It’s hard to knock investments in traditional investment vehicles like stocks and bonds. However, the investment world has many more viable options that could bring you exciting returns. Did you know you can invest in alternative things like real estate, Bitcoin and and precious metals right from an IRA account? Well, you can. The specific account is called a Self-Directed IRA.
What Is a Self Directed IRA?
As stated by Wikipedia, this type of IRA is defined as follows: “an Individual Retirement Account (IRA), provided by some financial institutions in the United States, which allows alternative investments for retirement savings. Some examples of these alternative investments are: real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property.”
A qualifying account must be established with a licensed IRA custodian. Based on IRS guidelines, the IRA investment firm is permitted to decide what types of investment options they will make available to account holders. Unlike standard IRA accounts, which generally restrict investment options to stocks, bonds and mutual funds, a Self-Directed account allows for a broader base of options. This might include real estate, partnerships, precious metals (gold IRA) and perhaps even Bitcoin (Bitcoin IRA).
Tax Benefits Related to A Self-Directed IRA Account
The good news related to a Self-Directed IRA is it still carries the same tax-deferred benefits allowed for other IRAs and retirement type accounts. You are allowed to make annual deposits into your IRA on a tax-deferred basis, essentially delaying the payment of taxes on the associated earnings until you finally withdrawal said funds. Prior to age 55, you may be subject to the applicable taxes and a penalty of 10% for early withdrawal. After age 55, you will only need to pay taxes on the withdrawal amount based on your personal current tax rates.
How to Start or Open a Self Directed IRA
As indicated above, your IRA custodian must be registered and licensed with the appropriate government agencies. If you are interested in investing your monies in a particular investment option, you will want to find a custodian that permits such investments.
Note: Make sure your investment choices are permitted by the IRS under current guidelines. Choosing the wrong investment could nullify your tax-deferred status, resulting in the owing of taxes.
Today, the opening of any IRA account is as simple as A-B-C. Once you have selected your custodial firm, you will usually have the option of opening the account in person, via fax or via email. Using your preferred method, here’s a list of five steps you will need to take in order to start investing.
1. Fill Out the Application
It all starts with the application process. You need to be prepared to include any of the personal and financial information that might be required by the custodial firm. Most custodians offer a variety of IRA account types. A checkbook IRA or Roth IRA would both be examples of popular choices. Check with your investment firm for information about what kind of account would best suit your needs. A checkbook IRA would allow you to cut checks in order to make outside investments not accessible by your investment firm.
2. Providing Identification
You will need to provide proof of identification with your current address. The required ID information will need to include your Social Security number and a picture ID (state ID, passport, drivers license will do).
3. Choose Fee Options
You shouldn’t be surprised that investment firms are going to charge you fees for maintaining your IRS. You will usually have several fee options from which to choose, including a flat rate monthly fee, per transaction fee or a combination of the two. Some fees may be based on your asset base or the type of assets you maintain.
4. Fund Your Account
If you have another qualified IRA, you may opt to transfer said investment funds to your new self-directed IRA. As for additional funding, you can make deposits on an intermittent basis during the tax year. You may choose to make on lump sum deposit prior to the IRS’s state deadline. You might also want to consider setting up some type of direct deposit from your payroll straight into your IRA.
5. Start Investing
Once your account is approved and the funding in place, you are now ready to start putting your money to work. You will need to determine your own risk tolerance prior to selecting certain types of investments. Remember, you are investing in your future retirement. You want to get a respectable annual return on investment, but you don’t want to put your future at risk.
Custodians that offer Self-Directed IRA
For your convenience, here’s a list of several financial firms who are either administrators or custodians that offer the self-directed IRA option:
Regal Assets – (2009), Waco, Texas, A+ BBB rating, flat fees, specializes on gold and Bitcoin IRA, minimum investment $5,000
Advanta IRA – (14 years in business), Largo, Florida, BBB accredited, Fees ($50 setup, flat or bracketed fees based on asset value), Bitcoin and precious metal investments allowed, minimum deposit not disclosed
Community National Bank – Seneca, Kansas, No BBB rating found, Fees ($25 setup, $80 month maintenance, per transaction fees), investment in Bitcoin and precious metals not allowed, minimum deposit not disclosed
Equity Trust Company – (1974), Elyria, Ohio, no BBB rating, Fees (%50 setup, annual maintenance, bracketed fees based on asset value), Bitcoin and precious metal investments allowed, minimum deposit not disclosed
Goldstar Trust Company – (109 years in business), Amarillo, Texas, BBB accredited, Fees ($25 setup, $65 annual maintenance, fees based on investment type), precious metal investments allowed, minimum deposit not disclosed
IRA Services Trust – (48 years in business), San Carlos, California, BBB accredited, Fees ($25 setup, $25 quarterly maintenance, fees based on investment type), Bitcoin and precious metal investments allowed, minimum deposit not disclosed
Kingdom Trust Company – (9 years in business), Murray, Kentucky, BBB accredited, Fees ($50 setup, $100 annual maintenance, .25% of investment portfolio), Bitcoin and precious metal investments allowed, minimum deposit is $500
Millennium Trust Company – (17 years in business), Oak Brook, Illinois, BBB accredited, Fees ($25 setup, $225 annual maintenance, holding fees based on investments), precious metal investments allowed, minimum deposit is not disclosed
Pensco Trust Company – (28 years in business), San Francisco, California, BBB accredited, Fees ($50 setup, quarterly maintenance fees based on investment type), precious metal investments allowed, minimum deposit not disclosed
Provident Trust Group – (10 years in business, Las Vegas, Nevada, BBB accredited, Fees ($50 setup, $395 annual maintenance and document fee), precious metal investments allowed, minimum deposit is $500
Sunwest Trust – (14 years in business), Albuquerque, New Mexico, BBB accredited, Fees ($50 setup, $275 annual maintenance), precious metal investments allowed, minimum deposit is $300