All About Simple Self-directed IRA Investing

A self-directed IRA account is an IRA that mandates the accountholder makes investments on behalf of the IRA. The IRA assets on this type of account are not held by the owner outright, but are held by a qualified trustee or custodian. Qualified trustees/custodians could be an accountant, banker, broker, etc., acting on behalf of the actual account owner. This trustee will keep up with all maintenance and records of transactions for the IRA account on behalf of the account owner. The investment choices really are up to the investor, who directs the trustee to take action, hence the term “self-directed.”

These types of IRA accounts are not limited in the types of assets that may be invested in. This type of IRA can invest in real estate, stocks, mortgages, private equity, franchises, even collectibles. However, the earnings these investments generate must be solely for the account owner’s retirement and cannot generate current income or else the investment becomes taxable. The biggest risk involved is making sure benefits are going towards retirement. Meticulous records must be kept by the trusty. The yearly contribution limits to a self-directed IRA are the same as a traditional IRA ($4000 a year if under 59½, $5000 if over). Also, the same tax benefits as a traditional IRA are realized. That $4000 contribution results in a savings of $1000 for the taxpayer in the 25% tax bracket.

Not all account trustees will offer the same investment opportunities with when managing your self-directed IRA. Many firms specialize in particular investment options a self-directed IRA accountholder can take advantage of, and not all of them. It can be difficult for the firm to generate any income on a self-directed IRA account considering the options involved. When comparing options for opening a self-directed IRA, be sure to check the fee schedules involved with the account. Probably the best choice for a trustee would be a personal accountant.

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