A self-directed IRA is a type of individual retirement account that allows you to save for retirement with assets that are beyond the reach of conventional IRAs, including precious metals, real estate assets and cryptocurrencies. Regular IRAs usually house only stocks, bonds, mutual funds, and other relatively common investments. Self-directed IRAs offer many more possibilities. For example, you could invest in real estate or a private company.
You'll just need to find a custodian who will accept the deal, then you're good to go. With any IRA, you need a custodian or trustee to maintain the account in your name. Self-directed IRAs give you the freedom, flexibility, and choice in how to invest your hard-earned dollars. You can expand and diversify your investment opportunities beyond the stock market into a variety of alternative investments, such as mortgages, promissory notes, real estate and private placements.
Self-directed IRAs aren't for the average retiree or the faint of heart. These specialized retirement accounts allow investors to do things they can't do in an ordinary IRA, such as investing directly in alternative assets, such as cryptocurrency, real estate, or a private company. A second property, in which many retirees invest for income, could be purchased as an asset in an IRA using a self-directed account. These can be assets you're already familiar with, such as real estate, private placements, IRAs, LLCs, and many more.
It's very important to know that, as a self-directed investor, you are responsible for making all investment decisions and options for your IRA. If you're looking for someone else to manage your IRA, you can hire a human advisor or one of the best robo-advisors to make the decisions for you. As a result, SDIRAs are best suited for investors who are already familiar with non-traditional assets and are interested in keeping them in a tax-advantaged retirement account. .
Like ordinary Roth IRAs, the self-directed version is funded with after-tax money to withdraw tax-free funds during retirement and has no RMD. Through your SDIRA, you can invest in limited liability companies (LLC), limited liability companies (LP), C companies, private placements, private hedge funds, real estate investment trusts (REITs), startups and small businesses. A self-directed IRA can invest in assets that go far beyond the traditional stocks, bonds, funds and more that are available at one of the leading online brokerage agencies, and that is the main advantage for investors looking to use a self-directed IRA. Self-directed IRAs allow you to invest in a wide variety of investments, but those assets are often illiquid, meaning that if you're faced with an unexpected emergency, you may have difficulty getting money out of your IRA.
SDIRA custodians don't give investment advice, and because they are self-directed, you manage your own investments. Not only can investments themselves be opaque, but the Securities and Exchange Commission (opens in a new tab) warns that criminals take advantage of people who have self-managed IRAs or encourage people to create one to sell them a fraudulent investment. For most retirement savers, the range of assets available through a normal IRA: stocks, bonds, CDs, ETFs, mutual funds and REITs (i.e. real estate investment trusts) offer more than enough diversity of investments.
That means you'll need a special SDIRA custodian if you're interested in alternative investments, such as real estate and precious metals. If you are caught violating these rules, the IRS could void your entire IRA, forcing you to withdraw the balance, not just the problem asset, which could mean a substantial tax bill and the loss of future tax benefits on those savings. .