A Look at Self-Directed IRAs

When it comes to your retirement, you want to make sure that you are using all of the options that are available to you.  While many people know that they can have an Individual Retirement Account (IRA) where their money is used to invest in the stock and bond market, most don’t realize that they can use a self-directed IRA to broaden their retirement account into a wider array of items, such as precious metals, foreign currency, and real estate.

Permitted since 1974 (as part of the Employee Retirement Income Security Act of 1974), there are two types of self-directed IRAs: self-managed and self-directed.  A self-managed IRA is when you give control to a brokerage or trading firm to invest in the mutual funds, stocks, bonds, and treasuries that you choose.  This gives you more control over your investment.

A self-directed IRA is when you have a custodian hold your money and, based upon your directives, invests that money into a broader range of items.  The most common investments in self-directed IRAs are metals, foreign currency, private placements, and real estate.

Self-directed IRAs have the potential to make a much bigger return than your traditional mutual fund.  However, it also places the burden of due diligence (such as the tax implications, legality, and rules) on you, the investor.  A self-directed IRA does not receive any advice, counsel or guidance from the holder of the money. For this reason it is extremely important that you do the necessary research before you make any decisions in order to prevent run-ins with the IRS.

Some key rules to follow are that you cannot be in physical possession of any assets held in the IRA (they must be secured in an independent facility or depository) and you cannot use money from your self-directed IRA to buy a rental property for your own personal use.

If you have questions about what types of transactions are eligible in a self-directed IRA, and whether or not it might be a good option for your personal retirement plan, talk to your financial advisor, a precious metals dealer and/or a real estate agency to discuss the potential risks and rewards of this type of account.