How to Invest in a Self-Directed IRA

Estimated reading time: 3 minutes(Last Updated On: February 16, 2022)

Investing with a Self-Directed IRA is a great way to make sure you have enough money saved for retirement while having the ability to invest in assets you’re familiar with. IRAs allow you to invest your savings and build your wealth over time. However, it might seem more difficult to use an IRA as opposed to investing with your personal funds. The good news is that if you have a knowledgeable custodian that is familiar with the industry, they can make the investing process a lot smoother and simpler! Investing with a Self-Directed IRA can be broken down into 5 steps.


What is the Difference Between a Traditional IRA and a Self-Directed IRA?

With a traditional IRA, a custodian manages your money for you and makes all decisions regarding how your money will be invested. The role you have is providing information about general investments you would like to use, but generally, the custodian holding your account will have financial control until you start withdrawing from it.

With a self-directed IRA, you control how your money is invested. You make all the decisions, from investment type to specific details. You can use these accounts to invest in alternative assets, like real estate, that you typically can’t access with an IRA at a more traditional custodian. You’ll also be responsible for making the financial decisions yourself. Read further for information on other types of IRA accounts.


Why Should You Invest with a Self-Directed IRA?

For many people, knowing they have much more control over how their money is spent is the main reason to open a Self-Directed IRA. For those who already have some investment experience with alternative assets, Self-Directed IRAs are a great vehicle to save for the future by investing into assets they already know and understand. This flexibility can potentially lead to excellent returns when used with the appropriate financial investment strategy.

Whether it’s a Traditional IRA or a Roth IRA, a Self-Directed IRA also gives you all the tax advantages of an IRA with the freedom and flexibility of a wider array of investment instruments. The opportunity to take control of your financial future with greater asset diversification is one reason to invest in a self-directed IRA.


How Do You Start Investing with a Self-Directed IRA?

First, identify a custodian that administers Self-Directed accounts. Be sure to consider their expertise, funding time, and understanding of the market you are in. When you find a custodian you are comfortable with, you will want to open the account of your choice. Some custodians may require you to contribute funds at the time you establish the account, but others will allow you to open the IRA with no account minimum requirements.

Once your account is open, you can now choose the type of investment that you want to hold. It’s important to remember that there are certain investment rules you must follow with a self-directed IRA. You should not have any association with the business that you choose or have any control over it. Also, your spouse, ascendants, descendants, their spouses, or any fiduciary that advises you on IRA should not have any links with your business venture.

After you have found the perfect investment, you can then direct your custodian to purchase it, specifying the buying price, percentage of interest (for an LLC or partnership), the number of market shares you want to buy (for a corporation), or any other specifics for the investment. Now that the custodian has purchased the investment, you hold that asset in your Self-Directed IRA. And that’s it!

Self-direction can be a great option for those looking to take more control of their financial future, and once you understand the process, it can be easy and enjoyable. If you are interested in learning more about self-directed IRAs or would like to get started, schedule a free consultation with an IRA specialist today!


Self-Directed IRA Roadmap

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