Self-Directed IRAs give individual investors the opportunity to take more personal, direct control of their retirement assets. They are IRAs just like any IRA – the difference with a Self-Directed IRA is that instead of delegating investment decisions and execution to a bank, investment company or broker who may not always have your best interests at heart, you are taking the reins and making individual investment selections.
Furthermore, you do not have to settle for the mediocre returns and high liquidity premiums and expense ratios and commissions charged by publicly-traded mutual funds and other securities. Self-Directed IRAs enable you to bypass these companies and their fees while simultaneously affording you the opportunity to diversify into alternative asset classes that most off-the-shelf investment company products cannot or will not help you with.
Naturally, with a Self-Directed IRA, you are going to need to be more involved in the process of selecting and managing most of these investments than you are with conventional IRA investments in stocks, bonds, mutual funds, CDs and annuities. But you are going to have opportunities to find lucrative and diverse opportunities that your broker or Wall Street company advisor is not going to have access to.
The process is straightforward:
- Open an account with American IRA, LLC. Click here to start the process!
- Fund your Self-Directed IRA account, either with a rollover from an existing source of retirement funds or with an investment of new money for the current tax year.
- Identify potential investments and perform due diligence. You will not be paying a fund manager to conduct this process for you. You can engage with your own investment advisor, whom you can select. But with Self-Directed IRAs, the onus for performing due diligence for potential investments is on you.
- Direct American IRA, LLC to purchase the asset. American IRA provides administration and transaction services for Self-Directed IRAs, as well as Self-Directed 401(K)s, Self-Directed SEP IRAs (Simplified Employee Pension), Self-Directed SIMPLE IRAs, and even Self-Directed CESAs (Coverdell Education Savings Accounts) and Self-Directed HSAs (Health Savings Accounts). Once you have selected the investment, our function is to ensure that your transactions and instructions are handled timely and accurately, and to provide an accurate accounting of what was done.
Note: With Self-Directed IRAs, you are prohibited from handling the asset yourself. The title must not pass through your hands directly. Everything has to be handled by an IRA administration firm such as American IRA, or custodian.
You simply provide us written instructions to purchase the specific asset at a specific price, from a specific individual or entity. It is your responsibility to abide by all laws regarding prohibited transactions and counterparties. Once the closing is completed, the asset is owned in your IRA’s name, not your name, personally.
IMPORTANT: It is vital to keep a strict separation between your personal funds and IRA funds. You cannot intermingle funds, and if you own real estate or any other asset in your IRA you cannot use the assets for your own personal benefit. If you do, you risk having the IRS disallow the entire IRA, incurring a big current year tax hit as well as face some stiff penalties.
- Manage the Self-Directed IRA. You direct American IRA account owns the assets in the Self-Directed IRA on your behalf. All expenses associated with the asset have to be paid from funds from within the IRA. Additionally, all profits and cash flows generated from within the IRA must be returned to the IRA. You cannot access them directly except by taking a distribution, like with any IRA. If it is a Traditional IRA, 401(K), Self-Directed SEP IRA, Self-Directed SIMPLE IRA, Self-Directed CESA or Self-Directed HSA, this distribution is normally taxable as ordinary income. If it is a Roth account – whether it is an IRA or a 401(K), and the asset has been in the account at least five years, distributions are generally tax-free (though if an IRA asset has been leveraged, you may have an unrelated debt financed income tax liability).
If you need to take a distribution, likewise, you let us know in writing, and we will send you the funds requested, if available in your Self-Directed IRA. At the end of the year, we will generate a 1099 detailing your transactions and forward a copy to the IRS, in accordance with the law.
- Execute your sell strategy. You monitor your investment for performance and value. When it comes time to sell it, you send American IRA, LLC written instructions to sell the asset to a specific individual at a specific price.
The buyer must write the check out to your Self-Directed IRA, not you, personally, or wire the funds directly to American IRA, LLC. Once funds have been received, we will transfer the asset to the buyer according to your written instructions.
Once you get started, the process is simple and straightforward – and we find that most of our clients actually enjoy the process of investing and the challenge of making financial and investment decisions.