What is a Self-Directed IRA?

Do more than check a box. Directly find, pick, buy, and sell the assets held in your IRA.

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Self-Directed IRA vs  Managed IRA

With the self-managed IRAs you find at most financial institutions, you simply check a box to indicate the mix of stocks and mutual funds you want. With self-directed IRAs, you get to find, buy, and sell the assets in your account.

You can also invest in assets that you can’t invest in with a self-managed IRA. This is especially beneficial if you already have expertise in a certain type of asset or market, such as real estate. And with IRAR, when your account grows, your fees don’t grow with it. That’s because unlike most self-directed IRA custodians who base fees on the value of your account, we charge fees per asset.

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Reach Your Retirement Goals with a Self-Directed IRA

SDIRAs have the same tax benefits as IRAs offered by banks or brokerage firms with the added benefits of being able to invest in more asset types and directly pick, buy, and sell the assets held in your account.

Self-directed IRAs offer three key benefits: diversification, investment control, and the same tax benefits as IRAs managed by a broker-dealer. Beyond stocks, bonds, and mutual funds, you can invest in non-traditional assets like real estate and private equity that give you added protection from a turbulent stock market.

You also decide whether you want IRAR to do the recordkeeping or if you want full bookkeeping control of your account via an LLC. Often referred to as checkbook control, establishing an LLC with IRA funds allows your LLC to make asset purchases. SDIRAs also allow you to employ other strategies, like taking out a non-recourse loan with your IRA or partnering with others to purchase real estate.

How Self-Directed IRAs Work

With any self-directed IRA, the IRA requires you to have a custodian for protection and oversight. Custodians like IRAR are regulated by state and federal law and are regularly audited.

After you choose a custodian, you’ll want to determine which IRA account type is best for your goals and open an account. You can fund your self-directed IRA with an existing IRA or old 401(k), or by making scheduled contributions. If you’re funding it with an existing account, there are two ways to do this: a rollover or a transfer. Be sure to check IRA compatibility. Given the different tax benefits of different IRA accounts, you want to know the type of account you can move funds to.

Once your account is funded, simply tell your IRA custodian what purchase you want to make.

How Do I Set up a Self-Directed IRA?

First, conduct a comparison on Custodians or trust companies. Third-party providers, like administrators and promoters, are generally not custodians. Instead, they work with one to conduct business. It's important to know the difference.

Once you choose a custodian, opening a self-directed IRA is simple and you can do it yourself. You can complete a new account application and fund your account with an existing IRA or old 401(k), or you can make regularly scheduled contributions. 

Transferring funds from an existing IRA to your self-directed IRA is an easy process and it is not a taxable event. You can start an IRA transfer by completing a Transfer Form and submitting it with your new account application. IRAR guides you through this process.

Once your account is funded, you can tell your IRA custodian what to invest in and your custodian will make the purchase. 

The investments are titled in the name of the self-directed IRA. All the expenses for the investment are paid from the IRA and all of the income is put back in the IRA. The same is true if you sell the investment— the profits are put back into the IRA.

 

Unlock the Potential for Higher ROI— Alternative Investments

Why leave your money at the mercy of the market? With a self-directed IRA, you can invest in specific assets such as a private company. But you can also invest in other non-traditional assets, like real estate or an LLC, that have the potential for a higher rate of return.

These alternative investments are the major benefit of opening a self-directed IRA. By investing in these assets, you can further diversify your portfolio, capitalize on any industry knowledge (such as real estate), and protect your savings from a volatile stock market or unpredictable changes in the economy.

Real estate professionals, for example, can use their expertise to invest in residential, commercial, and other properties. With their knowledge of the industry, they can invest in properties that stand to grow faster than the market.

Self-Directed IRA Investment Strategies

Your retirement goals and financial situation will influence your SDIRA strategy. Different account types offer different tax benefits. For example, a Roth IRA may fit into your retirement strategy if you believe you’ll be in a higher tax bracket when you’re retired, whereas a Traditional IRA may make more sense if you believe you’ll be in a lower tax bracket.

While IRAR can do your recordkeeping, you can gain full bookkeeping control of your account by establishing an LLC with IRA funds. Often called checkbook control, this type of SDIRA allows your LLC to make asset purchases. Other strategies include taking out a non-recourse loan with your IRA, direct purchase of a property, or partnering with others to purchase real estate.

These strategies can be mixed and matched in many ways. You aren’t limited to just one of them. You can combine these to maximize your investment potential.

Self-Directed IRA Rules 

Keep your retirement on the right side of IRS regulations. With this tax-enhanced environment comes added responsibility. There are three key rules to keep in mind:

  1. You cannot engage in a transaction with a disqualified person
  2. You cannot use the IRA to take personal benefit. 
  3. You cannot invest in disallowed investments.

As a self-directed investor you are responsible for making all the decisions for your self-directed IRA. This means that you are also responsible for making sure you do not break the rules. 

You are responsible for finding, vetting, and keeping track of investment performance— and for updating the fair market value (FMV) of your investments or assets annually. 

With self-directed IRAs you get a lot of investment freedom, but you do have some responsibility. 

Download the self-directed IRA basics "Everything You Need To Know to Get Started" below.

Choose the Self-Directed IRA Custodian Who Looks Out for You

Not all self-directed IRA custodians provide the same services. Specializing in real estate and private equity transactions in self-directed IRAs, our employees each have nearly a decade of industry experience and a passion for educating clients. That means we share what we know with you as soon as we know it, so you can always make the best investment decisions possible.

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Self-Directed IRA FAQs

What is a self-directed IRA? 

A Self-directed IRA is a retirement account that you control. With a self-directed IRA you do more than check a box. You directly find, pick, buy, and sell the assets held in your IRA.

How do I set up a self-directed IRA? 

You can open a self-directed IRA yourself. Open a new account online, move savings from another IRA to the account, or make a contribution to the new account. 

Can a self-directed IRA invest in a business? 

Yes. A self-directed IRA can invest in a business  where you or a disqualified person do not own 50% or more of the business.

What are the fees for a self-directed IRA? 

The fees for self-directed IRAs vary depending on the custodian. Usually there is a fee to set up the IRA and a fee to maintain the IRA. You should compare custodians fees before opening an account.

Self-Directed IRAs: What You Need To Know To Get Started

Download the basics before getting started with a Self-Directed IRA.