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Self-Directed IRAs

This article will discuss the basics on what self - directed IRAs are, how they can benefit you, how to set them up, and why they are a great alternative if you don't want to use out of pocket cash. 

by Alan Brylawski

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Background

 

Starting in the 1970’s, Americans have had the ability to invest their retirement dollars in a diverse group of asset classes, without getting forced into stocks and bonds. Unfortunately, due to the massive amount of marketing most large-retirement custodians conduct, very few people know they can invest in alternative investments to achieve their retirement goals. Self-directed retirement accounts do just that.

 

These accounts are a type of individual retirement account (IRA) that allow the account holder to have more control over their investments. With a self-directed IRA, you can invest in a wider range of assets beyond just stocks, bonds, and mutual funds. This can include alternative investments such as real estate, precious metals, private business ventures, etc.

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Benefits

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There are many benefits using a self-directed IRA can achieve:

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  1. Greater control over your investments: You can choose from a wider range of investment options beyond just stocks and bonds.

  2. Diversification: A self-directed IRA can help you diversify your investment portfolio and potentially reduce risk.

  3. Potential for higher returns: By being able to invest in alternative assets, such as real estate, you may be able to achieve higher returns on your investments than you would with traditional assets like stocks and bonds.

  4. Tax advantages: Like traditional IRAs, self-directed IRAs offer tax advantages such as tax-deferred growth on your investments and potential tax deductions on your contributions

 

How it Works

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To set up a self-directed IRA, you will need to open an account with a financial institution or brokerage that offers self-directed IRA options. You will then transfer funds from your traditional IRA or 401(k) or make new contributions to the self-directed IRA.

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Once the account is set up, you can choose the assets you want to invest in. However, you will also need to choose a custodian to hold and manage the assets in your self-directed IRA. The custodian is responsible for ensuring that the investments you make comply with the rules and regulations of a self-directed IRA.

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Like traditional IRAs, self-directed IRAs have contribution limits and may be subject to income tax on any earnings. It's important to consult with a financial advisor or tax professional before setting up a self-directed IRA to ensure it is the right choice for you and to understand the associated tax implications.

 

To open a self-directed IRA, you can follow these steps:

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  1. Choose a financial institution or brokerage that offers self-directed IRA options. You can compare different institutions to find one that meets your needs and has favorable fees and investment options.

    • Note: NestedEquity has established a relationship with DirectedIRA.com, offering you discounts on annual fees and hands on support to walk you thought the onboarding and investing process. Please reach out to Mat Duffy (matthew.duffy@directedira.com) to get started. 

  2. Gather the necessary documentation. This may include identification documents, proof of income, and other information required by the financial institution.

  3. Open the account and make your initial contribution. You can transfer funds from an existing traditional IRA or 401(k) or make new contributions to the self-directed IRA. 

  4. Select your investments. You can still invest in traditional stocks, bonds, and mutual funds, but the real benefit is being able to choose alternative investments like real estate.

  5. Monitor your investments and make adjustments as needed. It's important to periodically review your portfolio to ensure that it is aligned with your investment goals and to make any necessary changes.

 

Conclusion

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Self-directed IRAs can provide greater access to alternatives investments to achieve your retirement goals. They can be a great way to invest in real estate if you have a long term perspective and would rather not use savings or other liquid assets to do so.

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Want to learn more? 

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Podcast: Important Update to Self-Directed Retirement Accounts

Open a Self-Directed IRA: www.directedira.com

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