What Is a Self-Directed IRA?

More Investment Options

The alternative investments available in self-directed plans are almost limitless. In fact, the number of assets in this class is so vast that the IRS doesn’t have a list of them. Instead, they provide a short list of assets that aren’t permissible in IRAs: life insurance contracts and collectables. Outside of those categories, you can invest in almost anything you can imagine to secure financial security in retirement.

Complete Control

We are all aware of the turbulence the stock market experiences. Many people lose sleep at night knowing that the investments they worked so hard for can possibly drop to zero value without warning. Self-direction gives you the ability to invest in tangible assets that you can buy and sell when you decide the time is right—without being dictated by the current state of the market.

Greater Flexibility

You have the option to use a checkbook IRA that allows you to write checks for your investments directly from your retirement funds. This feature reduces your chance of missing out on opportunities that require a quick close. In other words, you can grab that fixer-upper down the street ahead of your competition.

Tax-Deferred Income

Income from rental property and even capital gains from the sale of real estate grows on a tax-deferred basis in your account. This increases the amount of capital you have to reinvest.

Potential for Higher ROI

Alternative assets like real estate and private equity can provide a better return on your investment in a shorter amount of time than traditional investment options like stocks and bonds.

These plans can certainly hold the traditional stocks, bonds, and mutual funds, but the unlimited options of alternative investments are what attract individuals to self-directed accounts.
Remember, there are so many options available that listing them for you is virtually impossible. But, some of the more popular alternative investments include:

• Real estate: rental properties, rehab-and-flips, property tax liens and deeds, multi-family properties, commercial real estate, and land
• Private money lending: hard money loans or private mortgages
• Precious metals: gold and silver coins or bullion bars, platinum, palladium
• Cryptocurrency: Bitcoin, Litecoin, Ethereum
• Private equity and private stock: stock in your local bank, venture capital, startups, tech or medical firms, hedge funds
• Foreign exchange trading
• And many other investments

• Traditional IRA: Plan contributions are made with pre-tax wages, which may be tax deductible in the year you make them. Earnings in the account are tax deferred. When you retire, distributions are taxed as ordinary income.
• Roth IRA: All contributions are made after tax, but the earnings grow on a tax-free basis provided that certain requirements are met.
• Individual 401(k): An individual 401(k) or solo 401(k) is a qualified profit-sharing retirement plan with a 401(k) option but designed to be less complicated and not as costly as a traditional 401(k).
• Simplified Employee Pension Plan (SEP IRA): SEP IRAs are low-cost, easy plans utilized by the self-employed, partners, and owners of corporations who have less than 25 employees.
• Savings Incentive Match Plan for Employees (SIMPLE IRA): A SIMPLE IRA is a retirement plan designed for small employers to offer their employees, which helps lower the business’s tax liability.
• Health Savings Accounts (HSA): Your contributions to an HSA are tax-deductible, reducing your taxable income. Withdrawals are tax free as long as they are used to pay for qualified medical expenses.
• Education Savings Accounts (ESA): These are tax-advantaged, custodial accounts similar to Roth IRAs, except funds must be used exclusively for paying qualified education expenses for the beneficiary.