An IRA That Puts You In The Driver’s Seat

As more and more baby boomers are reaching retirement age, the need for a solid retirement fund has greatly increased.  Along with that, a growing number of investors are taking a closer look at IRAs that offer them more control of their retirement investment options as well as the ability to invest in a broader set of assets.

This form of IRA is called a Self-Directed IRA—or SDIRA, for short—it’s a retirement account that gives investors more decision-making power in selecting their investments. Self-Directed IRAs can hold assets in nontraditional assets, making it possible for a retirement portfolio to include real estate, ownership in private companies, precious metals and many other types of assets. This direct control and greater investment flexibility have made SDIRAs increasingly popular with people who are looking for an alternative to putting their retirement in the hands of brokerage houses.

Another appeal of investors to SDIRAs is the ability to put their prior business and personal experience to work in their retirement strategy. Common IRAs hand much of the decision-making power over to traditional mutual fund managers or brokers. But with Self-Directed IRAs, investors can put their own expertise to use to grow their account.

For example, a real estate professional or real estate investor can apply that knowledge to an IRA portfolio focused on housing. An entrepreneur or small-business owner can put that know-how to use with an IRA portfolio focused on ownership stakes in private companies.

Self-Directed IRAs have the same tax advantages and the same contribution and distribution rules as common IRAs. In fact, SDIRAs are the same financial vehicle as common IRAs, but with more enhanced asset choices.

There are some differences. Assets must be titled correctly, periodic statements must be issued, IRS reports must be complied. This is a role for a SDIRA provider. The SDIRA provider handles these administrative chores and also serves as a resource to the investor. With the investor taking the lead on choosing the investment strategy and evaluating potential investment opportunities, a SDIRA provider can provide valuable guidance on protecting a portfolio’s tax-advantaged status, following IRS’ guidelines on prohibited activity, minimize cost, etc. SDIRA providers, however, do not provide investment advice about which assets to invest in.