Self-directed IRAs are similar to traditional IRAs. Self-directed individual retirement accounts were created to allow individuals save for retirement at a tax-free, or tax-deferred status. These tax benefits are meant to accelerate growth within your account through compounding interest over the years of saving.
How a self-directed account differs from traditional IRAs is what you can invest in. Most IRA custodians limit what your IRA can be invested in, so it’s usually a pre-selected cookie cutter mix of stocks, bonds, CDs or mutual funds. With a self-directed IRA you can invest in tangible assets like real estate, precious metal, small businesses, and so much more.
What is a self-directed IRA?
A self-directed IRA is an Individual Retirement Account (IRA) that you directly control and transfer into the investments of your choosing. Self-directed accounts allow alternative investments when saving for retirement.
How does this type of IRA work?
There are two options for self-directed IRAs. With the first, you open up an account, select an investment, and we purchase that investment for you. As per the IRS, any and all profits that are gained through these investments funnel back into your IRA, since your IRA owns the investment. This allows your earnings to grow. This structure gives you control over your investments, but you will be required to work through Accuplan for each transaction.
For the second option, you open an account, and we as the custodian, create a separate LLC that your IRA will invest in. This LLC can have a checking account setup so you can manage the LLC. You will have administrative powers and control over the asset and/or checking account. Any and all profits that are gained through these investments funnel back into your IRA. This account setup is ideal for clients who choose to hold real estate as an investment, and may need to pay bills and expenses related to the property. This way, you pay the bills directly instead of working with a custodian to pay the bills. As the manager of the LLC you can buy and sell those assets at your discretion.
How do you set up a self-directed account?
The first step toward setting up a self-directed IRA, is to open and fund your IRA. You’ll need to submit an application, provide some documentation, and set up a payment method. Next you select your investment and request funds. When the request has been approved, you purchase the investment. After that, you manage the investment, and if you choose, sell the investment.
Can I use an SDIRA to invest in my company?
It's tricky when it comes to investing in your own company with your own retirement funds, but it is possible. You first need to familiarize yourself with Employee Stock Ownership Plans, also called a mySOP. There are a lot of rules that you need to be aware of before you pursue this type of investment. Get in touch with us today if you're interested in creating a mySOP, and click here for more information on mySOPs, and how they work.
What are the benefits?
Self-directed IRAs give you direct control and transfer into the investments of your choosing. Diversifying and getting your retirement account out of the stock market, and into tangible investments is the main goal of self-directed account owners. Being diversified helps hedge your IRA portfolio against inflation, and poor performances within the stock market, and protects your money.
Why haven’t I heard of this retirement account type before?
Self-directed IRAs came into existence in 1974 with the creation of the IRA. Alternative IRA investments have always been allowed by the IRS. This type of IRA isn’t as well known because most banks and brokerage firms that offer them prefer traditional investments.
Why choose this IRA type?
One of the biggest reasons our clients choose to open am SDIRA is security. With self-directed IRAs, you're able to get your money out of the oftentimes unstable stock market, and into investments of your choice. A lot of investors choose to keep their own money in the stock market, but you don’t have to. Instead, you’re able to invest your money in alternative assets that you're familiar with and in what you want.