 2 percent per year in AUM fees would cost.

How to get started

1.) First, open an IRA with American IRA, LLC. This is no more difficult than establishing an account with any other investment company.

2.) Transfer money from another IRA, old 401(k), SEP or other qualified source of funds to the IRA, or contribute up to your annually allowable maximum contribution. Most of our clients us a trustee-to-trustee transfer, meaning they authorize a direct rollover of funds from an existing IRA or 401(k) to the new self-directed account at American IRA.

You could do it directly, as well. Just be well aware that you must complete your self-directed IRA rollover within 60 days or it will generally be considered to be a distribution, subject to taxes and penalties.

3.) Then, with your IRA funded, find a deal. That’s your job. That’s the beauty of the self-directed IRA or Real Estate IRA. You are fully in control. No one else is picking out deals for you. Your success is totally up to your own hard work and savvy in selecting the most promising available real estate deals for your self-directed IRA. You aren’t limited to investments in your state or even the United States. You can go anywhere in the world. You can also invest your Real Estate IRA account in anything from raw land to apartment buildings, duplexes, condominiums, mobile homes and trailer parks, commercial property, private notes, hard money lending, construction lending, new construction, and anything else you like. You just can’t buy, sell or rent to or from yourself or certain members of your family or entities controlled by them.

4.) Tell us where to send the check or wire the money, and how much. You should also tell us exactly what we’re buying on your behalf. That is, the address of the property or other specifically identifying information. When it’s time to sell, just tell us who we’re selling the property to on your behalf, and what amount of money you expect to receive for your IRA in return.

5.) Collect your statement.

As your Real Estate IRA administer, we will collect contributions from you, collect rent and other payments from tenants and customers, and reinvest them in your self-directed IRA in accordance with your instructions. When you want to make a distribution, just let us know and we’ll disburse your funds. American IRA, LLC, will handle all the record keeping and IRS reporting on your IRA’s behalf.

Meanwhile, you are free to run your property and other investments as you see fit.

If you are a house flipper or you are interested in becoming one, and you want to leverage the tax advantages of your IRA to invest in real estate, we want to work with you. Contact us at, or call us at 866-7500-472(IRA).