How to Leverage a Self-Directed IRA

It is never too early or too late to start thinking about retirement planning. If you want to live a comfortable retirement, you will need more than a monthly Social Security check. Participating in an employer sponsored 401-K, a Roth IRA, or some other type of tax-advantaged retirement plan, is a good way to save. Investment options for most retirement plans are limited to stocks, mutual funds, bonds, certificates of deposit and other traditional financial instruments. However, if you want to expand your investment options and make alternative investment choices, you should consider setting up a Self-Directed IRA.

The IRS does not individually list every asset that can be included in a Self-Directed IRA. Instead, it describes the types of investments that are not permitted and ways to avoid fraud. You cannot invest in life insurance or collectibles. Collectibles include such things as artwork, antiques, stamps and rare coins. Other than that, your portfolio of investments can include almost anything else.

Examples of Permissible Investments

• Commercial property like warehouses or shopping malls
• Residential real estate like single-family homes or apartment buildings
• Farmland or unimproved property (acreage)
• Mortgages and lease agreements
• Small businesses and franchises
• Private stock, hedge funds, and tax liens
• Machinery and equipment
• Precious metals

How Does it Work?

A Self-Directed IRA works in much the same way as a traditional IRA. The IRS requires that you have a qualified trustee or custodian hold your assets and keep detailed records of any transactions you choose to make within your account. You can fund your account each year as long as you have earned income, or you can choose to transfer some or all of the assets in an existing retirement plan to a self-directed account. Transfers using these types of accounts do not normally create a taxable event. Like any other investment, your assets have a value (basis) when you acquire them and a value when they are liquidated. While they are held within your account, they can grow tax-deferred. When you decide to sell them, you may incur a tax liability based on your gains and your current income.

What Should You Have in Your Self-Directed IRA

Everyone is different. What might be right for you may not be right for someone else. Despite the scare we all had when the real estate market collapsed in 2008, over the long-term, buying real estate has been the path to great wealth for many astute investors. Bob Hope and Ted Turner both amassed fortunes by accumulating real estate. Getting in on the ground floor of a new business can be risky, but your investment could pay off handsomely if the business does well. For those looking for more stability and protection against inflation and a weak dollar, precious metals may be the most appropriate investment.

Precious Metals

Opening a Precious Metals IRA can be an excellent way to balance your portfolio and protect against the uncertainty and risk of having all of your retirement savings in mutual funds and individual stocks. It is always smart to diversify and having a portion of your savings and investments in precious metals is a proven way to do just that. IRS rules allow you to invest in American Eagle gold, silver, and platinum coins, the Canadian Maple Leaf, and a number of other government-minted precious metal coins, as shown in this infographic from SBC Gold. You can also purchase bars and other types of bullion as long as it meets minimum fineness standards for precious metal content.

If you are interested in expanding your investment options for retirement, a Self-Directed IRA can give you the flexibility you want. You can still own stocks, bonds, and mutual funds, but you can add real estate, precious metals or other alternative investments to your mix of assets.

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Audrey Clark is a skilled freelance blogger covering a range of topics from careers and finance to travel and leisure, along with everything in-between. When not writing, she’s always on the lookout for her next adventure. Connect with Audrey on Twitter and Google+.