When to Consider a Self-Directed IRA

Over the past few years, growing economic turmoil across the world has compelled many individuals to reconsider their options when it comes to retirement planning. While traditional IRAs offered by banks and brokerage firms are still held by the majority of Americans today, many have grown tired of watching their investments dwindle away and want to take matters into their own hands by choosing a Self-Directed IRA.

Overview

Since 1975, Self-Directed IRAs have offered greater freedom of choice for individuals who want to secure their nest eggs. Unlike traditional IRAs, which are usually restricted to mutual funds, stocks and bonds, Self-Directed IRAs can include real estate, precious metals, franchises and other investment opportunities, allowing savvy investors to protect themselves from a volatile stock market by diversifying their portfolios.

Control

Self-Directed IRAs also provide more control for investors who want to direct their hard-earned savings in the manner they please. Although the IRS requires a qualified custodian to handle these retirement plans, investors can choose the firm that suits them. Those with investments that require ongoing management, such as a self directed precious metal IRA, may prefer to go with a firm that offers an IRA LLC with checkbook control. These plans enable account holders to direct funds without custodial approval or transaction fees.

Diversity

While traditional IRAs have long been considered to be a safe choice because they are typically composed of low-risk investments, the ups and downs of today's stock market have led to lower returns. Fear of a future U.S. Social Security system crash has also compelled investors to seek alternatives to traditional retirement plans. Since Self-Directed IRAs offer a more diverse selection of investments to choose from that could potentially lead to greater reward, many people are using these to grow their nest eggs.

Freedom

Among these opportunities, for example, is the real estate market, which can lead to high returns for those with knowledge and experience in the field, but some may find these investments too risky. Those who want a more stability during this economic depression, however, can choose a self directed precious metal IRA that will enable them to take advantage of the rising value of gold and silver. In short, a self directed plan allows individuals to use their personal expertise to make investment decisions.

Responsibility

Even though a Self-Directed IRA is an excellent way for investors to plan for their future, the freedom it offers also comes with greater responsibility on behalf of the account holder. First of all, not all investments are acceptable to the IRS. Collectibles such as antiques, life insurance, and certain precious metals cannot be purchased for an IRA. Secondly, there are many illegal transactions that will lead to heavy penalties. Self-dealing laws, for instance, prohibit investors and family members from using assets in which they have a controlling interest.

Legality

Because the laws involved with Self-Directed IRAs can be confusing, investors need to thoroughly research their investments as well as the firm that will administer the plan. Finding a qualified financial advisor with experience in these transactions will also prevent investors from running afoul of the law. With these complexities, a Self-Directed IRA may not be for everyone, but those who want to put their investment knowledge to the test can reap substantial rewards.

Brandi Tolleson is a freelance writer who lives in Whittier, CA.