Self-Directed IRA FAQs
What is a Self-Directed IRA?
TEchnically speaking, a Self-Directed IRA is not any different than any other IRA (or 401k), however what makes a self-directed IRA unique is the available investment options.
Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. A truly self-directed IRA custodian, such as Equity Trust, 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 lasting wealth for you and your family.
Why haven’t I heard of a self-directed IRA before?
Self-directed IRAs may seem like a recent phenomena, but they have been around since the IRA was created in 1974. Investing in alternatives to stocks, bonds, and mutual funds has always been allowed by the IRS (see IRS Publication 590). Self-Directed IRAs have not received large attention because most custodians who offer IRAs (banks and brokerage firms) only allow traditional investments at their firms.
Equity Trust has been a custodian of alternative investments, such as real estate, since 1983. As more and more investors decide to take control of their financial future and reap the incredible benefits of self-directed IRAs, they turn to Equity Trust.
My CPA/Attorney/Financial Advisor hasn’t heard of a self-directed IRA, what should I do?
A trusted advisor who has not heard of self-directed IRAs is not an entirely uncommon experience, given their relatively unknown nature.
At Equity Trust we have worked with thousands of professional advisors across the country to educate them regarding IRA and self-directed IRA rules so they can best customize advice to meet your personal needs.
If your advisor is not familiar with self-directed IRAs, he/she can contact an Equity Trust Retirement Specialist at 1-888-382-4727.
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 cannot 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 see Self-Directed IRA Rules.
How does a Self-Directed IRA investment work?
Investing with a self-directed IRA isn’t much different than investing outside of an IRA. In fact, in three simple steps you can be on your way to making tax-free or tax-deferred profits.
3 Simple Steps to Self-Directed IRA Investing
Are my Self-Directed IRA investments guaranteed?
Identify Your Investment and Request Funds
Important: All documents related to the investment must be titled in the name of your IRA, not to you personally. For example, if you invest in real estate, the title of the property would be:
Equity Trust Company Custodian FBO (your name) IRA
Process the Investment
Equity Trust will review and process your forms. If everything is correct and approved, the funds will be sent from your IRA for the investment based on your specifications. All records pertaining to the investment (such as real estate deeds, original notes, operating agreements for LLCs) are retained by Equity Trust for safekeeping.
Manage and Sell the Investment
Once your IRA owns the investment all expenses and profits related to the investment must come from and back to the IRA. When you are ready, instruct Equity Trust to sell the investment on behalf of your IRA. Funds from the sale of the investment return to your self-directed IRA tax-free.
No, investments held within your self-directed IRA are not guaranteed. Cash balances however, are held in FDIC insured accounts. For this reason self-directed investing may not be for everyone. Most successful investors feel that the investment risk in assets they know and understand is much less than that associated with investing solely in conventional IRAs.
Are self-directed IRAs for everyone?
Self-directed IRAs are not for everyone. They are for people who want true diversity in their portfolio, who want to be in control of their financial future and they are for those who want to create wealth using their knowledge of investments outside of stocks, bonds, and CDs.