What is a Self-Directed IRA?

You may have been investing in mutual funds and ETFs with your IRA for years, maybe decades. Perhaps you’ve even “rolled over” funds from a former employer retirement plan to accelerate your IRA’s growth. If this sounds familiar, you are halfway home to understanding a “self-directed” IRA.

Ready to open a self-directed IRA? Click here to access our simple online new account application and be on your way in a matter of minutes!

What makes an account “self-directed”?

The term “self-directed” does not denote an account type; it indicates that you are in charge of making all investment choices. A “self-directed” account simply gives you access to a wider range of investments. By selecting a self-directed account, you can invest in what you chose, not just investments originating from Wall Street.

What are my options?

Most IRA custodians offer investment options in the public markets, individual stocks and bonds or funds made up of combinations of those assets. However, and contrary to popular belief, the IRS does not recommend, much less mandate, investments in those public markets. While these options have helped millions of investors reach their financial goals, they are limited to companies which are large enough to go through the expensive and time-consuming listing and or offering process. As a result, they represent only a small portion of the universe of investment possibilities.

Everything else that hasn’t been registered for public distribution is considered “private.” These private options, sometimes called alternatives, such as real estate and private equity and lending, are allowed in retirement plans. Most IRA custodians have made the business decision to bar their account holders from holding alternatives. New Direction Trust Company believes that you should have freedom to invest in the assets you know and believe in!

What accounts are we talking about here?

Just about any tax-advantaged investment plan can qualify as self-directed. IRAs (Traditional, Roth, SEP, or SIMPLE), 401(k)s, and Health Savings Accounts can hold alternative assets at your direction…as long as your IRA custodian enables you to do so. Further, these accounts can partner with one another when purchasing an asset.

Why haven’t I heard about this before?

Retirement investing is a big business for investment providers. Those providers are best at simple “three clicks and you own something” processing. Historically, that worked fine, but increasingly investors are searching in the private markets for better potential returns with assets they better understand. Investors with many choices outside of their retirement plans expect the same choices with their tax-sheltered funds, but their custodians have blocked their efforts.

However, word is beginning to spread about self-directed investing. For example, those who make money in real estate outside of their retirement plans are learning that their same tried and true approach to profitable investing will work inside of their retirement plans.

Ready to Begin?

If you still have questions about self-directed retirement, please don’t hesitate to give us a call at 877-742-1270 or send us a message through the Client Portal.

Related Articles