Start With Your Investment Using your IRA
More retirement investors are increasingly aware that they can select investments beyond just the traditional offerings of CDs, ETFs, mutual funds, bonds, and stocks within an IRA (Individual Retirement Account). A “Self-Directed IRA” (SD-IRA) offers non-traditional investments which in recent years have become more popular and are much more accessible to investors than they were when IRAs were initially introduced in 1974.
What is “Self-Directed IRA”?
“Self-directed” is a term that means alternative investments which are offered or accepted by an IRA custodian. The financial institution that is responsible for IRS reporting and recordkeeping requirements is the IRA custodian. Each year, the “self-directed” aspect will kick in since you have to value your investment accurately per year and the value reported to the IRA custodian.
A self-directed IRA allows you to invest in:
• Real Estate
• Private Placements
• Notes such as private lending
• Tax Lien Certificates
• Precious Metals
• Other investment options
How to use an IRA in investing in real estate?
When an IRA is used the first step is setting a Self-Directed IRA up. There are several reputable companies that offer individual investors the chance to get self-directed retirement accounts set up. Due to the fact that Self-Directed IRAs have such a complex nature, it is useful to have a custodian that helps to provide guidance that as much needed as you are navigating through the IRS tax code’s confusing and murky waters.
What to ask a self-directed IRA company before investing?
1. How much do you charge?
Fees can greatly vary. Some charge big setup fees, others charge you an annual fee, while others charge a yearly fee that is based on the account’s value.
2. What is the process for investment approval?
There are some companies that may take 30 days or longer to get an investment funded after sending it in to get approved. There are some SD-IRAs that provide you with “true checkbook control,” when you get a checkbook that you can write checks out of your IRA account – and that provides you with immediate access to your funds (i.e. in order to quickly close a deal).
3. Will my retirement account be eligible for “rolling over” to an SD-IRA?
Not every retirement account may be rolled into a self-directed IRA. A majority of IRAs may be, including some 401(k) s.
Be sure to ask your financial advisor or IRA company about this.
4. How long is it going to take to get my account set up and running so that my funds are available for investing?
There are some people who wait far too long to get the process going. If you know you are going to use your IRA for investing in real estate, then get the process started to get it rolled into an SD-IRA account as soon as possible. Some companies might take a week or sometimes even more than a month to get your account set up and then ready to use for investing.
If you think a self-directed IRA might be a really good way to invest part of your retirement in things that you know (instead of the unpredictable stock market) so go ahead and dive in, take the time to become educated on the SD-IRA pros and cons.
Before starting with your investment, make sure to be familiarized with all the rules of buying properties with your IRA money.