Top 5 Questions For Self Directed IRA PDF Print E-mail
Written by John Coktostin   
Tuesday, 06 July 2010 11:23
Of course the first question must be, "What is a Self Directed IRA?" The difference between a regular IRA and a Self Directed IRA is that you have control over how your money is invested. Many brokers claim they let you decide where your money is invested, but to truly be a Self Directed IRA, you must be able to invest your money where you want to.
by JohnCoktostin


Of course the first question must be, "What is a Self Directed IRA?" The difference between a regular IRA and a Self Directed IRA is that you have control over how your money is invested. Many brokers claim they let you decide where your money is invested, but to truly be a Self Directed IRA, you must be able to invest your money where you want to.

"Is this legal?" is the question that follows. When Congress passed ERISA as part of the Securities Act in 1975, it brought about banks and brokerage houses marketing IRA and 401K plans. They pushed what they wanted to sell: stocks, bonds and mutual funds.

There was nothing in the IRS code that stated you could only invest with a brokerage house (or bank), or that you could only invest in stocks, bonds and mutual funds, but that is what the population came to believe. Banks and brokerage houses want you to invest in those, because that is how they make money. They don't want you to know you can invest in other things as well.

Since the stock market drop, and with corporate scandals and corruption, many investors have become frustrated and began looking for alternative ways to invest their money. They wanted to control their own investments. Some wanted to invest in more tangible assets like real estate.

When they asked about other options, they were often told it couldn't be done. Although this isn't true, since their brokers can't make these other investments, they wouldn't allow it. Brokers would suffer financial losses if their clients made such a move.

So, "What can my IRA invest in?" A better question is, "What can't my IRA invest in?" Very strict regulations must be followed for an IRA. However, the IRS doesn't give you a list of what you can invest in, instead they tell you what you cannot invest in: live insurance contracts and collectibles.

Here are some of the things you could invest in: residential or commercial real estate, raw land, trust deeds and mortgages, private notes and loans. You can invest in private stocks, Limited Liability Companies (LLC), Limited Partnerships (LPs), and tax certificates. There are also stocks and bonds, mutual funds, annuities, currency, futures, options, receivables, and commercial paper to invest in.

"What is ERISA?" ERISA stands for the Employee Retirement Income Security Act. This act passed the responsibility for an employee's retirement plan from the employer to the employee. The only two investments prohibited are life insurance contracts and collectibles.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

As a leading provider of self directed IRA and self directed 401k products, administrative and custodial services, NAFEP focuses on helping you succeed.