To make self-directed IRA investments, you must first find the right custodian if you want the most choice. Under the law, there are numerous investments permitted by IRAs, but many brokers do not offer them.
Before you decide to make self-directed IRA investments, you may need a little education. The correct custodian may offer some guidance regarding the law, but otherwise is simply an account manager, responsible for submitting the proper paperwork.
If you are unaware of the legalities, you could be forced to liquidate your account. There are many types of investment allowed by IRAs, but there are some types of transactions that are prohibited. Let’s take a look at those first.
Self-directed IRA investments that are not allowed include artwork, rugs, antique metals, gems, stamps, coins, alcoholic beverages, and other collectibles. Therefore, you cannot put your original Picasso in the name of the custodian of your retirement account. It makes sense, if you think about it.
A thirty-year-old bottle of Scotch whiskey can be very valuable, but to get the best price, it would either have to be placed on an auction block or a buyer would have to be located. IRA-allowed investments are easier to “liquidate” or sell.
There are some other self-directed IRA investments that are not allowed, because they are considered “self-traded.” You cannot use the account to purchase property that you will live in now or plan to live in after retirement. You also may not allow your family members to live in a property within your account.
Allowable IRA investments include residential and commercial real estate, as well as raw land or vacant lots. You can also hold notes, foreign currency, gold bullion, and private stock offerings, as long as you are not the majority shareholder in the company. And of course, there are the more traditional stocks, bonds, and mutual funds.
Certificates of Deposit can also be self-directed IRA investments, but the return or yield is considered very low. Most people who choose to go the self-directed route are looking to build their balance quickly, but if you need some security, CDs are the lowest risk.
As you can see, there are more investments allowed by IRAs than those that are not. Some accountants find it all a bit confusing. Some brokerages are not familiar with all the options available to you.
It’s best to get help from professionals who have experience with self-directed IRA investments. When it comes to real estate, if you need help finding the right deals, there are some investors willing to teach you the ins and outs of the business.
You can never have too much education. Learning through trial and error is very risky. Remember, you are trying to finance your retirement. This is just a brief overview of what you need to know about self-directed IRA investments. It’s probably enough to get you to the next step.