Take Control of Your Retirement: Discover the Power of Self-Directed IRAs
Do you remember the lyrics to the Peggy Lee song – Is That All There Is? Investors will often shake their heads in amazement after meeting a financial planner who talks about “diversifying” and “not putting all your eggs in one basket.” Great concepts, but what about something beyond stocks, bonds, and mutual funds?
Well, as the announcer says at the end of those TV commercials: But wait, there’s more!
Did you know that nearly $4.2 trillion in IRA and retirement account assets can be invested in much more than the run-of-the-mill investment options offered at Big Box investment companies?
Since IRAs were first introduced in the 1970s, investors have been allowed to invest in a variety of stock market alternatives, including unlisted assets such as real estate, notes, and loans, private capital and tax liens. But not many financial advisers and even fewer investors are fully aware of the options.
Legendary investor Warren Buffett uses a simple rule of thumb for success: Invest in what you know and understand. Diversification offers protection against risk. And what better way to diversify than to own something you have experience in, like real estate or a business?
You may find greater portfolio diversification and ROI that might be better geared to meet your individual goals when you consider investing in what you know from experience.
Any IRA, including Traditional IRAs, SEPs, Roth IRAs, Coverdell Education Savings Accounts, and just 401(k)s, can use a portion of the IRA funds to purchase shares in these various stock market alternatives. Essentially, an investor determines the amount and source of funds, transfers them to an independent third-party custodian for holding, and then instructs the custodian to release funds to purchase an investment in one or more alternatives. The custodian also owns all income to the investor from the investment.
The “rules of the road” can be complex but not impossible to navigate with proper guidance. Basically, an investor, spouse, direct descendant or trustee is a “prohibited person” and cannot “deal for himself” or make personal use of the property. With few exceptions, a “prohibited person” may not work or earn income from an IRA investment.
What can an investor do? Combine multiple IRA accounts of many people along with personal funds to buy properties as co-tenants, for example.
It’s easier to list things that a self-directed IRA can’t use as potential investments. These include 1.) collectibles, 2.) life insurance contracts, and 3.) shares in a Subchapter “S” corporation. Most everything else is fair game.
If structured correctly, the self-directed IRA can act as a lender to help facilitate a real estate transaction. Self-directed IRAs can invest as a member of an LLC or as a shareholder in a C corporation or even as a limited partner. This is a way to add a level of asset protection to an investment.
Harnessing the power of a self-directed IRA can offer an investor a whole new way to invest and get their retirement dreams back on track.