5 Common Misunderstandings Concerning Self-Directed IRAs

Despite having been around for quite some time, Self Directed IRAs are often met with skepticism. There are numerous misunderstandings regarding the use of funds IRAs that need to be clarified. 

A self-directed IRA is a brilliant financial tool that can generate an immense amount of wealth. With the number of investment options such an IRA can open for you, your portfolios can have huge valuations. 

 

Traditional VS Self Directed IRAs

There is very little difference between a traditional and a self-directed IRA. This difference lies in the custodians for either type of IRA or how active the custodian is in terms of their investment restrictions.

For a traditional IRA, the custodian takes a much more active role in the way they direct your investments. As a convention, traditional custodians allow people to invest only in stocks, bonds, mutual funds and annuities. There is no room for alternative investments

For a Self Directed IRA, the custodian takes a much more passive role to your investments. They will fulfill all the responsibilities as a custodian by managing your taxes, offering the advantages of IRAs. In addition to this, they will also allow you to manage your investments as you please. Your investment options with a Self-Directed IRA include real estate investments, cryptocurrency, new start-ups and much more. 

 

Some Misconceptions About Self Directed IRAs

For reasons unknown, many people are labouring under some very strange ideas about self-directed IRAs. These misconceptions are the root of bad investment decisions and ultimately lead to severe financial consequences. 

So, let’s settle these matters once and for all.

 

1. Traditional IRAs Offer The Same Investment Options As Self Directed IRAs

This is absolutely not true. Traditional IRAs offer limited investment options since conventional investment markets are easier to monitor and engage with than alternative investments. For example, working with cryptocurrency might be a risk that traditional IRAs don’t accept.

Self Directed IRAs, on the other hand, have no such qualms and therefore are open to alternative investments. 

 

2. Self Directed IRA Firms Will Have Absolute Authority Over Your Money

As with any other IRA firm, traditional or otherwise; the custodian firm has no authority over your money besides keeping it safe. No one can invest or use your money without your approval and even then you have the authority to revoke access to your funds. 

 

3. You Can Personally Use Real Estate From Self Directed IRAs

This is also a common mistake people buy into when working with a self-directed IRA. Your real estate investments cannot be used by you personally. The purpose of an IRA-based real estate investment is simply for the purpose of making profits, not for you to use or live in. 

 

4. Non-Traditional Investments Are Illegal

Non-traditional investments are not the same as an illegal investment. Specifically, there is no such thing as an “illegal” investment. Venture capitalism, cryptocurrencies, tax liens are all forms of alternative investments that have thriving markets that are regulated by laws and safety measures. 

 

5. Alternative Investments Are Riskier Than Conventional Markets

Uncertainty is something that all investors have to overcome. There’s no reason to suggest that alternative markets; simply because they aren’t widely spoken of are riskier. Entire firms are based around investing in start-ups to enjoy huge returns, real estate has always been a safe investment option and cryptocurrency is volatile but not excessively risky. 

Uncertainty also exists in traditional investment markets like stocks and bonds.  The risks get higher the more you concentrate your capital into one specific market. Diversification is a rather simple way of avoiding the risk in each investment market. 

 

Final Thoughts

A Self Directed IRA is a powerful tool in your tool kit to financial freedom and when you take your Self Directed IRA offshore you have a greater amount of options and possible gains in front of you, if you want to speak to someone about transforming your regular IRA to an offshore Self Directed IRA then contact us HERE.

Want more information about going offshore? Read our Ultimate Guide To Going Offshore

 

About The Author

Mikkel Thorup host of The Expat Money Show

Mikkel Thorup is the host of The Expat Money Show podcast and the author of #1 Best-Selling book Expat Secrets on Amazon. He has spent nearly 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe, and Iran.

His goal is to help Expats like you to generate additional streams of income, eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again. For more information on his legal (but creative) tax strategies for Expats watch this free video.

 

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