What Is A Self-Directed IRA?
A self-directed IRA is an IRA where the custodian of the account (IRA Services) allows the IRA to invest in non-exchange traded assets. These investments typically include: real estate, promissory notes, hedge funds, precious metals and private company stock.
It is not uncommon for us to hear seasoned investors say, “Why haven’t I heard about self-directed IRAs?”. The reason is:
- Large financial institutions do not allow account holders to self-direct their IRA
- Large financial institutions only allow account holders to invest in exchange traded assets
- Self-directed IRAs must be administered by smaller institutions known as “custodians”
The IRS has set guidelines in place for the types of investments that can be made with a self-directed IRA. An IRA can invest in any type of investment, as long as it is not a prohibited transaction.
Types of IRAs
Different types of IRAs include: Roth, Traditional, SEP, and SIMPLE. These accounts offer tax-deferred or tax-free investing on capital gains. For example, if you buy real estate through your self-directed IRA, you will not pay capital gains tax on profit. There are different types of IRAs available, and they all serve a different purpose. If you are looking to self-direct your retirement plan funds, take a look at the types of accounts Rich Uncles IRA offers:
A Traditional IRA is a tax-deferred retirement savings account. Dividends, interest payments and capital gains compound each year allowing a Traditional IRA to grow faster than a taxable account.
A Roth IRA is a tax-free retirement savings account that can be funded with after-tax dollars. Funds deposited continue to grow tax-free and can be withdrawn with no penalty.
A SEP IRA is a tax-deferred retirement savings account for self-employed individuals and small business owners. Contributions are tax-deductible until investments are withdrawn.
A Simple IRA is a tax-deferred incentive match plan for employees. Contributions are tax-deductible, and your investment grows tax-deferred until withdrawn.
A Rollover IRA is a traditional IRA that is used by clients who have had multiple employers. Assets accumulated in employer-sponsored accounts such as a 401(k) are sometimes fortified into a single account.
A Self-Employed 401(k), also referred to as an Individual 401(k), is a retirement plan funded with after-tax dollars. There are two versions of an Individual 401(k). Both versions are for sole proprietors who have no employees.