Self-Directed IRAs

At a recent business meeting someone mentioned Self-Directed IRAs as an alternative to more common Individual Retirement Accounts. A Self-Directed IRA offers the investor a wider range of investment opportunities beyond stocks and bonds. But with those opportunities comes significant IRA rules and regulations.

IRS regulations require that either a qualified trustee or custodian hold the IRA assets on behalf of the IRA owner. Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner. Unlike regular IRAs where most investment companies and brokerages can administer, only select trust and custodian companies are qualified to handle these accounts.

Some of the additional investment options permitted under the regulations include real estate, stocks, mortgages, franchises, partnerships, and private equity. Real estate may include residential and commercial properties (U.S. & Internationally), farmland, raw land, new construction, property renovation, development, and passive rental income. Real estate purchased in a self-directed IRA can have a mortgage placed against the property, thus lowering the amount of total cash needed for a purchase. Business investments may include partnerships, joint ventures, and private stock. This can be a platform to fund a start-up business or other for-profit venture that is managed by someone other than the account owner of the IRA. Other alternative investments include: commodities, hedge funds, commercial paper, foreign stock, royalty rights, equipment & leases, American depository receipts, and U.S. T-bills.