Why Self-Directed IRAs are Sometimes the Better Option
Allows holders to invest in alternative asset classes not open to regular IRAs
When planning your IRA for retirement, some types of investment methods can work better for you than others, but do you know which is which? Our team has successfully helped setup Offshore Self-Directed IRA’s for many years.
Most commonly, people choose to invest in a Roth, or traditional, IRA. With this investment method, you can partner with a bank or brokerage firm to choose between different stocks, bonds, and mutual funds. These and exchange-traded funds and certificates of deposit are all that make up the most common types of IRAs for retirement savings. This investment method appeals most to those who haven’t been too involved with the variety of other investment vehicles that are out there, and they may not be as comfortable or knowledgeable as they’d want to be to get involved with them now.
The self-directed IRA appeals to those who are, or who have been, involved more with other types of investments – those that may not be as common, but can reap just as big (or bigger) of a profit. It really all comes down to which vehicles you are most comfortable with and those with which you are more familiar. If your sights are set more on precious metals, LLCs and/or real estate, and stocks and bonds aren’t your forte, then the self-directed IRA is more likely your better option. There are three major ways that you can use self-directed IRAs, and each of those ways is more likely to speak to your needs if this scenario applies most to you.
What’s Different About the Self-Directed IRA?
If you choose this method of investing and saving, your options will open up into investment vehicles such as silver and gold, private mortgages and even small businesses. The only stipulation is that you cannot profit directly and immediately from such an investment, as it is meant for your retirement only. If your idea is to start an LLC, for example, you can build equity by starting it via your self-directed IRA, but you have to keep in mind that the average exit for a startup is seven years from inception.
Other stipulations for the business investment route include making sure that you are not the head of the company, keeping your share at less than 50 percent, and being aware that the company cannot be owned by family members (that includes your spouse!). The simple rule to remember in all of this is just what I mentioned above, that you aren’t supposed to benefit immediately from your investment. It should only be used for saving for retirement.
Real estate purchases and private mortgages have the same types of stipulations in place so that you cannot cash-in on your savings plan until the right time. What would be the point of that, anyway?
If you prefer to go with a real estate investment, you can buy a mortgage and act as a banker for that property with the self-directed IRA funds. A private company can match you to a borrower and then that company would handle the paperwork involved. With this method, you have to keep in mind that since you don’t own the property outright, you can’t profit from an increase in value, but your funds are solidified in a strong asset, making that investment a bit more reliable than stocks and bonds can sometimes be.
Offshore Self-Directed IRA Options
You can make offshore investments through your self-directed IRA as well. If you don’t expect to actively trade your accounts, and plan to make 1 to 3 international investments, this could be the option that works for you. If offshore investments are appealing to you, be sure that the custodian you choose actually offers that option. Many do not. You can ask your custodian to direct the funds to the offshore investment of your choice, as long as it matches up with the kind of investment offered.
Before moving your IRA offshore, also double-check that your assets are even eligible. Only accounts that are vested can be moved out of the United States. That means the account is under your control, usually from a previous employer. Your IRA can also be vested if you’ve been with your company for several years, at least, a part of it could be vested. Check on that before trying to move anything offshore. The entirety of this process involves knowing about how to set up an offshore IRA LLC, which would be owned by the IRA, rather than you, and those funds can be kept in an offshore bank.
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