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    Self-Directed IRA (SDIRA): Diversify Beyond Wall Street

    Control Your Retirement Investments

     

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    Invest in what you know. Directly find, pick, buy, and sell alternative assets.

    Maximizing retirement wealth is paramount, yet traditional IRAs limit investment potentiality. To truly diversify and control your retirement destiny, a Self Directed IRA (SDIRA) expands your investing options beyond conventional assets like stocks, bonds, and mutual funds. 

    A SDIRA allows you to invest retirement funds into real estate, precious metals, private businesses, and other alternative assets, optimizing the potential for higher returns.

    With self-directed IRAs, you get to find, buy, and sell the alternative investments in your individual retirement account— this is true self-directed investing. This is especially beneficial if you already have expertise in a certain types of investments or market, such as real estate.

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    Understanding Self-Directed IRAs

    SDIRAs are a powerful tool for diversification, but requires research and understanding the rules.  SDIRAs empower you to build a secure retirement, but with that power comes responsibility.

    What is a Self-Directed IRA?

    Self-Directed IRAs (SDIRAs) are retirement accounts that let you choose your investments, offering the same tax perks as traditional IRAs. You manage the retirement investing account by finding, picking, buying, and overseeing its assets. 

    Self-Directed IRA (SDIRA) vs Managed IRA

    With self-managed IRAs or regular IRAs, you find at most financial institutions (Fidelity, TD Ameritrade, Wells Fargo, etc.) you simply check a box to indicate the mix of stocks, bonds, and mutual funds you want. You are limited to traditional investments. Most broker-dealers do not allow you to invest in true, tangible, alternative assets.

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    What You Need To Know

    Benefits of Self-Directed IRAs

    Self-Directed IRAs offer unparalleled control, embracing diverse investment opportunities beyond the stock market.

    "Unique assets within an SDIRA can potentially outperform traditional market returns, enriching your retirement savings."

    3 Key Benefits of SDIRAs

    • Diversification
    • Investment control
    • And the same tax benefits as regular IRAs

    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- the investment decision is yours.

    Types of Investments Allowed

    The Self-Directed IRA (SDIRA) expands your investment horizon, breaking the mold of traditional retirement accounts. Here a few examples:

    1. Real Estate: Commercial, residential properties, and undeveloped land.
    2. Private Placements: Non-publicly traded company investments.
    3. Precious Metals: Specific IRS-approved gold, silver, platinum, or palladium.
    4. Tax Lien Certificates: Investing in tax liens.
    5. Private Lending: Notes, deeds of trusts, and personal loans.
    6. LLCs and Partnerships: Joint ventures, business startups, or partnerships.
    7. Cryptocurrencies: Bitcoin, Ethereum, and other digital assets adhering to IRS rules.
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    Investments Allowed At IRAR

    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 or tax liens. 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. And, you don't have to transfer all your account, you can leave your mutual fund or other retirement assets with the existing IRA providers.

    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, and protect your savings from a volatile stock market or unpredictable changes in the economy.  In fact, one of the best investments in a self-directed IRA is real estate.

    A real estate professional or real estate investor, for example, can use their expertise to invest in residential, commercial real estate, and other types of rental properties . With their knowledge of the industry, they can invest in properties that stand to grow faster than the market. They can also help their clients invest in real estate with self-directed IRAs.

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    Investment Options

    Self-Directed IRA Rules & Restrictions

    Keep your self-directed retirement account on the right side of IRS regulations. Self-directed IRAs are governed by the same IRA rules as regular IRAs. Prohibited transactions and disqualified persons must be strictly avoided to preserve tax benefits.

    Prohibited Transactions in Self-Directed IRAs

    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 (life insurance and collectibles)

    As the account owner, you are responsible for making all the investment choices and finding the investment opportunity for your self- directed IRA account. This means that you are also responsible for making sure you do not break the rules or engage in a prohibited transaction.

    It's also crucial to conduct thorough due diligence before investing. This involves finding, vetting, and monitoring your investments' performance.  Additionally, you'll need to update the fair market value ( FMV ) of your investments or assets annually.

    Remember, when you reach a certain age, Required Minimum Distributions (RMDs) become mandatory. You are responsible for meeting these annual withdrawal requirements. Failure to do so can result in significant tax penalties.

    Ultimately, neglecting the rules could lead to your SDIRA losing its tax-advantaged status. While SDIRAs offer flexibility, it's essential to fully understand the regulations. 

    Rules

    Self-Directed IRA Rules and Examples
    Related Taxation Rules

    Unrelated Business Taxable Income (UBTI) and Unrelated Debt-Financed Income (UDFI).

    How Do I Set up a Self-Directed IRA?

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

    More than likely, your standard IRA provider or custodian, will not allow you to make investments in tangible alternative assets such as real estate— that's not their expertise.

    Choosing a Custodian

    Finding the right custodian is crucial for a successful Self-Directed IRA (SDIRA). Look for one with expertise, a clean regulatory record, and excellent customer service.

