Training Self Directed IRAsWith all of the recent tax changes, regulatory issues dealing with lending and debates on issues such as IRA-owned LLCs, I thought it was important to write an article on the basics of Self-Directed IRAs and let you decide before you buy.

Why Self-Direction?

This is not a vehicle for everyone. It is for an investor who wishes to diversify his portfolio with alternative assets that make sense to him. The IRA provides tax-deferred or, in the case of an ROTH IRA, tax-free income. It is important for you to assess what specific assets make sense for your accounts. After all, the IRA is supposed to build wealth to last long into your retirement years.

The IRA owner should stay educated, know terminology, and seek advice from her trusted team of advisors. I have received many emails and telephone calls asking about particular investments. Neither IRA Innovations nor I personally will give investment advice. This is why we suggest that you consult with your team of trusted advisors to determine if the asset you are considering for a self-directed retirement account makes sense for you.

Once you decide that Self-Directing your IRA makes sense, then what?

My suggestion is to speak with a customer service team member at a Self-Directed IRA custodian or administrator’s office to see if they can be of assistance. The team member can provide the basic information that every potential self-directed IRA owner needs to know. Pick up the phone and call. We at IRA Innovations pride ourselves on a live person answering the call; and one with the ability to answer the basic questions to help you get started. Here are just a few things you need answered before you make a decision:

  • How long will it take to open an account?
  • Will my funds be treated as a rollover or a transfer from my existing custodian?
  • What is the process of actually making an investment in my IRA?
  • How do expenses get paid?
  • Where are the original documents stored?
  • Do I receive copies of important documents?
  • Can I go online to see my account balance?

Next – The Investment Itself

No one should tell you what to buy. You, on behalf of your IRA, should know and understand:

  • What the IRA is acquiring
  • What risks are associated with the particular investment
  • What potential taxes may be associated with the IRA acquiring a specific investment (an example of this would be a leveraged property with a non-recourse loan which could cause UDFI: unrelated debt financed income)
  • How the asset is being managed
  • What due diligence can be performed to protect the IRA from default, scams, etc.

There has been a lot written in the press lately about the risks of self-directed IRAs to an investor. In my opinion they are as risky as your level of risk dictates. As I said at the beginning of this article, a self-directed IRA is not for everyone. However, you have the right to determine if it is right for you. Know the Basics and call us if you need help! We are here to help you through basic training!