When to Choose a Self-Directed IRA By Chris Narfundle At Isnare.com Ezine Articles

Self-directed IRAs became an option in 1975. Most people today have heard of traditional IRAs and Roth IRAs, but still don’t realize that self-directed IRAs are available. But there are many types of self-directed plans available today, including 401k plans. Self-direction is the preferred choice for many people saving for retirement, because they like having control over their investments.

When you open a self-directed IRA, you have the power to make investments on behalf of your IRA (or your 401k, if you choose to self-direct that account). You can invest in things like real estate, partnerships and franchises, mortgages and a variety of other assets. You have control over your account in a way that you don’t with a traditional IRA.

A custodian, sometimes called an administrator, handles the paperwork for you and actually purchases the investment on your behalf. But you make the choices and decisions regarding the self-directed IRA.

These accounts are ideal for people with investment knowledge of some kind. Perhaps you’re savvy when it comes to real estate investing. You can invest your self-directed IRA in real estate or you can lend with your self-directed IRA to invest in mortgages. You can invest in a franchise, or a company, and be involved in a partnership with your IRA funds.

Where traditional IRAs are invested in low-risk options, you are free to invest your self-directed funds in a variety of assets as long as they are allowed by the IRS, and there’s a long list that are. Traditional IRAs are generally very safe, but they also don’t offer a high rate of return. With your self-directed IRA and your investment knowledge, you can invest in things a traditional IRA would never invest in, and potentially build wealth many times faster if your investments are good ones.

For a self-directed IRA to be a good choice for you, you need to be confident in your ability to wisely invest your own money. You’ll want to make sure that the assets you want to invest in are those allowed by the IRA. If you wanted to invest in life insurance, for instance, and opened a self-directed IRA to do so you would be disappointed to find that the IRS doesn’t allow that type of investment.

So the best candidate for a self-directed IRA is someone who has good investment knowledge and perhaps even a strategy, and is willing to do the research necessary to learn the rules regarding a self-directed IRA. You need to read and understand the codes relating to the account. Because you will be the one making the decisions and the investments (though the final say lies with the custodian in most cases), any mistakes you make will be our own and the custodian may not always catch them, and they’re not even allowed to give legal or tax advice.

Many people claim that the code and rules surrounding a self-directed IRA are incredibly complex, but if you’re familiar with financial terms and investments you should be able to handle your self-directed IRA quite capably.

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