Although some people may think that a self-directed IRA is some exotic investment vehicle only for rich people, the reality is that self-directed IRAs can be utilized by anyone who is saving for retirement.
However, do not walk into your local bank and ask for one.
Sorry, they can't give it to you.
But here's who can...
Several IRA Types
Upon hearing the term "self-directed" IRA, people may think that it is a special kind of IRA. Why not? There are a variety of IRA plans on the market available including:
-Roth
-Traditional
-SIMPLE (savings incentive match plan for employees)
-SEP (simplified employee pension)
...so why wouldn't a self-directed just be yet another type of plan?
Well, it's not and here's why...
IRS Does Not Recognize Self-Directed IRA Plans
Believe it or not, the IRS does not recognize "self-directed" as a type of IRA plan. Rather, any of the IRA types mentioned above can be made self-directed. The way to do this is by establishing a relationship with a special administrator. The administrator becomes the self-directed IRA trustee or custodian that safekeeps your account helps you facilitate your account transactions.
This May Look Complicated But Trust Me, It's Not
Based on personal experience with my self-directed SEP IRA, this process is very easy. In fact, the primary job of the administrator is to make your life easier. "We take the financial mystery out of the set-up process," says IRACheckbook Managing Director, C. Jeff Beall, "and we ensure that our client's retirement funds are securely deposited into a FDIC-insured bank account."
There are several reputable companies that provide self-directed IRA administration services. For example, Charleston, South Carolina-based IRA Checkbook is just one of several qualified administrators in the United States. There are plenty of informative pages on their website including:
5 Things You Need To Know About the Self-Directed IRA.
Strict Self-Directed Administrator Rules
Don't think of a self-directed IRA administrator as another financial advisor you need to add to your life.
Just the opposite.
These companies are forbidden from providing direct financial advice. Rather, the representatives that work for these administrators can discuss available options and offer guidance about adhering to self-directed IRA rules and regulations that govern what you can and cannot do with the funds in the account.
Why Learn More About Self-Directed IRAs?
Self-directed IRAs open the door to investing in more than just traditional stocks, bonds and mutual funds. Private lending, purchase of real estate such as raw land and rental property, purchase of precious metals are just a few examples of investment types possible with a self-directed IRA.
You owe it to yourself to know the facts so that you can make the most informed decision possible about whether a self-directed IRA is a good fit for your retirement plan.
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