The Power of Self-Directed IRA’s

I write about my trading from time to time on this blog. What many of my readers may not know is I also invest directly in businesses through partnerships. Much of my investing is done through my IRA through a self-directed IRA.

What is a self-directed IRA?

A self-directed IRA allows you to invest in both “traditional” investments such as stocks, bonds, and mutual funds, as well as “non-traditional” investments, like real estate, mortgages/deeds of trust, private placements, tax liens, and other private placements and limited partnerships. A self-directed IRA enables you to use your investment knowledge and expertise to manage your own investments. It is a common misconception that you can only hold CD’s, stocks, bonds, and mutual funds in your IRA. This is simply not true. A self-directed IRA quite simply is an IRA account that allows you to directly manage and choose which investments to purchase.

How do I set up a self-directed IRA?

As in most things, there are some tricks of the trade. My company DNA Investments can help you maneuver through them. Below are some high-level summaries of available options:

Option 1: Setup a trust

In this option, you setup a trust to hold all your assets. The trust will charge fees for this service. You would direct the trust to buy the assets that you have selected. This can become somewhat cumbersome and expensive as you will typically pay per transaction + a percentage of assets under management.
Option 2: The DNA Investments Passbook Trust

In this option you are given more direct control of your assets. IRS rules prohibit arms reach transactions, but you can still retain close control. You can’t for example purchase a home as an “investment” and then live in it. This would be a violation.

With the Passbook Trust, DNA would setup a trust much the same as Option 1. The difference however is that the trust in turn would purchase stock in a company that we create on your behalf. The company has its own bank account and is able to open its own investment accounts. The company would in turn buy stock, bonds, mutual funds, as well as invest in real estate, and other alternatives previously unavailable to the individual.

It is a manageable process to create the Trust, but the individual must conform to IRS regulations. Properly setup it afford the individual a tremendous investment vehicle to invest.

A Misunderstood Retirement Investment Vehicle

Unfortunately, most investors believe that their only IRA investment options are bank CDs or the stock market and mutual funds, not real estate. If you currently are a successful real estate investor, or are just looking to diversify your retirement portfolio, the combination of real estate and your IRA can be very powerful.

The tremendous advantages a self-directed retirement plan offer the following benefits:

• The power of compound interest
• Reduction of taxable income
• Asset protection – assets in your retirement accounts are protected in lawsuits
• Estate planning

Resources:

• DNA Investments – Setup a DNA Passbook IRA account

• IRS – Resources for Retirement Plan Participant/Employee