Self-Directed IRAs Let You Invest Beyond Stocks And Bonds

Feb. 08, 2017 11:21 AM ET
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Contributor Since 2017

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 12 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at rick@sdretirementplans.com or visit www.sdretirementplans.com.

Retirement investing may not seem like the most interesting activity, but with self-directed IRAs, you can get more creative with your investment preferences. Some people want to explore their investment options beyond stocks, bonds, mutual funds and other conventional choices proposed by standard IRAs. For those intrigued in investing their IRA earnings in alternative investments, either it is real estate, private placements or even farm. But there's another lucrative option: self-directed IRAs.

What Is A Self-Directed IRA?

A self-directed IRA empowers you to make your own investment choices. This is the retirement channel option that will interest you if:

  1. You prefer being in the driver's seat when it comes to choosing how to invest your funds
  2. You notice the financial advantage of investing in other types of commodities other than stocks and bonds
  3. You're not afraid of experimenting financially
  4. If you're not nervous about rolling up your sleeves to take a more proactive stand over your retirement funds. And, you have an open mind about the varieties of investments that are at your disposal to invest in.

If your answer is a resounding yes to all of the above points, then honestly, a self-directed IRA investment fund is right for you. Self-directed IRAs, in a nutshell, put you in charge of your investment decisions. In addition to stocks, mutual funds and bonds, you can invest in real estate, precious metals, energy and other alternative investments.

Why Self-directed IRA?

  1. You're in the driver's seat:
    A self-directed IRA includes a custodian holding your money in the account and invests in things like real estate, private organizations and metals for you, based on your directive. Regular IRA plans are maintained by a custodian. But with self-directed IRAs, the financial institution containing the account plays a passive role, solely executing the requests of the account holder.
  2. Better investment options:
    Have you recognized an investment asset with flipping potential? What about a private firm on the brink of explosive growth? With a Self-Directed IRA, you can regulate your retirement savings into these sorts of opportunities. But you cannot do so with a Brokerage IRA. With a Brokerage IRA you can drop out on the profit potential that can grow with purchasing a property, to hold on to for long term cash flow.
  3. Opportunities overseas:
    Investments abroad can further provide asset class diversification. In many situations, the investments will also include a foreign currency, thus broadening your holdings. Self-directed retirement plans can be liberating for some investors, so long as they obey the IRS rules and regulations.

Working within the IRS rules is the key to success when investing with a Self-Directed IRA or 401(k). Investors must be informed about the specific rules that accompany with investing in a self-directed IRA. For instance, you can't use a self-directed IRA to invest in items like collectibles, antiques or rare coins.

Your investment goals and risk tolerance also come into play. Even if you possess no trepidation about controlling your own investment decisions, a self-directed IRA may still miss the mark. This can happen if it doesn't align with what you expect to accomplish or if it requires that you seize more risk than you'd prefer. Your choice of investments can also impact your perspective on holding a self-directed IRA in your portfolio. If your long-term plan is raising your investment nest in a tax-advantaged way, then the self-directed IRA might make more sense. On the other hand, if you require an extra income flow instantly, it would be safer to invest in real estate, outside of your retirement plans.

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