When it comes to retirement accounts, most people invest in the standard menu of mutual funds and stocks. However with recent volatility and uncertainty in the markets, some bold investors are now looking at alternative options to get ahead.
It’s called a self-directed IRA. While most custodians are banks and broker-dealers that limit your holdings to “firm-approved” stocks, bonds, mutual funds, and CDs — Custodians of self-directed IRAs allow you to invest your retirement assets in other areas: real estate, businesses, private placements, foreign currency, and more.
An attractive element of a self-directed plan is that it allows you to create wealth by investing in areas where you might already have interest, knowledge, or even expertise. Some feel more comfortable having this discretion and control. While still a small fraction, self-directed IRAs may be a growing trend for investors. Of the roughly $4.7 trillion U.S. investors held in IRAs last year, an estimated 2 percent – or $94 billion were in self-directed accounts according to the Investment Company Institue.
Rules and Risks
While the flexibility can be attractive, there are substantial taxes and penalties if you don’t follow IRS guidelines properly. For example, in real estate transactions there are specific rules against self-dealing or renting property to your spouse or child. Make sure you understand all the rules before setting up a self-directed IRA.
Custodial firms that specialize in setting up self-directed accounts, such as Equity Trust, provide some guidelines. While they do not advise on legitimacy or suitability of a specific investment, their administrative guides may be helpful. As always, be sure to consult with an attorney or financial professional before making investment decisions.
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- Understand IRA rules and regulations
- Earn tax-free profits on real estate deals
- Invest in real estate while reducing your tax burden[/checklist]
Equity Trust is the nation’s leading custodian of self-directed IRAs and 401ks – with over 38 years of experience, 130,000 clients, and $12 billion of retirement plan assets under administration. Equity Trust , a regulated financial institution, is made up of a staff of experienced professionals. As a passive custodian, Equity Trust does not offer investments or investment advice.