Self-Directed IRAs could provide potential benefits for IRA owners who want to take control of their retirement savings or who desire complete flexibility with their IRA investments. As previously discussed, many Americans have recently lost a large percentage of their IRA values. And with these large losses, comes a considerable amount of uncertainty. Many IRA investors want to explore their investment options beyond what has long been thought of as the "traditional IRA investments".
A Self-Directed IRA account can potentially provide an IRA owner with a number of possible advantages:
- Income is Tax-Deferred: The income of an IRA account that is established correctly, managed correctly, and does not violate IRS guidelines, is allowed to grow tax-deferred. For example, the interest on a note secured by real estate could potentially grow tax-deferred in a Self-Directed IRA account.
- Appreciation/Growth is Tax–Deferred: The appreciation/growth of an IRA account that is established correctly, managed correctly, and does not violate IRS guidelines, is allowed to grow tax-deferred. For example, the increase in value of real estate could potentially grow tax-deferred in a Self-Directed IRA account.
- Gain on Asset Sales are Tax-Deferred: The gain on the sale of an asset in an IRA account that is established correctly, managed correctly, and does not violate IRS guidelines, is tax-deferred. For example, the gain on the sale of a commercial real estate property could potentially grow tax-deferred in a Self-Directed IRA account.
- Allows for Direct Real Estate Ownership: Investment real estate is a viable option including residential rentals, commercial, industrial, retail, land, etc. Having access to IRA balances to purchase investment real estate potentially provides an opportunity for growth and diversification.
- Opportunity for Investors to Feel Comfortable Investing in What they Know: Investors tend to gravitate to what they like, have done in the past, and have been successful with. If an investor has accumulated their wealth through investing in small businesses, they will tend to feel comfortable with this type of investment. On the other hand, if an investor has made money investing in first mortgages, they will typically tend to feel comfortable with lending money based on a secured note. A Self-Directed IRA allows IRA owners to invest in what they feel most comfortable with.
- Almost Unlimited Investment Option Menu: With a few specific limitations, an IRA owner has a virtually limitless number of investments he/she can choose. As long as the specific investment is not prohibited, and as long as the IRA account has proper administration, complete flexibility is available.
- Not Limited to Traditional Investments: Some investors believe that all they can invest their IRA funds in are traditional investments. While it is true that traditional investments can be included in a Self-Directed IRA account, many other types of alternative assets are also allowed.
- No Need to Withdraw IRA/Retirement Funds for Investment Flexibility: Many IRA and retirement plan owners have taken taxable distributions from their IRA and/or retirement accounts to invest in non-traditional assets. Many of these distributions were subjected to penalties as well. In is conceivable that up to 50% of the IRA and/or retirement account could be lost to income taxes and penalties in a premature distribution. A Self-Directed IRA account can help to reduce, and in some cases possibly eliminate, the taxes and penalties associated with a premature distribution by eliminating the need to take such a distribution.
- The Opportunity to "Time" Your Income Tax Bill: All IRAs, other than Roth IRAs, are subjected to income taxation when funds are distributed. Funds in an IRA are allowed to grow tax-deferred until mandatory distribution age, usually April first of the year following the year the IRA owner turns age 70 ½. An IRA owner can take out as much as he/she wants from the IRA from age 59 ½, and can take distributions at any age if specific and very strict rules are followed. Based on this data, an IRA owner can take funds from his/her IRA in the years when taxable income from other sources is low.
- Reduction of Management: It is possible to have the assets in the IRA, such as real estate, managed by a professional team with experience and acceptable track records in all phases of owning, managing and operating high quality investment grade commercial real estate.
- Timing: The purchase of an asset can be expedited if liquid funds are available in the Self-Directed IRA account. The phrase "Cash Is King" is never more meaningful, powerful, and accurate as when the economy is having a tough time and financial markets are struggling. Available cash for immediate investment can provide the opportunity for long-term success.
- Diversification and Risk Reduction: Assets can be obtained in the Self-Directed IRA to help diversify the entire net-worth of an IRA owner.
Notwithstanding these features, it is imperative to understand that investing funds through a Self-Directed IRA carries many of the same risks as investing in assets outside the IRA. There are a number of related risks and regulations that must be considered prior to investing. These investment risks are set forth in the IRA Rules, Regulations, Restrictions, & Recommendations section of this website. Please note also that consideration of all alternatives and options are needed to make a sound and informed decision regarding any investment. |
