A self-directed IRA is a unique way for an investor to invest his or her retirement savings.
Regular IRA accounts are very limited as to the allowable investments.
They allow basic financial products as investments: stocks, mutual funds, bonds, and CDs.
A self-directed IRA allows you to invest in broader investments: real estate, loans, businesses, and more.
Here is an overview of setting up this type of retirement account.
Set up the Account Find a provider of self-directed IRAs.
There are many companies out there that specialize in being self-directed IRA custodians.
When you set up your account, you will need to decide whether to set up a traditional (pre-tax) or Roth (after-tax) IRA.
You should consider transferring in existing retirement accounts.
Also, be aware of the fees that your custodian charges to administer your IRA LLC.
These fees can be significant, so make sure you have a strong reason for going the self-directed route.
Fund your Account Transfer money from another IRA or contribute cash to your self-directed IRA.
Remember that this account is still subject to the same IRS contribution limits for IRA accounts.
Select Investments for your Account Find appropriate investments for your account.
Most self-directed IRA investors make investments in real estate or loans, but there are many other potential investment types available.
Check with your account custodian to make sure your investment is eligible.
There are very specific IRS rules that you need to follow to maintain your special retirement account status.
If you violate these rules, your account may be considered to be a non-IRA account and you will get hit with penalties for early IRA withdrawal.