As 2015 draws to a close and 2016 begins, you’ve probably got a lot on your mind when it comes to personal finances. Hopefully, one of the things you’re thinking about is your long-term retirement savings, because consistently saving over time is the foundation to reaching your retirement goals. It’s also important to reevaluate your retirement activities every year.
You may find that you have several different options for conducting your retirement savings and investing activities. There’s the IRA, of course, which could take the form of an account with a traditional custodian such as a bank or discount broker, or a “self-directed” IRA with a custodian such as Quest Trust Company. You might also consider participating in an employer-sponsored retirement plan such as a 401(k).
When you take a broad view approach to considering your various retirement saving options, you may likely find that the self-directed IRA presents you with the most advantages.
Investment Options. The value and importance of having the greatest number of investment options available to you cannot be overstated. An IRA with a traditional custodian will limit your options to things such as stocks, bonds, and mutual funds. With an employer-sponsored retirement plan, you’ll have even fewer choices; perhaps just a handful of mutual funds options. A self-directed IRA allows the account holder to invest in all these options, plus real estate, private equity and private debt, precious metals, and more.
Real Estate. The ability to invest in real estate is one of the things that first draws the attention of many individuals to the self-directed IRA. You can use a self-directed IRA to invest in all types of real estate, including residential properties, commercial real estate, industrial real estate, farmland, and even undeveloped land.
However, the rules and regulations for IRAs do not permit an account holder to borrow money for purposes of acquiring investments to hold within an IRA. Doing so could threaten the tax-advantaged status of your account, so you’ll need to choose real estate investments that you can purchase, and maintain, solely with funds from your account.
Precious Metals. For individuals who want to invest in precious metals, IRAs with a traditional custodian have limited options. You’ll be able to invest in publicly-traded companies and mutual funds with a focus on precious metals, but not much more. On the other hand, with a self-directed IRA the account holder can purchase precious metals directly, as well as take direct equity interests in companies that are involved in precious metals exploration and development.
Private Equity and Private Loans. Self-directed IRAs can be used to take an interest in privately held companies through a wide variety of investment types, and can even be used to issue private loans (including mortgages to individuals). These investment opportunities simply don’t exist with IRAs through traditional custodians or employer-sponsored retirement plans.
Finally, because the legal structure of the self-directed IRA is the same as the familiar IRAs that you may have had (or perhaps still have) with a traditional custodian, you can choose the exact type of self-directed IRA that best fits your needs.