Ah, remember a few years back when you would get your IRA brokerage statement in the mail and immediately stuff it in the shredder because you couldn’t bear to see how much it had lost since last time? Recently, we’ve been riding a strong bull market but we all know that history repeats itself; will you be ready when the bears take control and the value of your investment account drops yet again?
I meet people every week who feel powerless when it comes to their own retirement savings. They wish they could access that big pot of IRA money they have stashed away – either stagnating somewhere “safe” but earning barely any interest, or in a brokerage account gyrating around with the market – and put it towards something more productive. One woman last week said, “I’m tempted to liquidate my IRA, suck it up and pay the tax and penalty, and invest it the way I want.”
While she understands the significant costs of cashing in her IRA early, she believes she can still do better for herself by using that money to buy foreclosed condos and rent them out for positive cash flow. She’s on the right track – but on the wrong train. I asked her if she had considered opening a self-directed IRA; she answered, “Well my IRA is already self-directed, isn’t it? My broker will buy any stock I tell him to buy.”
But can she use those IRA funds to buy real estate? Gold? A business? She can, but only if she has a truly self-directed IRA. These intelligent investment vehicles have been around as long as traditional IRAs, but have remained under a veil of secrecy until recently. When you open a self-directed IRA, your current IRA custodian (in many cases, your broker) makes a custodian-to-custodian transfer of your IRA funds to your new self-directed IRA custodian. Then, depending on the setup of your self-directed IRA, you can finally invest your hard-earned retirement funds the way you want – with some limitations.
Note that there are some firm IRS rules that must be followed. The list of prohibited investments is short (including insurance and collectibles), and some of the most popular investment tools today – real estate, in particular – are allowed. Best of all, you don’t have to pay taxes or penalties to the IRS as you would if you simply liquidated your IRA.
Self-directed IRAs are not for everyone; you need to know yourself, and honestly assess if you can take full responsibility in not only investing your dollars but also following all the rules. If you have the strength of character to assume this responsibility, then you owe it to yourself to learn more. Simply Google “self-directed IRA” and you’ll find a wealth of information on this great way to invest.
Educate yourself, and start investing the way that fits your needs.
