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Is an SD IRA the best choice?

Is an SD IRA the best choice?

The self-directed retirement account (SD IRA) market of the retirement industry continues to grow quickly and is currently an accepted and advised diversified investment strategy. Investors are able to buy a wide variety of assets that comply with the permitted federal rules, through a number of IRA structures and 401k plans.

A self-directed IRA is more traditional and conservative than the name suggests. It includes a tax-favored retirement accounts that allows an investor to take a more active role in choosing how and in what to invest in. In many ways this is better than going the traditional route of hiring an investment firm to make those decisions on behalf of the investor.

Self-directed IRAs may seem like a new way to save for your retirement, but they have existed since the introduction of the IRA in 1974. Many people have not heard of the SD IRA because the retirement account requires a custodian and most investment firms only allow traditional investments.

The main reasons for opening a self-directed IRA are accessibility, control, and the high rate of return on investments.  When your money is kept in an IRA, you generally can not have access to it until you are 59 years old. When the money is in a traditional or Roth IRA, you can only invest in stocks, bonds and mutual funds. With a SDIRA, retirees have access to their money for non-traditional alternative investments.

The list of alternative investments you can make with a self-directed IRA is massive, limited only to a handful of IRS prohibitions against illegal activities and the disposition of a custodian to administer the holdings (self dealing rules).  These self-directed IRAs allow you to invest in real estate, precious metals, cryptocurrencies, notes, tax certificates, private deals, and many more investment opportunities.

For example, you can use your IRA to get residency in Panama. Invest $20,000 in teak, pay some fees out of your pocket to comply with US laws, and you can be a resident of Panama using your IRA. For more on this, see:  Teak a Part of your SDIRA: Guidelines to Financial Prosperity

The widest selection of permitted investment options and opportunities helps to open the doors for the expert investors with real market understanding to take advantage during economic downturns and recessions for maximum investment growth for your retirement.

A primary risk in the regulation of SD IRA is when the owner of the IRA or other designated persons use the account for personal benefit or in a manner that bypasses the tax law. The key elements of the regulation and compliance of SD-IRA are the identification of disqualified persons and the types of transactions that these persons can’t partake in with the account.

There are many numerous examples of what is constituted as an illegal or prohibited transaction. For example, the IRA can not be used to buy shares or other assets of a disqualified person, renting assets of or for a disqualified person, buy shares in a corporation in which a disqualified person holds a majority interest, or lend or take loans of a disqualified person.

Another common example is using a rental property. For example, you buy a condo in Belize using your IRA. You can rent out that property, but you can’t live in it, or stay there when you visit Belize. This would be an inappropriate benefit.

The U.S. Securities and Exchange Commission published an alert for investors that addresses self-directed IRAs and the risk of fraud. When investing with SD IRA’s there is always the possibility that you can not access the value of your investment to make distributions when you may need more money during your retirement years, especially in real estate.

The most frequently cited example of an alternative SD-IRA investment is ownership of real estate, which could involve rental properties or owning a direct property. Real estate investments directly contradict REIT investments listed on the stock exchange, since the latter is usually available through more traditional IRAs.

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It is important to examine all of the potential fees and taxes that will affect the overall return on your investment (see above note on Belize). In many cases, it is also advisable to also establish a limited liability company LLC or other entities to hold the investment assets. If you work for a company that seeks to increase capital you can invest in that company.

For instructions on forming an offshore IRA LLC, see: Here’s how to take your IRA offshore in 6 steps

The main question you should ask yourself before opening a self-directed IRA account is what will you be investing in. There are many positive things you can do with an SD IRA, but there are many other options involving other specific type of IRA’s.

Many investment professionals believe that a self-directed IRA usually doesn’t provide enough profit or return on investment for the amount of work that investors must do to grow it. Only a smart and capable investor can directly benefit from making a profit and not falling into a monetary quicksand.

I hope you’ve found this article on self-directed IRA to be helpful. For more information, or for assistance in forming an offshore IRA LLC, please contact us HERE.


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