Getting Started with Self-Directed IRAs: Account Set-Up and Investing

Investing with self-directed IRAs is becoming widely used by investors seeking greater control of their own retirement funds and investment decisions. However, this account structure has actually been in place since 1974—the year IRAs were created. One reason self-direction goes largely unrecognized by the average investor is because typical IRA custodians (banks, brokerages) only offer traditional investments (such as stocks, bonds, and mutual funds) to their clients. Getting started with self-directed IRAs is easy once you understand the process.

Getting Started with Self-Directed IRAs

One of the most common questions we are asked by individuals who are unfamiliar with these plans is, “How do I get started self-directing my retirement account?” Advanta IRA serves clients across the nation that hold over $700 million in assets in self-directed retirement plans. Our locations are managed by Jack Callahan, CFP™, and have been providing personal, professional service to clients for over a decade. We neither sell investments nor do we give investing advice. We do provide service in the way of administrating the finer details of these accounts in compliance with IRS standards, allowing investors more time to seek assets to grow wealth in their portfolios.

The first step of self-direction is to ensure you fully grasp what it means. It is important to understand what alternative investments are and to know what types of accounts can be used in this manner.

What sets a self-directed IRA apart from the rest?

  1. The ability of the account owner to have total control over his/her own investments.
  2. The vast number of alternative investments that are permissible as assets.

Alternative investments include, but are not limited to:

  • Real estate (single and multi-family homes, commercial, raw land)
  • Offshore property
  • Notes and mortgages
  • LLCs and trusts
  • Precious metals
  • Oil and gas options
  • Timberland
  • Foreign exchange and futures trading
  • Private placements and private stock
  • Crowdfunding opportunities

These are just a few of the more popular non-traditional assets these plans can use to build retirement wealth. Many more opportunities are available and allowed by the IRS. The only investments not permissible are life insurance contracts, collectibles, and certain types of precious metals. And, getting started with self-directed IRAs is easy once you choose your plan.

Self-directed retirement plans are not restricted to traditional IRAs

Accounts that can be self-directed include:

  • Traditional and Roth IRAs
  • Simplified Employee Pension Plans (SEP IRA)
  • Savings Incentive Match Plan for Employees (SIMPLE IRA)
  • Individual or Solo 401(k) Plans
  • Health Savings Accounts (HSA)
  • Education Savings Accounts (ESA)

If you self-direct any of the above savings plans, you are able to use the account’s funds to acquire investments of your own choosing that have the potential to increase the worth of that plan.

How can you get started self-directing an IRA or other savings plan?

The process of opening a self-directed account is fairly simple. It is important you choose a retirement plan administrator that not only facilitates self-directed plans but one that also allows the types of investments you wish to acquire. After that, getting started is as easy as 1-2-3.

  1. Choose a plan.
  2. Fund the account by making a cash contribution or by rolling over funds from an existing IRA or 401(k).
  3. Begin investing.

Self-directed accounts allow you to choose assets you are most familiar with, that you know and understand. You do not have to rely on other individuals to determine investments for you. While you can and should seek guidance when necessary, ultimately you have the freedom to choose investments—based on your own expertise—that have the potential to grow your retirement income.

It is essential to recognize that as the account owner, you are solely responsible for performing your own due diligence in determining an investment’s viability and potential. The freedom of choosing your own assets comes with the responsibility of fully vetting your choices. Doing so will help you avoid fraud and also help you better determine if an asset is worth taking the chance on or not. All investment opportunities carry risk along with the potential for gain. Be prepared to take the necessary steps to choose wisely and understand the benefits as well as the pitfalls that may be involved.

It is also critical that you fully comprehend IRS regulations regarding prohibited transactions and disqualified persons pertaining to these plans. For example, you are unable to sell your IRA a piece of property you already own and you may not vacation in a rental property owned by your self-directed IRA. Performing these transactions and/or dealing with disqualified persons can cause heavy penalties, taxation, and even disqualification of your self-directed account.

To learn more about our services and how to open a self-directed IRA or other savings plan, please contact us for a free consultation.

About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.