Monday, May 26, 2008

Why a Self Directed IRA?

A Self-Directed Individual Retirement Account (SDIRA) allows you to take control in your retirement account, and can go a long way toward building your wealth. So this requires a little primer on the benefits of this type of account.

First of all, what is an IRA? Individual Retirement Accounts have been around for quite a while. They were created in 1974 with the passage of the Employee Retirement Income Security Act (ERISA) as an investment vehicle to grow retirement savings.

Usually, people want to know the benefits of a SDIRA over other options. The SDIRA is an IRA that requires the account owner to make investment decision and investments on behalf of their retirement plans. Did you know that the Social Security Administration’s most recent trustee report states that Social Security will begin to run a negative cash flow by the year 2017? By the year 2040, it will not be able to pay full benefits at all.

With the impending Social Security crisis and dramatic reduction in pensions, it is imperative to begin planning for your financial future today.

Many of you probably know that this type of account exists, but you would be amazed at how much people don’t know about the options they have out there. The goal of the WCA is to educate you so that you become much more informed on how to invest your money.

There are a couple of ways to do this. You can have a custodian who helps manage your money, or you can set up an LLC so that you can have checkbook control. I am a big fan knowing where my money is and how it is being handled, so checkbook control is a good way to go if you like to actively manage your money. Plus many custodians charge based on the size of the account, or amount of transactions. The fees can add up, so it’s best to pay a little more to set up an account that allows you to save a lot more money in the future. Click here to learn more about setting up an IRA with check book control.

So what type of retirement accounts can I move into a Self Directed IRA?

Any retirement account that allows a transfer to a traditional IRA including 401k’s, a traditional IRA, a Roth IRA , and a Simplified Employee Pension plan, or SEP-IRA.

With an SDIRA, it’s virtually an unlimited possibility of investments. The rules governing what an IRA can invest in are exclusive - not inclusive. The self directed ira rules only specify where you cannot invest. The IRS only defines the following assets as prohibited:

  • Life insurance contracts (e.g., a life insurance policy on the life of the IRA owner);
  • Collectibles (e.g., antique rugs, cars, stamps, furniture, etc.);
  • Capital stock in an "S" corporation.

Examples of investments allowed (specialized assets) within self-directed IRAs

  • 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
  • Publicly traded stocks, bonds, mutual funds
  • Private stock offerings, private placements
  • Judgments/structured settlements
  • Gold bullion
  • Car paper
  • Factoring investments
  • Accounts receivable
  • Equipment leasing

So you can see that the sky is the limit when it comes to investing your self directed IRA!

1 comment:

andviv said...

I have a question, Can I use a Self-directed Roth-IRA instead of a self-directed IRA?
Is that possible?