- What is a self-directed IRA?A self-directed IRA is no different from a legal standpoint than any other IRA. Self-direction simply means you make all the decisions regarding the investments you want your IRA to invest in. A “self-directed” IRA as offered by a financial firm or stockbroker can only be directed into securities. In contrast, with American IRA’s truly self-directed IRAs, you can pick from any number of assets – a world of choices awaits!
- What can my self-directed IRA invest in?The internal revenue service doesn’t tell you what you can invest in; it only tells you what you can’t. Fortunately, this means that your investment choices are practically unlimited! Of course, the prohibited assets are important to know — these include collectibles, life insurance, or an “S” corporation.Some examples of permitted non-traditional investments include real estate, private stocks, and mortgages.
- Why have I not heard about this before?Many times stockbrokers, bankers, or financial advisors have not heard about true self direction or do not want to lose business if assets are transferred to a truly self-directed IRA. The most common mistake advisors make is their belief that investing in real estate is not possible in an IRA. This is not correct; real estate is actually the #1 investment in self-directed IRAs!
- How long does it take to transfer?In most cases when we receive a completed application the account is opened within 48 hours. The most common delay arises because potential self-directed IRA investors wait until they’ve located an investment to open the account. This can cause delays because the great “unknown” variable with transfers is the length of time it will take for the current fund custodian to transfer funds. This could cause an investor to lose a considerable amount of time (and possibly money) in a worst-case scenario.
- Do I have to move all of my funds to the self-directed account?No; many of our clients have accounts both with American IRA and a brokerage firm. This is the true meaning of “diversification” when it comes to investment portfolios.
- How do I make an investment with my self-directed IRA?All transactions start with a direction letter stating the asset to be purchased, its price, terms, and the professionals involved. American IRA’s role in the closing process involves communicating with the relevant professionals to make sure all documents are “vested” correctly for the IRA. We don’t approve documents or investments. When the documents are ready, you’ll receive the completed document to review, approve, and sign digitally, or if preferred to print and return by fax, mail, or email. The transaction then closes and the asset is held by American IRA.
- I don’t have enough money in my account to invest in real estate. What can I do?Excellent news! Your IRA can borrow money to buy real estate. The loan must be a non-recourse loan — this simply means that the lender may only foreclose on the property; they can’t sue the IRA. Nevertheless, neither you nor prohibited persons may personally guarantee this debt. Since the bank is making a non-recourse loan, the down payment is typically 30-35%. Most banks or mortgage brokers don’t make non-recourse loans to IRAs; however, there are several great national sources that specialize in this type of loan.
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