Everything You Need to Know About Self-Directed IRA Investing

• What is a self-directed IRA?
• What are the benefits of a self directed IRA?
• Why haven’t I heard of a self directed IRA before?
• How can I be sure that my investment is allowable in an IRA?
• Can I be assured that self directed IRAs are allowed under IRA rules?
• How does a self-directed IRA actually work?
• Are self directed IRAs for everyone?

What is a self-directed IRA?

A self-directed IRA is technically no different than any other IRA (or 401k). A self-directed IRA is unique because of the available investment options.

Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. For a truly self-directed IRA you need a custodian that specializes in self-directed IRAs and allows those types of investments in addition to real estate, notes, private placements, tax lien certificates and much more.

What are the benefits of a self-directed IRA?

In addition to the tremendous IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), you are able to invest tax-free in investments that you know and understand, which through the power of compounding interest, will create true wealth for you and your family.

Why haven’t I heard of a self-directed IRA before?

While the concept of investing in real estate and other assets in retirement plans has been around for more than 30 years, the concept hasn’t received large attention because most custodians who offer IRAs (banks and brokerage firms) focus on mutual funds and CDs because they have vested financial interests in you selecting those investments from them.

Because the majority custodians focus on stocks and CDs there is a misperception that these are your only investment options for retirement plans, which is not the case.

How can I be sure that my investment is allowable in an IRA?

The IRS does not give guidance on what types investments are allowed in an IRA. Instead, they give a list of items that are not allowed. IRS Publication 590 states what investments are prohibited in IRAs; these investments include artwork, stamps, rugs, antiques and gems. Examples of investments that are allowed:

• Residential real estate—including apartments, single family homes, and duplexes
• Commercial real estate
• Undeveloped or raw land
• Real estate notes (mortgages and deeds of trusts)
• Promissory notes
• Private limited partnerships, limited liability companies, and C corporations
• Tax lien certificates
• Foreign currencies
• Oil and gas investments
• Private stock offerings, private placements
• Judgments/structured settlements
• Gold bullion
• Car paper
• Factoring investments
• Accounts receivable
• Equipment leasing

Can I be assured that self directed IRAs are allowed under IRA rules?

As long as you follow relevant rules the answer is yes. There are specific rules regarding IRAs, and in particular, self directed IRAs that you should be familiar with to ensure compliance.

There are certain types of transactions that you can not perform through an IRA. Most importantly, the IRS prohibits “self dealing,” which are investments in which you or your family members of lineal descent have prior ownership. For more information, please visit IRA rules and regulations.

How does a self-directed IRA actually work?

Investing with a self-directed IRA isn't much different than investing outside of a self-directed IRA. There are just a few minor differences. Learn more through interactive Self-Directed IRA tutorials about investing with a self-directed IRA custodian.

Are self directed IRAs for everyone?

Self directed IRAs are not for everyone, they are for those who want to create wealth using their knowledge of investments outside of stocks, bonds, and CDs.