The power of a self directed IRA

7 Replies

With 2 Trillion dollars locked up in traditional IRAs imagine if that was unleashed in self directed IRAs that can hold real estate!

Originally posted by @William Bray :

With 2 Trillion dollars locked up in traditional IRAs imagine if that was unleashed in self directed IRAs that can hold real estate!

 Great Point William,

It's actually only 2% of the $24.2 Trillion of retirement assets in the US that are "self directed" however, that does include traditional investment accounts that are self directed such as Charles Schwab, Merrill Edge, TD Ameritrade, etc. So in terms of alternative assets, that 2% actually gets much smaller. 

It is incredible to think of what kind of impact just double the amount of retirement funds being invested in alternative assets like RE would do to respective markets. 

Adam

Very good point! Lots of confusion out there on "self directed" IRAs. Allowing you to trade in stocks and mutual funds electronically does not open that huge pool to Real Estate or other asset investments. What is sad is the number of investors who don't know it is possible to hold alternate assets in their IRAs.

@William Bray

You hit the nail on the head. I work for a self-directed IRA custodian that specializes in alternative asset custody, and the majority of my day is spent talking to investors who are absolutely dumbfounded by the breadth of investment options, and that they have never heard of this before.

Unfortunately I think a lot of the stigma of alternative asset SD IRAs not being allowed, or even being illegal, has come from professionals (CPAs, Attorneys) who are also ill informed about the concept, and immediately jump to the conclusions. 

For the record, I have had both attorneys and CPAs tell me that self directed IRA investments in alternative assets is down right illegal. The fact is the government agencies don't make any distinctions. IRAs are covered by ERISA regulations, which formed the concept of an IRA and the rules governing them. Nowhere in ERISA regs is there a qualification for only holding assets that are securitized or offered through prospectus, PPM (Regulation D) etc, or any other determining factor. The IRS does provide a list of assets that are explicitly prohibited, life insurance, S-Corps, and collectibles (Art, rugs, jewelry, cars, alcohol, non investment grade/Bullion precious metals, etc.) My favorite point to bring up when someone tells me that investing in alternative assets in an IRA is illegal is that the IRS prohibits NON INVESTMENT GRADE precious metals...indicating that investment grade precious metals would be fine, otherwise why make the distinction on purity? The same holds true for RE, if the IRS is concerned enough to list alcohol collections as a prohibited asset, is it likely that they forgot to mention that RE is also not allowed? I know we all poke fun at the IRS for good reason, and they usually do a lot of things that seem to border on idiotic, but they can't be that dumb.

Adam

@William Bray and @Adam Hershman you're certainly free to discuss the merits of SDIRA accounts for real estate and other non-traditional assets. You're both in the business of providing IRA services, take care to avoid any sort of advertising of your services.

Originally posted by @Jon Holdman :

@William Bray and @Adam Hershman you're certainly free to discuss the merits of SDIRA accounts for real estate and other non-traditional assets. You're both in the business of providing IRA services, take care to avoid any sort of advertising of your services.

 Hey Jon,

Sounds good, anything suspicious thus far? I wouldn't want to violate forum rules. Thanks for the permission to discuss SDIRA accounts so far...

Adam

Jon,

Understood, my comments have been an effort to open some eyes to the potential of SDIRAs

What exactly is a self-directed IRA account you might be wondering? A self-directed IRA is an IRA account in which the investor has control over what investments are made and in what.

This type of IRA account differs from a standard IRA account in which the investor only has limited investment choices that are determined by the custodian or trust company. For example, if someone has an IRA account through their local bank, chances are that the types of investments available to the investor in that account are limited to the traditional stocks, bonds, mutual funds and the like.

Self-directed IRA accounts have grown in popularity since their inception in 1975. This growth could likely be attributed to increasing investor desire to gain more diversification within their portfolios. Today's investors are adding more and more investment vehicles to their portfolios. Some of the non-traditional investment vehicles that are available within a self-directed IRA include real-estate, precious metals, partnerships and various notes. These alternative asset classes can potentially provide the investor with additional diversification, other potential growth opportunities and more.

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