Self-directed IRA Essentials

What is a self-directed IRA (SDIRA)?

Having a SDIRA essentially gives the owner of an IRA the power, through their custodian, to invest in many more opportunities than a traditional IRA would. While a traditional retirement plan typically only invests in stocks, bonds, and mutual funds, a SDIRA is allowed to invest in "alternative" investments such as mutli-family units, retail strip centers, raw land, hotels, livestock and even Intellectual Property such as patents. A SDIRA may even invest as a part owner in a real estate project by gaining units in an LLC tied to a certain real estate project. There are some restrictions to what a SDIRA may invest in, those restrictions being "collectibles" eg. wine, antiques, coins. Along with collectibles there are other types of investments that would be prohibited investments. Consult with your custodian before investing.

Advantages of a SDIRA

There are many distinct advantages of having a self directed IRA. As explained before one major theme is flexibility--a SDIRA has more options. SDIRAs allow the owner to truly take control of their investments...it lets them invest in what they're comfortable with. Many people truly think there's little substance to stock in public companies and dividend pay-outs can be arbitrary. If a company goes under, common stockholders are at the top of the capital stack which means they'll be paid after taxes, wages, debts, and preferred equity are paid off leaving common equity holders last in line. One can hedge their experience in real estate via the funds in their SDIRA by investing in real estate. An SDIRA can qualify for financing on real estate projects as well. The property must be "income-producing" and any debt financing on a real estate project through a SDIRA must be non-recourse. Like traditional IRAs, SDIRAs have plenty of tax benefits as well. 

Things to Look Out For When Investing in a SDIRA

The IRS and DOL have certain limitations and prohibitions in regards to SDIRAs. Before opening up a SDIRA, one should consider talking to legal counsel and possibly the custodian of the account. There are a some key "prohibited investments and prohibited transactions" with the DOL and IRS in regards to investing in a SDIRA. 

In Summation

The SDIRA is a unique tool all investors should consider. If you don't have a SDIRA and are considering rolling over to one do your research on google, pick up a book on SDIRAs, or contact a custodian. There are many different SDIRA companies out there to choose from. The self-directed IRA really allows investors more financial malleability, flexibility, and freedom.