Self-Directed IRA Investment Options and Restrictions to Know

September 4, 2014 Updated: November 23, 2014

One of the difficulties that we are faced with today is how to soundly make solid investments in light of the rough financial times. Whatever the state of your wealth is options do exist and require getting familiarized or educated with a mouthful of financial jargon.

The current economic climate has forced millions of folks to think outside the box and try to increase their wealth for a better retirement. A blog post by Wilmington Biz Insights explains that self-directed individual retirement accounts (IRA) are becoming the new trend and what are the fundamental differences with a traditional IRA.

Now it is important not to confuse a self-directed IRA with a self-directed 401K. For more details on how these to differ can be accessed and defined by CompleteIRA.com.

One of the key differences for a traditional IRA is a tax-deferred retirement account that is made up of various securities, stocks, bonds, and mutual funds. All of these are registered with a federal and state authority, according to the blog. A self-directed IRA is a tax-deferred account but the difference is it comes with added flexibility allowing you to invest in things besides securities.

“While there are many types of investments for which self-directed IRAs may be used, the trend I’m seeing the most is people leveraging their retirement savings to purchase real estate and rental properties. If there is a good deal on property, these accounts can provide the cash flow needed to make the investment,” according to the Wilmington Biz.

For your own protection conduct a lot of research before risking your own retirement funds. There are plenty of companies that provide services and financial advice on where to direct safe investments. Be mindful if an offer sounds too good to be true then explore other options before making a decision.

Before going on the path of a self-directed IRA there are restrictions associated with it. For example you must have or are required to have an official third-party custodian for the IRA.

Other restrictions include but not limited to staying, living or working on the investment property. All of the profit generated must be directed into the account until retirement in order to avoid tax penalties.

Finally, using a self-directed IRA will be inherently riskier, so it is not for everyone. You must have a good handle on finance and to be very familiar with how investments are managed. The last thing you want to do is throw the hard-work and sacrifice accumulated after many years of work.

RECOMMENDED