    With any truly self-directed retirement plan, the IRS requires you to have an account custodian for protection and oversight. Custodians like IRAR are regulated by state and federal law and are regularly audited. IRAR is a South Dakota trust company regulated by the Division of Banking. Make sure you know the difference between an IRA custodian and an IRA administrator.

    For savvy investors, a custodian is more than just an administrator. They should be a knowledgeable guide, helping you navigate IRS rules and ensuring your investments stay legal. An experienced custodian will handle the logistics of your SDIRA and offer educational resources to empower your investment choices.

    Furthermore, they should be familiar with alternative investments like real estate and private placements. Choose a custodian with clear fees that won't eat into your retirement savings and a system for easy transactions.

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    Opening a Self-Directed IRA is Easy
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    Open an Account With an IRA Contribution

    Opening A Self-Directed IRA

    Once you choose a custodian, opening a self-directed IRA is simple and you can do it yourself online by completing a new account application. 

    There are different types of accounts to choose from. If you are an individual investor, explore the Roth IRA and Traditional IRA. For small business owners, you can look into the SEP IRA , SIMPLE IRA or Solo 401(k).

    Funding Your SDIRA

    You can fund your SDIRA with an existing retirement account. This can be an IRA or old 401(k), or by making 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. If you have an old 401(k), you can do an IRA rollover. You can also open an account with an IRA contribution . But not to worry, IRAR guides you through this process and rule.

    Making The Investment

    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 (not the account holder.) The expenses for the investment are paid from the self-directed IRA and the income is put back in the self-directed IRA. The same is true if you sell the investment, the profits are put back into the self-directed IRA.

    When it's time to take distributions (age 59 1/2) or required minimum distributions (RMD age 72), you can liquidate the assets, or you can take in-kind distributions.

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    How to Transfer Retirement Savings to a Self-Directed IRA

    Crafting Your Self-Directed IRA Investment Strategy

    You will need to decide what type of individual retirement account (IRA) is right for you. Different account types offer different tax benefits. 

    For instance, a self-directed Roth IRA (tax exempt) could be a part of your retirement plan if you anticipate being in a higher tax bracket upon retirement. On the other hand, a self-directed Traditional IRA (tax delayed) might be more suitable if you expect to be in a lower tax bracket when you retire. If you are a small business, you may want to explore a Solo 401(k), SEP, or SIMPLE.

    Your IRA investment options will also determine your strategy. For example, you may be interested in many different types of real estate like commercial or residential real estate. Identifying your options will help you narrow down funds needed.

    You can decide if you need an LLC or a checkbook IRA. A checkbook IRA gives you control over your LLC. This is important if you are buying many properties.

    If you are interested in purchasing commercial properties, you can utilize a non-recourse loan. Another option is to team up with others' retirement funds (Partnering) for larger real estate deals. 

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    5 Self-Directed IRA Investing Strategies

    Managing and Maintaining Your IRA

    Owning a Self-Directed IRA (SDIRA) gives you the freedom to invest in a wider range of assets, but it also comes with responsibilities.

    Following the Rules

    Understanding and following IRS rules is critical. Regularly review your investments' performance and avoid prohibited transactions. Make sure that all income and expenses flow through the SDIRA and not your personal account. 

    Meticulous record-keeping and partnering with experienced custodians ensure smooth tax reporting and compliance.

    Additionally, don't forget to stay informed about legislative changes that might impact your SDIRA strategy.

    Your Search for the Best Self-Directed IRA Custodian Ends Here!

    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.

    We also keep our transaction fees low so you can save for retirement and build equity— trust that we have your best interest first.

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    Self-Directed IRA FAQs

    What is a self-directed IRA? 

    A Self-directed IRA is a retirement account that you, the IRA owner, control. With a self-directed IRA, you do more than check a box. These types of retirement accounts are usually used to invest in alternative assets like real estate. Self directed IRA investors directly find, pick, buy, and sell the assets held in the IRA. You need a self-directed IRA custodian or trust company to establish an account. 

    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 business where you or a disqualified person do not own 50% or more of the business. A business is considered an alternative investment in private stock.

    What are the fees for a self-directed IRA? 

    The costs associated with self-directed IRAs can differ based on the chosen custodian. Typically, there are fees for both setting up and maintaining the IRA. It is advisable to carefully examine the fee structures, also known as fee schedules, when comparing custodians' fees prior to opening an account.

    Who offers self-directed IRAs? 

    Unlike most big banks such as Fidelity, this specialized IRA service is unavailable. While they may provide a self-directed IRA option, it ultimately functions as a self-managed IRA, where you have the freedom to personally select stocks and bonds.

    I have a Fidelity Self-Directed IRA, can I move it to IRAR? 

    Absolutely! You have the freedom to seamlessly transfer any IRA from another custodian to a self-directed IRA at IRAR. To kickstart this hassle-free process, simply open an account with IRAR and swiftly fill out our transfer form. 

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

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

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