In many ways, a self-directed IRA follows the same model as a standard IRA. You can choose to open a self-directed IRA, such as a traditional IRA or a Roth IRA, with the same pre-tax and after-tax contribution rules. Regular IRAs usually house only stocks, bonds, mutual funds, and other relatively common investments. Self-directed IRAs offer many more possibilities.
For example, you could invest in real estate or a private company. You'll just need to find a custodian who will accept the deal and you'll be ready to go. With any IRA, you need a custodian or trustee to maintain the account in your name. A self-directed IRA offers the same tax benefits as a traditional IRA, and they also come in a Roth variant.
However, self-directed IRAs give account holders much more control over their investments. So, if you want to get into the commodity game or invest in private equity and real estate, a self-directed IRA might be right for you. A normal IRA would restrict these types of investments. A self-directed IRA (SDIRA) is a type of individual retirement account that contains alternative assets, such as real estate, commodities, tax liens, private equity placements and limited partnerships.
You're a candidate for a self-directed IRA if your retirement investment plan goes beyond traditional stocks, bonds, and mutual funds. A self-directed IRA is like a typical IRA in almost every way, with the main difference being what you can invest in. If you choose the option of a self-directed IRA, make sure you follow the IRS rules, or you risk losing your IRA's deferred tax benefits. A self-directed IRA can invest in assets that go far beyond the traditional stocks, bonds, funds and more that are available at one of the leading online brokerage agencies, and that is the main advantage for investors looking to use a self-directed IRA.
While self-directed IRAs have more control than a typical investment in a mutual fund IRA, you'll need to work with what's called a custodian. Self-directed IRAs are subject to the same rules as traditional IRAs when it comes to early withdrawals. If you have an investment plan that a traditional IRA doesn't support, a self-directed IRA may be your solution. While a regular IRA has a fairly standard set of investment opportunities, a self-directed IRA also allows you to use alternative investments.
Given the complexity of self-managed IRAs, you may want a financial advisor with experience managing investment transactions for self-directed IRAs to help you make investments with due diligence. A self-directed IRA is a tax-deferred retirement account for those who want more control than a regular IRA offers. A self-directed IRA allows you to explore unconventional areas of retirement investment while enjoying the tax-deferred growth that makes traditional IRAs so attractive. Advocates of self-managed IRAs claim that their ability to invest outside the mainstream improves their diversification, but a self-directed IRA can just as easily lack diversity as any other retirement account.
A self-directed IRA is a traditional or Roth type of IRA, meaning that it allows you to save for retirement with tax advantages and has the same IRA contribution limits. A common ruse is to say that the IRA depositary has examined or approves the underlying investment, when, as the SEC points out, custodians generally do not assess “the quality or legitimacy of any investment in the self-directed IRA or its promoters”. Some self-directed IRA providers to investigate are UDirect, Rocket Dollar, Equity Trust, IRA Financial, Alto IRA, STRATA Trust Company, and Entrust Group. A checkbook IRA is actually a checking account of a limited liability company (LLC) that is funded by its self-directed IRA.
Self-directed IRAs allow you to invest in a wide variety of investments, but those assets are often illiquid, meaning that if you're faced with an unexpected emergency, you may have difficulty getting money out of your IRA. .