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IRA Financial Group Blog

AdBits Episode 19 – Self-Directed IRA Investments

AdBits Podcast
4 Minute Read

Last Updated on November 30, 2020

IRA Financial’s Adam Bergman Esq. discusses all the different types of investments you can make with a Self-Directed IRA, from traditional assets, like stocks and mutual funds, to alternative assets, like real estate and cryptocurrencies.




When you self-direct your retirement plan, you open the doors to a whole plethora of investment opportunities. No longer are you stuck investing in only traditional assets, like stocks, bonds, mutual funds and the like. Anyone, with a little bit of knowledge, can open a Self-Directed IRA and have true freedom of your investment decisions. The ability to diversify your portfolio is paramount to a successful strategy. Learn what you can (and cannot) invest in with your Self-Directed IRA.

What is a Self-Directed IRA

Let’s briefly talk about what a Self-Directed IRA plan is. You can check out our Learn section for more details about the plan. Essentially, an “SDIRA” is just a regular IRA that allows for alternative asset investments, including real estate, private business, precious metals and cryptocurrencies. While many banks and other large custodians may offer a Self-Directed IRA, they don’t offer total freedom.

For this reason, you need a special custodian, such as IRA Financial Trust. Custodians such as us do not care what you invest in, so long as it’s not prohibited by the IRS. We are not looking to sell you investment products and don’t care what you do with your money. Most financial institutions make money by doing these things. They want you to invest in only the assets they offer. Further, they want your money to stay in the plan, instead of investing a good chunk of it in a real estate project, for example. The more money in the plan, the more the bank will charge you in fees.

As long as you have earned income, usually from a salaried job, you can open and fund a Self-Directed IRA. Further, IRA Financial gives you the option of checkbook control, which gives you total freedom of the plan funds. You are in charge of every investment since you never need custodial consent to make an investment. Simply write a check or wire funds and purchase the asset you wish.

What CAN’T You Invest In?

A Self-Directed IRA gives you the ability to invest in almost anything. However, there are some limitations set forth by the IRS. They boil down to three basic types: life insurance, collectibles and investments involving a disqualified person.

First, you can use an IRA to invest in life insurance. While the option is limited, there is an exception for life insurance when using a 401(k) plan. Next, you cannot invest in most collectibles, such as art, rugs, baseball cards, etc. However, there is an exception for coins. Certain coins are not considered collectible and may be held with your IRA.

Lastly, you cannot make an investment with your IRA that either directly or indirectly benefits a disqualified person. These include you (the IRA owner), your spouse, any lineal ascendants or descendants (mother, father, child, grandson) and their spouses, and any entities controlled by one of these. The IRA itself should be the only entity that benefits from the investment. A straightforward example is that you (or another disqualified person) cannot utilize a property owned by the IRA. Essentially, you already receive the tax benefits of the IRA. You cannot benefit personally from those investments.

So long as it’s not prohibited by the IRS, you can invest in just about anything that you can think of. Here, we focus on the most popular IRA investments, but, you may have something else in mind, which is perfectly acceptable. So long as you are comfortable with the asset, you may look into making your own investment decisions.

Real Estate

Real estate has been, and probably always will be, the number one alternative investment for Self-Directed IRA users. There is only so much land available in this world, so the ability to invest in it remains popular. Generally, aside from some down times, real estate has proven to be a very stable and worthwhile investment. It doesn’t matter if you want to invest in a residential property, such as a rental or flip house, or commercial properties and other ventures, there are plenty of opportunities for you.

Many investors already have knowledge about real estate. However, you don’t need to be an agent to invest. Crowdfunding, REITs, Airbnb locations all make real estate investing accessible to everyone. Real estate allows you to invest in something you know and understand and keep your money out of a perplexing stock market.

Hedge Funds and Other Sophisticated Investments

Many smart investors will look at private equity, hedge funds and venture capital investments. There’s the potential for huge returns by putting money into the hands of a much smarter person than you or I. These investing strategies are devised by the fund managers in the hopes of beating the market.

Hard Money Loans

Lending money to a friend, family member or business has become increasingly popular, especially during the COVID-19 pandemic. It’s much harder to get a loan from a bank during these times. However, that shouldn’t deter you if you have the right contacts. So long as you are not lending to a disqualified person, you can loan anyone IRA funds.

You set the amount you are willing to loan, the interest rate and the repayment terms. Of course, you should only lend money to those you completely trust. Of course, it’s always nice to help out a friend, while making a little bit of money on top of that.

Private Business

As we just touched on, you can loan money to a business. Alternatively, you can use your Self-Directed IRA to invest in a business. Again, you must pay attention to the prohibited transaction rules to ensure you are within IRS guidelines. You can use your funds to invest in any non-publicly traded business, whether it’s a new startup, a franchise or a mom and pop shop. Keep in mind that it is an investment only, and you cannot be personally involved in an IRA-invested business.

Metals, Coins and Cryptos

Lastly, it’s important to touch on metals, coins and now, cryptocurrency. The first two have been popular, especially as a hedge against economic downturns, for years. It’s generally a good idea to hold gold, silver or other metals with your IRA.

On the other hand, cryptos have been an emerging asset class over the last several years. The IRS has confirmed that they are considered property and will be treated as such for investment purposes. Of course, the most popular crypto is Bitcoin. While it has grown tremendously, it’s still quite volatile and should be invested in with care.

Stay In Touch

We always appreciate our listeners and we hope you will continue to listen and spread the word. You can find AdBits on SoundCloud, YouTube or your favorite streaming platform. Thanks for listening and if you have any topics you want to see covered, give us a call @ 800.472.0646 today!

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