3 Reasons Why Self-Directed IRAs are Worth the Time and Energy

Estimated reading time: 3 minutes(Last Updated On: October 31, 2018)

You’ve likely found that setting up a new IRA is usually a quick and easy process. After all, many traditional IRA custodians use online forms and (in the case of a bank or brokerage that’s acting as custodian) these custodians generally allow you to instantly transfer money to fund your new IRA from other accounts you may have at the same institution.

But setting up a self-directed IRA isn’t that much more time consuming than an IRA with a more traditional custodian. It’s true that it might take a little extra time to fill out an extra form or two, or to fund your account. But what’s more important is that the benefits of having a self-directed IRA instead of a traditional account far outweigh the small amount of extra time and energy you’ll have to expend.

1.         The Opportunity for Greater Gains. If you have an IRA with a bank or brokerage as the custodian, then you’re going to be significantly limited in the types of investments you can choose for your account. Traditional IRA custodians generally limit investments to stocks, bonds, mutual funds and bank CDs. While there’s nothing inherently wrong with this selection of investments, many individuals would like to be able to invest at least a portion of their retirement funds and investment classes that have an opportunity for higher rates of return.

With a self-directed IRA with a custodian such as Quest Trust Company, you’ll also be able to invest in precious metals, real estate, private equity, mortgages and other negotiable interests, and even privately held companies.

2.         Great Opportunities for Real Estate Investing. As noted above, a self-directed IRA with a custodian like Quest Trust Company gives you the opportunity to invest in real estate. For many individuals, their largest single investment asset (apart from their primary residence) is their IRA. This means that the IRA balance you’ve accumulated over the years can be put to use investing in the wide variety of opportunities in the real estate market.

For example, it’s possible to use a self-directed IRA to invest specifically in the property or piece of real estate that you intend to live in during retirement. Some self-directed IRA account holders have used their accounts to purchase a future retirement property, rent that property out to third parties (thus generating additional income to their account), then simply take a distribution of the entire property from the account once they retire. This can provide great peace of mind for individuals who may be worried about their living expenses and situation once they enter retirement.

3.         Pinpoint Targeting of Your Investing. Let’s say you’ve researched a particular market or industry or type of product and want to invest in it. With a traditional IRA, unless you’re able to identify a publically traded company with exposure to that market (assuming such a public company exists), you’re frozen out of that investment option. With a self-directed IRA you can invest in private companies in that market, make loans to those companies, and various other types of related transactions.

In short, the self-directed IRA will give you investing opportunities that simply don’t exist elsewhere.

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