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The Basics of Self-Directed IRAs


Self-directed IRA’s are no different from traditional IRA’s. The word ‘self-directed’ is not an official or legal term, but it is simply a term that describes an IRA and how it’s managed. Broadly speaking, the term means that the IRA owner, or someone they appoint, makes all the important investment decisions and choices for the IRA.
Even though a self-directed falls under the same laws and regulations as a traditional IRA, most financial institutions that hold IRAs limit investment choices to stocks, bonds, and mutual funds, as these are the main sources of revenue for these institutions.

Some of the major points to consider about a self-directed IRA are:

1. A self-directed IRA gives the account owner full control over account management and investment selection.

2. The owner can purchase almost any type of assets in their retirement account with proper investment documentation. Some popular choices are real estate, privately held companies, promissory notes, precious metals, etc. This gives them the opportunity to invest their money into whatever they are comfortable with or simply understand better.

3. Almost anyone can establish a self-directed retirement plan as long as they have a social security number and means of funding the account, typically earned income.

4. A self-directed IRA can be established either by contributing personal money to a plan or by moving current retirement funds to a company who allows the owner to self-direct their IRA. If your retirement plan funds are with a current employer plan (e.g. 401(k), company pension, etc.), then you likely won’t be able to move those funds to a self-directed IRA until you terminate employment or reach retirement age for that plan.

A self-directed IRA gives you the ability to widen your investment opportunities and puts you in the driver’s seat of your retirement planning. You have a long list of investment choices, except the ones prohibited by law which some of which are collectibles, life insurance, and S-corporation stock. Instead of just checking off a few boxes on a form and putting the fate of your funds into the hands of your employer and/or financial planner, you’ll be taking a hands-on approach to investing your hard-earned cash.

By Matthew A. Tillack