While most people might think of a self-directed IRA as being one where they are able to choose which stocks, bonds, and mutual funds they can invest in within their account, a truly self-directed IRA is actually much more than that.
Structurally, self-directed IRAs aren’t much different than regular traditional or Roth IRAs. However, these accounts are unique because of the element of additional control that they allow their account holders, as well as the variety of additional investment options that they offer to their investors.
For example, in a truly self-directed IRA, it is the account owner and not the broker or financial institution that directs which investments will be placed inside of the account. Therefore, a much wider range of choices – including gold, real estate, currency, and private notes – may all be chosen as IRA investments, and these vehicles are likewise provided with the same tax-advantages that you would find with the investments in your regular IRA accounts.
Self-directed IRAs can also offer additional benefits such as a technique known as checkbook control, and the ability to invest through a Limited Liability Company, or IRA LLC. Yet, these benefits do come with a great deal of additional required paperwork and custodial fees.
‘Self Directed IRA’ is an easily confused term that individual investors hear throughout their investing career. It is important to know that the level of control given to the IRA owner can vary greatly among different IRA providers. Many institutions such as banks, brokerage firms, mutual fund and life insurance companies offer self directed IRAs that are locked into narrow investment choices such as stocks, mutual funds, annuities and bank CDs.
Under IRS section 408, federal law prohibits an IRA from investing in life insurance and collectibles which include artwork, gemstones, rugs and the like. Aside from these exclusions, a self directed IRA custodian has free reign to determine the types of investments it will permit.
Thus, self directed IRAs are allowed a broad array of investment options, many of which you will find here!
trust or mortgage deeds
private LPs and LLCs,
promissory notes and corporate debt
and much more.