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 often shake their heads in amazement after meeting with a financial planner who is talking about “diversification” and “not putting all your eggs in one basket.” Great concepts, but what about more than just 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 close to $ 4.2 trillion in IRAs and retirement account assets can be invested in much more than the standard, run-of-the-mill investment options offered by Big Box investment companies?

Since IRA accounts 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 fiscal ties. 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 risks. And what better way to diversify than to own something you have experience with, like real estate or a business?

You may find greater portfolio diversification and a return on investment that might be better geared towards meeting your individual goals when you consider investing in what you know from experience.

Any IRA, including a Traditional IRA, SEP, Roth IRA, Coverdell Education Savings Accounts, and only 401 (k) can use a portion of the IRA funds to acquire interests in these various stock market alternatives. Essentially, an investor determines the amount and source of the funds, transfers them to an independent third-party custodian for holding, and then directs the custodian to release funds to acquire an investment in one or more alternatives. The custodian also holds all income for the investor derived from the investment.

The “rules of the road” can be complex but not impossible to navigate with the proper guidance. Basically, an investor, spouse, direct descendant, or fiduciary advisor is a “prohibited person” and cannot “negotiate on his own account” or make personal use of the property. With few exceptions, a “prohibited person” cannot work or receive income from an IRA investment.

What can an investor do? Combine multiple IRAs from many people along with personal funds to buy a property as co-tenants, for example.

It’s easier to list the things that a self-directed IRA cannot use as potential investments. These include 1.) collectibles, 2.) life insurance contracts, and 3.) shares in a Subchapter “S” corporation. Almost everything else is fair game.

If structured properly, the self-directed IRA can act as a lender to help facilitate a real estate transaction. Self-directed IRAs can be invested as a member of an LLC or as a shareholder in a C-Corporation or even as a limited partner. This is one way to add a level of asset protection to an investment.

Harnessing the power of a self-directed IRA can offer the investor a whole new way to invest and get their retirement dreams back on track.

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