What is a self-directed IRA? - A self-directed IRA is a retirement account (Traditional or Roth) in which the account holder chooses which assets that the IRA buys and sells. The term self-directed IRA commonly refers to IRA accounts that can invest in alternative or hard assets such as real estate, gold and silver, private equity, or notes.
For those who are new to the game of self-directed IRA investing, the industry jargon can sometimes be a little confusing. The variance in terminology that’s used to describe certain account structures can largely be attributed to the diversity in backgrounds and market knowledge that retirement investors bring to the table. For instance, at we often hear, “I’d like to open a Real Estate IRA.” A “Real Estate IRA” is a figurative term that has become common terminology in the self-directed IRA world, because of how real estate investors like to talk about IRAs. There is no such thing as a literal “Real Estate IRA” account structure. A “Real Estate IRA” in a literal sense is any IRA account structure that happens to be invested in real estate. All this variation in terminology can sometimes lead our prospective clients to wonder, “What is a self-directed IRA?”
To begin to answer this question, it’s important for retirement investors to understand that figurative jargon does not equate to literal account types. As referenced above, when you read about a “Precious Metals IRA” or a “Private Equity IRA”, these terms describe the type of asset that is inside the IRA, or the type of asset that investors are looking to buy with their IRA. These terms do not describe the actual IRA account type, such as Traditional, Roth, SEP, SIMPLE, HSA, etc.
On the same note, it’s important for investors to understand that any IRA account type can hold more than one type of asset. This adds to the confusion when hearing terms like "Real Estate IRA" or “Gold IRA” – it’s logical to assume from these terms that an IRA can only hold one certain kind of asset. However, any IRA account type (Roth, Traditional, SEP, etc.) can hold as many different types of assets as the investor likes. There is no restriction or rules to how many assets or the types of assets that are allowed in any given account structure.
The ways that banks and brokerage houses structure their self-directed IRAs can add to the confusion of what a self-directed IRA really is. Self-directed IRAs that are held with these providers are often allowed to invest only in stocks, bonds, and mutual funds. This is a choice made by the providers, not a restriction enforced by the IRS.
However, self-directed IRA providers like New Direction Trust Company allow account holders to invest in any asset allowed by the IRS, which is almost anything that can be invested in with clients’ personal funds. This freedom is where terms such as “Real Estate IRA” and “Precious Metals IRA” come into play. These asset-based terms seem to imply that there is a novelty to IRAs that can hold these types of assets. When you look at the history of self-directed IRAs and how their asset choices were restricted by banks and brokerage houses for so long, it’s almost no wonder that this sense of novelty exists in current day terminology!
IRA providers are not required to allow their account holders to invest in any asset that is legally allowed by the IRS. This is why self-directed IRA provers like New Direction Trust Company are so preferable to investors who want to apply their personal market knowledge and experience to their retirement investments. Real estate, precious metals, private equity, private loans, and many more alternative investments are all supported and encouraged by New Direction Trust Company. So if you want to open a “Real Estate IRA” or a “Gold IRA”, remember, your IRA account structure will be up to you to choose.