YOU ASK:

Can I use my IRA funds for self-directed IRA investment?

WE ANSWER:

Some IRAs do grant their owners the freedom to choose what to invest their funds in. With self-directed IRA investment, individual owners can enjoy the flexibility and diversity of the investment portfolio, while having direct control of their IRA funds.

Characteristics of Self-Directed IRA

Individuals are allowed to make investment decisions themselves, instead of having the financial institution pick the investment options.

An individual retirement account must be held with a qualified custodian or trustee that provides administrative and information services. The trustee, or custodian, will typically provide basic information about the rules and regulations of an IRA, keep record of the contributions, issue client's statements and file the necessary IRS reports.

The self-directed IRA investment options provide a potential for higher diversification than traditional IRAs where the permissible investments are limited to certificates of deposits (CDs) and mutual funds. With self-directed IRAs, all IRS-permitted investment is allowed under federal regulations. However, some custodians might not provide certain assets so you should do some initial research to determine the possible investment options.

Self-directed IRA owners can opt for checkbook control: this option allows individuals to make purchases and write checks on behalf of the IRA. The transactions take place through a limited liability company (LLC) which can be created in order to reduce custodial fees and provide the individual owners a greater control over their IRA funds.

Self-Directed IRA Investment Options

Apart from bonds, stocks and mutual funds, you can invest your IRA funds in the following assets:

  • Limited liability companies (LLC);
  • Private Stock;
  • Partnerships and joint ventures;
  • Secured and unsecured notes (mortgages and deeds of trust);
  • Private limited partnerships;
  • Tax sale certificates;
  • Equipment leasing;
  • Structured settlements;
  • Accounts receivable;
  • Car paper;
  • Commercial paper;
  • Factoring;
  • Single-family and multi-unit homes;
  • Apartment buildings;
  • Condos;
  • Commercial property;
  • Other investments.

Assets prohibited by the IRS, such as life insurance and collectibles, cannot be used to fund your self-directed IRA.

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