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Self-Directed IRAs as a Tool for Greater Financial Agency

In the 1950s, economic freedom meant a person or society’s ability to make economic decisions freely. These included an individual’s right to produce and consume goods, work, accumulate wealth, and protect their property without government intervention. Let’s discuss Self-directed IRA’s as a tool for greater financial agency. We’ll discuss what is an IRA, How to set up an IRA, diversifying your assets and using your self-directed IRA for International Investments, and more.

The rise of financial libertarianism in the 21st century has expanded the meaning of ‘economic freedom’ to encompass broader concepts like the freedom to control investment options, tax structures, and asset diversification. Financial freedom has become the need of the hour as people seek complete control over their financial matters. 

You might often think that you get a college degree, land a good job, work for years for your company or start your own business, and save for your future. You have the knowledge and experience and you understand your financial needs better; so why should someone else get to decide how your money should be invested? That’s where the concept of self-directed IRAs began. 

Before we look at how self-directed IRAs can help you achieve economic freedom, let’s first understand how IRAs work. 

What is an IRA?

An IRA is an Individual Retirement Account held at a financial institution that acts as a source of income for your retirement and provides tax advantages on your savings. Some employers include IRAs as a part of their employee retirement benefits so you and your employer, both, can make contributions to your IRA, depending on the type of IRA you have. 

Types of IRAs

While there are many types of retirement accounts available to US persons and they vary mainly around who the employer. Corporations use 401Ks, non-profits and educational institutions use 403Bs, small companies can use SEPs or Simples and the list goes on. For individuals, IRAs and Roth IRAs are two of the most common types of IRA accounts.

Traditional and Roth IRAs are quite similar in nature except the timing of the tax breaks and eligibility requirements. For traditional IRAs, you pay taxes when you withdraw your money after retirement so there’s uncertainty associated on account of future tax rates. With Roth IRAs, contributions are made on the money after tax cuts so you benefit from the time value of money. 

To contribute to a traditional IRA, you should be younger than 70.5 years. While there isn’t an age limit for a Roth IRA; to contribute to it, your gross income should be less than $137,000

For 2019, the maximum contribution you can make to a self-directed IRA is $6000 if you’re under 50 years of age and $7000 if you’re 50 years or older. Keep in mind that contribution limits change annually!


What are Self-Directed IRAs?

Self-directed IRAs, in reality, are strategies that are used to invest from your IRA, ROTH IRA or, in fact, any other retirement account that can be “rolled over” to an IRA and into non-standard investment instruments. So, the contribution limits, withdrawal restrictions and/or penalties and all the other rules for IRAs or ROTH IRAs still apply; however, how and what you purchase may change.

Self-directing IRAs are about controlling what you can do with your IRA funds. They allow you to have more freedom, flexibility, and control over your investment options and retirement dollars. What if you want to purchase a rental unit instead of a mutual fund? What if you want to invest in an oil well? Buy a piece of real estate that you think will appreciate? How do you do that from your current IRA? 

The answer is you don’t; for that, you need a self-directed IRA (SDIRA).


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Opening a Self-Directed IRA

To open a self-directed IRA, you need to find a trustee or a custodian that will allow for this strategy. Banks and trust companies usually serve as passive custodians for your self-directed IRA. Their job is to hold your account to satisfy the legal requirements and they aren’t required to provide you any financial advice or alerts. You can either roll over your traditional IRA to your new self-directed IRA custodian or fund it with new contributions. 


How Is It Better Than Traditional IRAs?

In a traditional IRA, the investment options and decisions are taken by your financial institution or brokerage firm and you have limited say in it. So your investment is limited by your broker’s knowledge, experience, and willingness to tap market opportunities. 

Many custodians do provide individuals with access to their accounts allowing them to a certain extent to “Self-Direct” their asses into whatever options are available. In some instances, this may be limited to a few mutual funds and/or CDs. 

Many individuals do have limited control over their IRAs and can buy whatever stocks, bonds, mutual funds and or ETFs available to them and believe they have “self-directed IRAs”. 

However, true Self-Directed IRAs, give you far more freedom over your investment choices. You get to choose where to invest your money, how you want to invest it and into what you want to invest your funds. Your investment decisions are based on your knowledge and preference of a specific industry or market and are not limited to traditional investment markets and instruments. 


Tax Benefits of Self-Directed IRAs

In a Self-Directed IRA, you can benefit from tax-free investing because all your income and gains on your investments grow without any tax deductions. So you can invest in different assets and maximize your profitability using a tax-deferred account. 


Diversification of Your Assets

Your ability to diversify your assets will help you minimize the risk in your portfolio and save them against unforeseen economic and political events. You can diversify your assets by investing in different classes of assets, which is possible by using a self-directed IRA. Traditional IRAs restrict investment options to stocks, bonds, and mutual funds only. 

All of these are assets of the same class, which means they react in a similar way to economic events. For example, if the economy collapses and the stock market crashes, the value of stocks and bonds will decrease, making you lose all your savings instantly in case of an economic crisis. 

Assets like precious metals react inversely to the U.S. dollar and stocks; so even during inflation, when the U.S. dollar devalues, the value of precious metals like gold and silver increases significantly. By diversifying your portfolio, you ensure that all your assets aren’t exposed to the same risks.  

With self-directed IRAs, you can invest in almost any asset including real estate, cryptocurrencies, start-ups, precious metals, private equity, and promissory notes. 


Freedom to Invest in Industries that You’re Passionate About

Whether it’s the knowledge you’ve gained from work or an interest that you’ve picked up over time, you can invest in industries that attract you the most. For example, if you’re working in a real estate sector, you know about property values and growth potential more than your brokers; hence, you can leverage your knowledge and experience to increase returns on your investment in real estate and yield long-term benefits on your portfolio. 


Using your Self-Directed IRA for International Investments

When you have flexibility and freedom over your retirement savings, you can explore international markets for better investment opportunities. International investments minimize the risk in your portfolio because the economic infrastructure in the country you invest in will be different than your home country. To invest internationally, make sure to choose a custodian that allows foreign investments. 

International real estate investments are among popular choices because of their extraordinary returns and an option to settle down abroad in your future. Belize, Portugal, Mexico, Panama, and Colombia are some countries ranked among the best for real estate investment.

Self-directed IRAs are a perfect investment tool for people who want financial freedom, want to control their retirement plans and want to benefit from unlimited investment opportunities in modern markets.  



We discussed in detail Self-directed IRA’s as a tool for greater financial agency. We delved into what is an IRA, How to set up an IRA, using your self-directed IRA for International Investments, diversifying your assets and more.  If you have any questions regarding setting up a Self-directed IRA please contact us here!


About the Author – David Drummond

A resident of Belize since 2008, Dave is currently working towards citizenship in Belize. From banking and asset protection to residency and alternative investments, Dave utilizes his experience to help others streamline their initiatives.


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