Investing Basics: What Are Your Options?

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Many people believe that the only options in their Individual Retirement Account (IRA) are account type and which publicly traded stocks to choose from. We all want to see our investments grow. With the turbulent market over the past decade, unfortunately, many people watched their retirement funds take the biggest hit of all.

Investing basics tell us that it takes knowledge of the market and current market trends to see the greatest gains. But we now realize there are far more variants that could derail even the most well-researched investment. 

Traditional brokerage firms have dealt with this, but the reality is that we entrust our retirement to these same traditional brokerage firms' predictions and calculations, in hopes that they are advising us correctly. Many of us have grown increasingly exasperated and upset with the volatile stock market, high brokerage fees, and constant loss of retirement funds, and have looked for options available in order to use these funds elsewhere. A large group of people in the United States have begun opening Self Directed Individual Retirement Account.

Self Directed IRAs are treated in the same manner as an Individual Retirement Account with a traditional brokerage firm, but they are only allowed as alternative investments. A self directed IRA account cannot invest in publicly traded stocks, bonds, or mutual funds, as most are accustomed to. Instead, those with a self directed IRA are allowed to invest in real estate, private companies, tax liens, Limited Liability Companies, promissory notes, private mortgages, precious metals, and many more alternative investments. 

Self Directed IRAs make the account owner the sole overseer for account investments. There is more accountability on account owners, as they are not allowed to be directed or advised on any investment, according to IRS guidelines. For example, if you invest in real estate, you must find the investment, do the research, negotiate the price, follow through with all expenses on the property after, and then decide whether to hold the investment or to sell. Ultimately, there is more due diligence on the account owner’s part, but with knowledge and advisement from qualified individuals, many feel that by opening a self directed IRA account they are far more confident about investments and their retirement.

There are some important points to make regarding Self Directed IRAs and their regulations:

  • All assets must be purely for investment purposes, not for personal use. If this is violated by the account holder or any other disqualified position, then due to IRS guidelines the asset is subject to termination from the individual retirement account and subject to possible fines.
  • Asset income goes directly into the IRA and expenses must be paid by the IRA. Account owners cannot pay any expenses or receive revenue.
  • Arts and antiquities are not allowed as assets within the IRA. Vehicles are allowed as long as they have never had an antique plate, were not stored at property owned by account owner, and are purely for investment purposes.
  • Only certain coins and metals are allowed to be assets within a self directed IRA.
  • Profits gained from asset sale or revenue go directly into the IRA, without taxation.
  • Individuals are allowed to have more than one IRA. You may keep your current IRA and open a self directed IRA, as well.
  • Account types are the same for self directed IRAs, Traditional, Roth, SEP, etc.

If you decide to open a self directed IRA, you will need to find a self directed IRA company to open the account. As this is such a specialized field for investments, there are far fewer of these companies than traditional brokerage firms. Luckily, there are a few Michigan-owned companies to work with as well, which works to your advantage as it is nice to have a company that is familiar with your area, market, and state regulations with investments. Since this is all they do, they can answer all of your questions, make sure your Individual Retirement Account follows the Internal Revenue Service regulations, and make you feel like a confident investor in today’s world.  

It’s important to remember that all investments carry an inherent risk. Always ask a qualified professional any questions you may have. Opening a Self Directed Individual Retirement Account is a personal choice, and is not right for a individual who doesn’t have the time to oversee his or her retirement. Self Directed means just what it implies: You must choose each asset to be held in your retirement. But it also offers a whole new avenue of investment that a traditional brokerage firm cannot. Self Directed IRAs offer you personal control, investment freedom, and an opportunity for investments that you have always wanted, but never knew were possible.

Written by: Nicole Gray, The Navigational Group, LLC. Photo: stock.xchng

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