If you are familiar with self-directed IRAs, you are probably aware that these accounts allow you—the account owner—to choose your own investments and manage your own funds. You know that since you are calling the shots, you can choose to be aggressive or play it safe. The fact is that you are in control. You make decisions based on things you know and understand. If you don’t know it or understand it—you can set out to educate yourself on the many different alternative investments available that earn tax-free or tax-deferred income in your self-directed account.
While many people are familiar with these accounts, many are not. So, even if you’ve never heard of self-directed plans and are seeking knowledge, you’ve landed on the right page. Those who know about self-direction may also not yet fully grasp the large variety of assets available in these plans—and this article is meant to enlighten any investor on the potential these plans present.
The typical IRA is administered by investing houses or brokerage firms—that generally limit your investments to the more traditional options that they sell. However, self-directed IRA custodians do not sell investments or provide financial advice. Their purpose is to ensure the administrative details of your accounts operate within compliance of IRS rules and regulations. Account owners are responsible for identifying their own investments—and work with the self-directed administrator to acquire these assets with their funds.
You can acquire assets such as stocks, bonds, CDs or mutual funds in self-directed accounts and many people do. But again, the biggest draw for investors that self-direct is the large number of different assets permissible in these plans. The list of alternative investments is actually so vast the IRS does not provide one. Instead, they offer a short list of prohibited investments: insurance contracts and collectibles. Beyond that, the sky may very well be your limit provided your choices fall within compliance of IRS standards.
Common alternative investments in a self-directed IRA
- Real estate (single and multi-family homes, condos, vacation rentals, commercial property, tax liens and certificates)
- Private lending (notes and mortgages)
- Single-member LLC (also known as a checkbook IRA)
- Private placements and private stock
- Precious metals
- Foreign currency and futures trading
While real estate remains the number one asset in a self-directed plan, the investment opportunities listed above are also generally well known to the investor seeking diversity in his or her retirement portfolio. However, there are plenty of other options to choose from.
Additional examples of investments permissible in self-directed accounts
- Oil and gas rights
- Hedge funds
- Structured settlements
- Commercial paper
- Convertible notes
- Rights or warrants
- Accounts receivable factoring
- Equipment leasing
- And much, much more…
These examples do not even begin to touch the surface of the possible assets you can choose to invest in. Hopefully, though, you are beginning to get the picture. The key to self-direction is investors are able to invest in what they know best. So, do not limit yourself to any particular list. Instead, consider your own knowledge and expertise. Go one step further and think about investment options you’d like to learn more about. Spend some time educating yourself about opportunities that interest you. Become familiar with the process, risks, and benefits.
There are a wide variety of investment opportunities you can choose to diversify your portfolio and grow wealth for retirement. You don’t even have to be a seasoned investor to take advantage of alternative assets. You just have to be willing to put the time in to gain a greater understanding of different options and to perform due diligence to determine which ones are the right fit for you. In this way, Advanta IRA can help. While we do not give financial or investment advice, we do offer many complimentary weekly events open to investors of all levels who wish to learn about self-direction.
These educational webinars and seminars are offered free of charge and provide attendees with knowledge about self-directed plans and investments allowed in these accounts. Attendees learn about the power of controlling their own funds and decisions—enabling them to confidently acquire different alternative investments that have the potential to grow retirement income.
To attend a popular national webinar or a live event near you, visit the event calendar. You’ll learn about different assets, types of plans allowed to hold alternative investments, prohibited transactions and other IRS guidelines, as well as additional benefits and risks self-directed accounts present.
If you prefer to speak with someone personally, feel free to contact us!