What is a Truly Self-Directed IRA?
A truly self directed IRA is no different from any other IRA. The term “truly self-directed” simply indicates that you choose your IRA’s investments without hassle or limitations. Most Custodians, Administrators or Banks that offer “self-directed” IRAs will limit clients to their own investment products and charge cumbersome fees.
What can a Self-Directed IRA invest in?
The rules governing what an IRA can invest in are exclusive - not inclusive. The self directed ira rules only specify where you cannot invest. It’s virtually an unlimited possibility of investments.The IRS only defines the following assets as prohibited:
- Life insurance contracts (e.g., a life insurance policy on the life of the IRA owner);
- Collectibles (e.g., antique rugs, cars, stamps, furniture, etc.);
- Capital stock in an "S" corporation.
Examples of investments allowed (specialized assets) within self-directed IRAs
- All forms of real estate
- Raw land
- Rental properties
- Commercial properties
- Real Estate-related private entities (such as limited liability companies, that invest in real estate)
My broker and my accountant both said you can't do it. Why?
They typically respond, either out of ignorance or self-interest, “you can’t do that,” or, “it’s illegal,” or, “we don’t handle those types of investments,” etc. In all fairness, some of these professionals have never been told that it is legal to buy real estate in an IRA. They don’t know because the companies that employ them are not interested themselves. Brokers are compensated when they sell stocks, bonds and mutual funds. In short they are trained salesman.
In addition, many professionals, including CPAs, real estate attorneys, and financial planners, are not aware that buying alternative investments such as real estate with an IRA is perfectly legal but they have heard of it. We consistently hear; " I have a client who wants to pull there money from there IRA, I heard there is a way to set this up without being taxed and penalized, is this true? The word is getting out there.
Why hasn't the self-directed IRA business been publicized?
Traditional IRA providers control about 97% of industry. Their huge marketing budgets allow them to maintain a strong public presence, although recently the national media are now giving exposure to the self-directed service industry. The true self-directed industry has the remaining 3% - but rapidly growing. The recent publicity surrounding possibilities within the self-directed industry has begun to sweep across the U.S.
A recent national publication suggested that all Americans should have 25% of their retirement savings in real estate. That would represent a growth of 1,150% over the current level of 2% of the $3.7 trillion in retirement savings that is currently in IRA assets. It is also estimated that overall, IRA assets will grow by as much as $2 trillion by 2006 due to the retirement of the baby boomers. The True Self-Directed industry is on the rise.
How do I know this investing my self directed IRA in real estate is legal?
This is a question we hear frequently. The fact is that you have been able to buy real estate with an IRA since the first day IRAs were created.
Visit www.IRS.gov yourself, the Internal Revenue Service’s own website and search for Publication 590, which defines everything the IRS wants you to know about IRAs. On pages 40-41, you will see what you CAN’T do. You cannot purchase collectibles or life insurance contracts.
You will also notice that real estate, financial paper, private placements, etc... are NOT mentioned as one of the asset types in which an IRA is prohibited from investing. Buying real estate in an IRA is just like buying Dell stock. Investing your IRA in real estate is just a purchase of a different TYPE of investment.
What is the difference between a Self Directed IRA and a Truly Self Directed IRA?
Traditional "Self-Directed" IRAs - expand the
investment options from stock and mutual funds to also include real
estate, tax liens, deeds of trust, and a host of other potentially higher-yielding
alternative investments. Although self directing your IRA is a step in the right direction, owners of
these Traditional "Self-Directed" IRAs soon discover what is in the fine print and learn there are some
significant drawbacks to a run-of-the-mill of "Self-Directed IRA" plan:
- Who’s The Boss? The custodian or you? - If you are not truly self directed the IRA custodian is in control of your IRA funds. Custodial "Approval" is
required before you are allowed to make an investment, although you are quote unquote self directed. (Why should you
need to get someone else’s approval to invest YOUR funds?)
- Delays - Ready to invest your self directed retirement plan? GREAT!
Now fill out the paperwork and WAIT up to a week or longer! (Say
goodbye to time-sensitive investment opportunities with a truly self directed IRA!)
- Interest on Uninvested Funds - Uninvested funds are held in an self directed ira account at the custodian that pays
you little or no interest. (Shouldn’t you be the one making the
interest on YOUR uninvested money?)
- There are always fees to pay - Typical self directed IRA fees include a yearly "Maintenance" fee (usually based on a
percentage of the market value of the assets in the plan), fees for
buying AND selling assests, and fees for every little service from
document safe-keeping to cashier's checks and faxes. (Why should the custodian profit off of your investment success?) This is not the case if your IRA is truly self directed in an IRA LLC.
Call us or email us now. We can save you thousands in Custodial fees over the life of your IRA and we do it for a lot less than companies who either offer a quote, unquote warranty that provides no protection or an IRA facilitator who can charge as much as $5000.
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