Self-directed IRAs are becoming more popular, but there are still many who don’t fully grasp the benefits these plans offer or the diversity alternative investments add to retirement portfolios.
As a leader in our industry with clients across the nation who hold a combined total of over $700 million in alternative assets in self-directed retirement plans—let us explain.
Self-directed retirement plans give owners of these accounts total control of their own retirement funds and investing decisions. This means that instead of relying on a third party to decide which investments are right for you, YOU are the one who makes these decisions. How? It’s really simple. You learn to invest in what you know best, drawing on your own knowledge and expertise of alternative investments permissible in self-directed plans.
What are alternative investments?
Most of us are familiar with the more traditional asset class of stocks, bonds, mutual funds, and CDs—the typical investments offered by banks and brokerage houses. Alternative options grow outside those traditional lines and include just about—everything. In fact, the pool of alternative investments is so vast and wide that even the IRS does not provide a list of assets allowed in self-directed retirement plans. Instead, they provide a short list of what’s not allowed: life insurance, certain precious metals, and collectibles. Other than those things, the assets you can add to your portfolio are nearly endless—and the choices are yours.
Some of the more common alternative investments include:
- Real estate (residential and commercial, raw land, rental property, tax liens)
- Notes and mortgages (private lending)
- Single-member LLCs and trusts (checkbook IRA)
- Private placements and stock
- Foreign currency exchange and futures trading
Other investments permissible in self-directed retirement plans:
- Oil, gas, and other mineral options
- Timber and livestock
- Crowdfunding opportunities (growing in popularity thanks to the recent JOBS Act, Title IV)
- Accounts receivable
- Heavy equipment leasing
- Structured settlements
- Convertible notes
- Commercial paper
- And much more…
While real estate is the most popular asset held in self-directed accounts, Advanta IRA has seen clients invest in the Iraqi dinar, alpaca farms, and foreign land and other options not included in the lists above. And, the options do not stop there. Provided that you steer clear of prohibited transactions and disqualified persons, the investment opportunities available can be quite unique and incredibly diverse.
However, the bottom line is the words “retirement planning” mean different things to every person. For some retirement planning is a given. These people understand early on that socking away every dime they can is critical—and the sooner they start, the better. Others procrastinate, thinking there is time later in life to begin contributing towards a retirement plan.
While neither mindset is right or wrong, those who delay building a retirement nest egg miss golden opportunities that could mean the difference in living out their retirement dreams…or not. However, no matter when you begin retirement planning, a self-directed IRA and an investment strategy that includes alternative investments is just one more way to boost the earning potential of your portfolio.
If you have questions about this article or wish to learn more about self-directed plans and alternative investments, please contact us.