What is a "Self-Directed" IRA?

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You know what an IRA is (note, actually “individual retirement arrangement,” not “account”). Through your IRA you have probably been investing in mutual funds and ETFs for years, maybe decades, options available based on platform selections made by the investment provider and later selected by you and maybe your financial advisor. Perhaps you’ve even “rolled over” funds, tax free, from a former employer retirement plan, like a 401k, to accelerate the growth of your IRA, accessing different funds and diversifying your investment portfolio. If this sounds familiar, you are halfway home to understanding a “self-directed” IRA.

What makes an account “self-directed”?

The term “self-directed” does not denote an account type, just 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 are empowered to invest in what you chose. Primarily those investments not originating from Wall Street.

I’m confused. I feel like I have a lot of options now. What am I missing?

Well, you do and you don’t. Most IRA providers 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; it is simply that 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 choice to invest in Alternatives if you believe they are your best investment option!

What accounts are we talking about here?

Just about any tax-advantaged investment plan can be self-directed. An IRA (Traditional, Roth, SEP, or SIMPLE), 401(k), or Health Savings Account are permitted to 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. The assets are one largely centered around stocks, ETFs, and mutual funds. Historically, that worked fine, but increasingly investors are searching in the private markets for better potential returns. Investors familiar with having many choices with their personal funds expect the same choices with their tax-sheltered funds but have been blocked by their custodian’s rules.

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 Get Started?

Click here to open a new self-directed IRA with New Direction Trust Company today! 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 an e-mail at education@ndtco.com!