Understanding the Self-directed IRA and Your Options

A self-directed IRA allows you to invest in a broad range of investments and gives you ultimate control over all your investment decisions. You conduct your own investment research, select your own financial representative/advisor (if you so desire) and choose how much to invest (subject to specified contribution limits) through a tax-deferred or, in the case of a Roth IRA, tax-free environment.

In addition to traditional assets such as mutual funds, stocks and bonds, in a self-directed IRA you may select certain alternative assets, such as real estate, trust deeds/mortgages, a limited liability company (LLC), a limited partnership (LP), non-exchange traded REITs, hedge funds and offshore funds.

With a self-directed IRA, your options include, but are not limited to, the following:

• Loaning money to a friend’s business

• Purchasing an equity stake in a non-publicly traded business

• Loaning money to an individual to purchase real estate

• Buying an investment property

How is a self-directed IRA different from a traditional IRA and a Roth IRA?

Both a Roth IRA and a traditional IRA can be a self-directed IRA. Self-directed IRA is simply a term used to describe an IRA where an account owner is responsible for making the investment selection and is usually able to hold a broader range of investments. In fact, when electing to open a self-directed IRA, the account owner instructs us to open either a Roth IRA or a traditional IRA.

Are there any types of assets that I can’t invest in with my self-directed IRA?

IRS regulations prohibit the following investments in an IRA: Life Insurance policies, collectables (e.g., stamps, baseball cards), and capital stock in an "S" Corporation.

Due to their administrative characteristics, certain investments are not permitted in many IRAs. The following investments are not administratively feasible: short sales or positions, margin accounts and/or debit interest; precious metals, stones, jewelry, art objects and other "collectibles"; foreign currencies and securities (unless traded ADR); index options; general partnerships; joint ventures; working interests; loans to third party individuals; "S" corporation stock; single member LLC; assets purchased on installment; life insurance (except in Qualified Plans); and bank sponsored money market accounts.

Understanding the self-directed small business plans

Like a self-directed IRA, a self-directed solo 401(k) or a self-directed profit sharing plan allows investing in a broad range of assets and gives you ultimate control over all your investment decisions. You conduct your own investment research or select your own financial representative/advisor to perform such research on your behalf (if you so desire) and then choose how much to invest (subject to specified contribution limits) through a tax-deferred or, in the case of a Roth Solo 401(k), tax-free environment.

In addition to mutual funds, stocks and bonds, a self-directed qualified plan may include certain alternative assets, such as real estate, trust deeds/mortgages, a limited liability company (LLC) and a limited partnership (LP), non-exchange traded REITs, hedge funds and off shore funds.

With a self-directed small business retirement plan, you may also borrow up to either $50,000 or 50 percent of your vested balance, whichever is less. The loan may be used to help finance or operate your business, among other things.