A self-directed Individual Retirement Account (IRA) puts the investment decisions squarely on the shoulders of the investor. That being said, IRS regulations require that a qualified custodian hold the IRA assets.
The custodian, usually a bank or financial institution, must keep the investments separate from its funds. It is the job of the custodian to maintain your assets, file all necessary IRS reports, issue statements and help you understand the rules and regulations regarding IRA investments.
Most, but not all, custodians offer a selection of standard investment options. However, investors who choose to go the self-directed route do so because they wish to move beyond conventional investments. The Internal Revenue Service (IRS) allows a wide range of permissible investments. That being said, some investment holdings are not allowed.
The IRS does not allow life insurance investments. It also disallows most collectibles to be placed into an IRA. Collectibles such as artwork, rugs and antiques are not allowed, but certain kinds of bullion and certain coins minted by the United States Treasury are allowed.
If you decide to move beyond traditional investments, within its regulations the IRS allows a surprisingly large spectrum of possibilities. For those who believe real estate is a safe bet, both United States and International, residential and commercial, farmland, raw land, new construction, passive rental income, mortgages and property renovation are a few of the acceptable self-directed IRA investments.
If real estate investment is not of interest, investing in franchises, partnerships, joint ventures or start-ups, in fact almost any for-profit enterprise that is managed by someone else qualifies as a self-directed IRA. Hedge funds, commercial paper and U.S. T-bills are other investment possibilities.
Once your IRA becomes self-directed, the possibilities expand far beyond stocks and certificate deposits. You are no longer locked into the offerings of banks and brokerage firms.
Benefits of a Self-Directed IRA
Once your investments are in your capable hands, you can put your money in areas that you know. If your interest lies in real estate, that is where you want to leverage your investments.
If your experience leads you to business development, you can put your self-directed IRA funds into start-up businesses that you believe in. If you chose construction as a career, you might confidently use your IRA to invest in new construction and renovations.
Traditional custodians, primarily banks and brokerage firms, may not be receptive to non-traditional investments. However, you are still required by law to procure a custodian for your IRA.
If you have a traditional or Roth IRA and your current custodian is not prepared to manage your self-directed IRA, you can transfer or rollover into a self-directed plan utilizing the services of a more receptive custodian without penalty.
Furthermore, you do not need to sell any of your current assets. Funds in a dormant 401 (k) account can also be easily transferred.
Large financial institutions know how to leverage their ability to earn commissions from repetitive, commodity-type transactions performed by computer software. Put simply, they are not equipped to handle the complexities of a self-directed IRA, with its numerous opportunities for the investor.
The biggest stumbling block an investor who wants unlock their funds, thereby moving them out of the control of traditional financial services, is finding an alternative custodian. The fact of the matter is, a non-traditional IRA custodian cannot use sophisticated software, and must spend a great many hours completing non-traditional transactions.
Furthermore, it remains the duty of the custodian to ensure your account still falls within IRS rules. When you self-direct your IRA, the relationship with a non-traditional custodian becomes a tight one. Someone must pay for his or her time, and that someone is you. Carefully choose your non-traditional custodian.
With each unique investment that you place in a self-directed IRA, it is necessary to check the legal parameters with your custodian. You are paying for his or her specialized knowledge. Make sure that knowledge is worth what you are paying, and do not choose a particular custodian because of his or her low fees.
Where To Find More Information About Gold IRAs?
You can find more information about gold IRAs and how to invest in them online from sites like IRA Investing. There you’ll find a wealth of information on everything from the basics of gold IRAs to how to invest in them. You’ll also find a list of the best gold IRA providers, which can help you choose the right one for your needs.