Fed up with traditional investments like stocks and bonds?
Looking to finance your retirement?
Are you an independent self-starter who's willing to pore over financial statements, meet with business management, and take total responsibility for your own investments?
If you are, then a self-directed IRA may be for you.
Self-directed IRAs present an amazing opportunity for hands-on, outside-the-box investors. They operate a lot like normal IRAs, in that taxes on your investment are deferred until you reach retirement.
They key difference, though, is that you are entirely responsible for your investment. There's no middleman here — just a custodian that administers the account.
Unlike a mainstream bank or brokerage, there is no guidance and little oversight. You're assuming all the risk.
The rewards, however, can be great.
You get complete control of your nestegg, access to a wide range of investments, and the potential for a huge financial windfall.
For example, one investor turned $200,000 into nearly $1 million by using his IRA funds to make subprime loans on prefabricated houses.
Another invested in dairy cows, buying them and then leasing them out to farmers. That endeavor netted a 20% return. Others have plunked money into rock n' roll fantasy camps that offer wealthy customers the chance to jam out with famous musicians.
That's the beauty of self-directed IRAs: The possibilities are endless.
You can still invest in stocks, bonds, and other financial instruments. But you can also invest in precious metals, real estate, overseas assets, as well as farms, rental properties, start-ups, and other niche business.
The only thing you can't do is give your money to a family member or buy a rental property for your own personal use. There's no buying art, antiques, or other personal property, either. Basically, you have to invest in someone else's business or debt.
If you think that might be for you, here's how to get started...
One way to go would be to employ the services of a large brokerage, like E*Trade or Charles Schwab.
Both of these firms offer self-managed IRA accounts that let you choose the stocks, bonds, and mutual funds you want to invest in. This gives you more control over your retirement dollars, but you're still locked out of the non-traditional investments and higher returns you might otherwise find.
For that, you'll have to find a custodian.
Here's a list of potential candidates:
- New Direction IRA
- Regal Assets
- GoldStar Trust Company
- The Entrust Group
- Self Directed IRA Services Inc. (SDIRA)
- Equity Trust Company
- American Estate and Trust LLC
Regal Assets is a leading precious metals custodian if you're interested in a gold or silver IRA. And American Estate specializes in real estate.
Whichever you choose, the main thing is to find a trustworthy custodian. Make sure you settle on a firm that's been around for several years and has significant number of clients and assets. Also look to see if the company is rated by the Better Business Bureau.
Meet with a few and find the one that fits your needs, including your location.
Remember, these administrators don't do anything more than handle paperwork and provide annual valuations. They don’t identify, recommend, or vet investments.
They also tend to charge higher fees than traditional banks and brokerages. In some cases, you might be looking at a $50 fee to open an account, a $300 annual fee for the service, a $125 holding fee per asset or security, and a $250 transaction fee for real-estate investments.
You could also shell out for an expert's help, hiring someone to assist with the due diligence. But part of the appeal to self-directed IRAs is taking the reins your self. Doing your own leg work should be part of the appeal, otherwise you should probably just leave your money in the hands of professionals.
You won't get the huge returns and you'll be locked into stocks and bonds. But you won't blow your whole retirement on a bad investment, either.
It's all about what's best for you.