Individual Retirement Account, or IRA, is one avenue to consider when planning ways to fund your golden years.
An IRA allows tax advantages that you don’t get from basic savings or with investments.
There are several formats of retirement accounts available in the financial arena. One of the more flexible is the self directed IRA.
A mainstream IRA allows the hosting company to invest funds in various types of securities.
The self-directed platform puts you in the investment driver’s seat instead.
Why Consider Self Directed?
The Internal Revenue Service has restrictions regarding investment options on IRAs.
That is one reason that most financial companies stick with the ordinary securities – stocks, bonds and mutual funds. IRAs are capable of much more, however.
That is where being in charge of the investment options is attractive.
With this specialized form of IRA, you can use your retirement funds to invest in real estate and to engage private business interests.
Most financial agencies will not go down these less stable paths. That is understandable. They are responsible for many different clients and may invest in bulk.
Managing your own IRA gives you freedom.
Are There Limitations?
Not all forms of investment are appropriate. Assets prohibited by the IRS include:
Life insurance
Artwork
Collectables such as baseball cards
Gems
Certain coins
What is Self-Dealing?
The IRS limits certain investment transactions for IRAs. They label these options as self-dealing. For example, you cannot invest the funds in yourself or your family.
You could not dip into this cash to start a business, either. You are prohibited from investing in the IRA service provider or companies they own.
Other examples of self-dealing include:
Purchasing real estate from yourself
Mortgaging a relative’s property
Loaning funds to a child for a down payment on a home
Buying stock in an employer’s company
Purchasing stock from a family member
This account is not a saving platform that you draw against or use as security, but a retirement fund that lets you make the investment decisions.
What Can You Invest In
Even with restrictions against self-dealing, this IRA option gives you a powerful financial advantage. You can invest in some exciting arenas.
Real estate – commercial or residential
Stocks
Mortgages
Franchises
Private Equity
Tax liens
Use it to fund a start-up company for someone outside the family; buy commodities; purchase royalty rights or T-bills.
As long as you, a family member or the IRA firm holding the funds are not directly involved, there is a world of investment options available.
Most are open to traditional IRAs, as well, but not usually considered by commercial management firms.
How to know if a Self Directed IRA is the Right Choice
This is a specialized variety of IRA and not right for everyone. Some people want to put their money in the hands of others and not be responsible for the investment decisions.
That is one of the advantages of a Self Directed IRA.
The platform is for the adventurist who wants control.
The best course of action is to sit down with a financial professional and go over all the retirement savings options available then decide what works for you.
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James Cash is part of a team of writers and specializes in writing about current news events.