Self-Directed IRA - ExpoIRA Blog

You can find a self-directed IRA (SDIRA) with the same tax advantages at any brokerage firm, custodian, or bank.

Unlike traditional investments like stocks, bonds, and mutual funds, a self-directed IRA allows for investing in a variety of alternative assets, including real estate, promissory notes, and private equity.

Understanding a self-directed IRA (SDIRA)

Traditional IRAs usually contain only common investments like stocks, bonds, and mutual funds, among others. On the other hand, self-directed IRAs provide a wider range of options. For instance, you have the flexibility to invest in real estate or privately owned businesses. However, it is essential to find a custodian who agrees to the arrangement before proceeding. (Regardless of the type of IRA, having a custodian or trustee is necessary to manage the account.)

Advantages of a Self-Directed IRA

What is the reason for self-directing your account? Taking control of your financial future is possible with self-directed IRAs and other tax-advantaged accounts. You can design a personalized portfolio and have the flexibility to invest in both alternative and traditional assets, potentially mitigating or removing taxes on your investments.

The Possibilities are Endless

A portfolio that is truly effective for you can be created by combining retirement accounts’ tax benefits with a wide range of investment options, including private market alternative investments with almost no restrictions.

You’re in the Driver’s Seat

With Self-Directed IRAs, you have the freedom to invest in assets that you are knowledgeable about. This includes various alternative assets like real estate, promissory notes, cryptocurrency, and private equity, in addition to the conventional investments like stocks, bonds, and mutual funds. The decision-making power for your investments lies entirely with you.

Keep More of What You Earn

Are you tired of being taxed on your investments? With an Equity Trust account, you can enjoy the potential to earn profits that are either tax-free or tax-deferred.

Look Out for Loved Ones

Some specific self-directed accounts enable beneficiaries to inherit the account’s assets with minimal or no tax implications after the account owner’s death. This enables you to create a lasting inheritance for your beloved individuals.

Why Do You Need a Self-Directed IRA Custodian?

It is essential to find a custodian who is well-equipped to handle the administrative demands of self-directed IRAs, given their unique nature. It is important to note that not all custodians are the same, so before relying on any company for your financial future, it is crucial to consider their industry experience, expertise, and quality of customer service.

Self-Directed IRA Rules and Regulations to Know

The retirement plans are defined by the IRS tax code and the rules and tax consequences of transactions within qualified plans are outlined in The Employee Retirement Income Security Act (ERISA) of 1974. There are several categories that can be used to categorize the general rules that must be followed.

Prohibited transactions and investments
Disqualified persons
Indirect benefits
Contribution limits
Fair market valuations (FMV)
Unrelated business income tax (UBIT)

How to open a self-directed IRA

Most well-known brokers do not provide self-directed IRAs, although brokerage firms often serve as custodians for various types of IRAs.

When it comes to self-directed IRAs, custodians are commonly specialized companies such as banks and trust companies, which may vary in the kind of investments they are willing to manage. Therefore, it is necessary to explore different options before making a decision.

You may require the assistance of a financial advisor who has expertise in managing investments for self-directed IRAs to help you with conducting due diligence on the investments, given the intricate nature of self-directed IRAs mentioned further in the text. Typically, a custodian does not provide this service.
Furthermore, it should be noted that the IRS continues to prohibit certain types of investments in self-directed IRAs, such as collectibles and life insurance.
As soon as you locate a custodian, you will proceed to open an account and make financial contributions to it, following the same process as you would for any other IRA.

A regular IRA may be enough

The assortment of assets offered by a traditional IRA, including stocks, bonds, CDs, ETFs, mutual funds, and REITs (real estate investment trusts), offers retirement savers ample investment diversity. Opening these accounts is simple and fast, affording the same tax advantages as a self-directed IRA, while avoiding the complexities of additional IRS regulations. Furthermore, there is no need to seek out a specialized custodian to establish such an account, saving you from extra hassle.

If you prefer a traditional IRA, we have compiled a comparison of top broker providers offering IRA accounts for you to consider.