Self Directed IRA’s
Although self-directed Individual Retirement Accounts’s (SDIRA’s) have been around since the Employee Retirement Income Security Act of 1974, there is very little known about them due to the fact that they are unpopular by the big investment intuitions and most financial advisors. The reason for this is quite simple. These firms and the financial advisors that work for them want you to invest in their products. The firm makes money through arbitrage off of your money and the financial advisor makes a commission for getting you to invest in the products they offer. These investments are largely limited to paper assets: Stocks, bonds, mutual funds, REIT’s, etc. The irony of this is that the common thread of advice given by these advisors is to “diversify your portfolio”. Unfortunately a portfolio consisting of these investments is not very diverse due to the fact that they are all paper assets whose success is largely dependent on the performance of those on Wall Street. This is something you or I have no control over.
A SDIRA is a type of individual retirement account or IRA that allows the account owner to include every possible asset type or investment allowed by the IRS in his/her own retirement portfolio. The term “self-directed” has no legal connotation, but is merely an industry term, which indicates that the SDIRA custodian or trustee has given the IRA owner greater control over the investments within his/her own portfolio. This opens a wide array of opportunities that do not exist with more traditional IRA’s. Some examples of these alternative investments are real estate, private mortgages, private company stock, IPO’s, private businesses, loans, commodities, oil and gas, certain precious metals, and tax liens , LPs, horses, and intellectual property. Now if you’re really going to take the advice of your financial planner, doesn’t this make more sense when it comes diversifying your portfolio?
Setting up a SDIRA is a relatively simple process. The first step is to select qualified trustee, or custodian, hold IRA assets on behalf of the IRA owner. Self directed IRAs—just like traditional IRAs—are required to be held with a custodian. While most people of heard of big custodial firms like Charles Schwab and Fidelity (who focus on traditional IRA investments), few have heard about companies like Pensco and Equity Trust—two of the larger self directed IRA custodians out of a growing list of providers. This company provides custody of the assets, processes all transactions, maintains other records pertaining to them, files required IRS reports, issues client statements, helps clients understand the rules and regulations pertaining to certain prohibited transactions, disqualified persons, and performs other administrative duties on behalf of the self-directed IRA owner.
There are many people who have interested in investing in real estate that simply don’t have the cash to get started. Most are unaware that they actually may have a substantial pile of money sitting in a 401K, 403B, defined benefit and deferred compensation plans from a prior job. (There are several other plans that qualify as well.) Most of these can be rolled into a SDIRA without any penalty.
Investment Housing Specialists has years of personal experience investing in SDIRA’s as well as helping other investors set up their accounts. If you are interested in learning more or would like a list of SDIRA providers, please contact us.