Can I Set Up My Own Self Directed IRA?

Self-directed IRAs give you the freedom to invest in nontraditional assets like real estate, shares of small business ventures or precious metals that both generate value and provide tax benefits.

However, you must comply with IRS rules which prohibit IRAs from engaging in transactions with disqualified people and verify all the information on your account statements.

Choosing a Custodian

An SDIRA requires a reliable custodian who monitors and records transactions in accounts, ensure investments comply with IRS rules, and prevent prohibited transactions such as using an SDIRA to invest with disqualified individuals or undertake certain types of transactions.

Select a custodian with a strong reputation and depth of experience, who allows you to invest in alternative assets allowed by the IRS (such as real estate and privately held companies). Also check the fees that each custodian charges; this could include annual maintenance fees, commissions for making trades or loads charged by mutual funds.

Try to select a custodian who allows for full bookkeeping control through an LLC, known as checkbook control. This enables you to purchase non-traditional investments like private equity, real estate and promissory notes. However, avoid custodians offering valuation services on alternative assets as these may often be intangible and difficult to value.

Investing in Alternative Assets

Investment in alternative assets offers more potential than traditional financial investments, yet comes with additional risks. For instance, these ventures tend to lack transparency compared to publicly traded stocks and bonds and can be more challenging to evaluate for profitability and safety. It’s vitally important that investors feel comfortable conducting their own research while seeking advice from qualified financial professionals, according to Chase Insogna of InsognaCPA in Austin Texas.

Your custodian won’t offer financial advice or conduct due diligence on the investments in which they manage, so it is up to you to ask questions and verify information before investing. Furthermore, prohibited transactions – like borrowing against or living in property purchased with an SDIRA – should be avoided to avoid penalties and forfeiture of tax benefits. Always speak to your custodian first and research any asset class before investing; for instance before buying gold from any dealer it would be prudent to verify if he or she is reliable before proceeding.

Managing Your Account

As the manager of your own self-directed IRA, it is up to you to identify investment opportunities, make informed investment decisions and avoid prohibited transactions (like buying a winery or investing in property where there is a personal connection such as an employee relationship). This requires both time and vigilance.

Be mindful that any violations, such as investing in prohibited assets or making withdrawals before age 59 1/2 (without qualifying exceptions), will incur regular income rates and possibly an additional 10% penalty tax rate; SDIRA assets remain subject to required minimum distributions beginning at age 72.

Once you’ve located a custodian that accepts your preferred alternative investments, the next step in account setup should be either via rollover or transfer. When working with myEQUITY for account transfer or rollover setups, our investment adviser can guide you through each step – online as well as over the phone! Dedicated investment wizards are also on hand 24/7/365 should any further assistance be required.

Taxes

Self-directed IRAs give you the flexibility to invest in alternative assets, like real estate, private equity and precious metals. While such investments typically offer lower returns than stocks or mutual funds, they provide another means to diversify your retirement portfolio and generate additional income streams.

Note that custodians and administrators do not provide financial advice, so it’s essential that you are familiar with any investments you make. Furthermore, some alternative assets may be difficult to value; according to the Securities and Exchange Commission’s recommendations it would be prudent for you to independently verify information provided within account statements such as prices or asset values.

As is true with any tax matter, you should familiarize yourself with IRS restrictions on prohibited transactions, including living in property owned by your SDIRA and paying services rendered there (refer to IRS Guide for details). When in doubt regarding any such issues it’s wise to consult a qualified tax advisor.