From the Desk of Kelly Ann Winget: Self-Directed IRAs
Unlocking the Power of Self-Directed IRAs and Roths
Did you know there’s almost 15 TRILLION dollars sitting in retirement accounts… IRAs, 401ks. Half of that is invested in mutual funds.
Most people will just leave that investment alone and hope it earns enough to offset inflation. You have control of that money that’s sitting in those accounts. It’s very easy to move that money into something else. Something that you care about and that you have significantly more control over.
Enter the Self-Directed IRA (SDIRA)—a powerful tool that allows you to invest in alternative assets like real estate, private equity, and even cryptocurrency. Markets where your earning potential is even greater.
What is a Self-Directed IRA?
A Self-Directed IRA is a type of Individual Retirement Account that allows for a wider range of investment options than traditional IRAs. While traditional and Roth IRAs typically limit investments to stocks, bonds, and mutual funds, an SDIRA gives you access to:
Real estate
Private companies and startups
Precious metals
Cryptocurrency
Tax liens
LLCs and partnerships
The key difference? You—rather than a brokerage firm—are in charge of investment decisions, though a custodian is still required to oversee the account.
Traditional vs. Roth Self-Directed IRAs
Just like standard IRAs, SDIRAs come in two main forms:
Traditional Self-Directed IRA
Contributions are typically tax-deductible.
Investments grow tax-deferred.
Withdrawals in retirement are taxed as ordinary income.
Self-Directed Roth IRA
Contributions are made with after-tax dollars (no immediate tax break).
Investments grow tax-free.
Qualified withdrawals in retirement are completely tax-free.
Benefits of a Self-Directed IRA
Diverse Investment Opportunities – You’re not limited to stocks and bonds; you can invest in tangible assets. This way you aren’t as affected by stock market fluctuations.
Potential for Higher Returns – Alternative assets may offer higher returns than traditional market-based investments.
Tax Advantages – Depending on the account type, you can benefit from tax deferral or tax-free growth.
Control Over Investments – You make the decisions rather than being restricted to a brokerage’s offerings.
Risks and Considerations
Complex Rules & Regulations – The IRS has strict guidelines on prohibited transactions, such as self-dealing (e.g., buying real estate you personally use).
Higher Fees – SDIRAs often come with higher custodian fees due to the complexity of managing alternative assets (most of the time the fees are worth it).
Due Diligence is Required – Since you’re making the investment choices, thorough research is essential to avoid fraud and high-risk investments.
Who Should Consider a Self-Directed IRA?
A Self-Directed IRA is ideal for experienced investors who:
✅ Have knowledge of alternative investments.
✅ Want to diversify beyond traditional stocks and bonds.
✅ Are comfortable with the additional responsibility and complexity.
How to Set Up a Self-Directed IRA
Choose a Custodian – SDIRAs require a specialized custodian that allows alternative investments.
Fund Your Account – You can roll over an existing IRA or contribute fresh funds (subject to IRS limits).
Select Investments – Research and choose alternative investments that align with your goals.
Follow IRS Rules – Stay compliant to avoid penalties, especially regarding prohibited transactions.
Final Thoughts
A Self-Directed IRA—whether traditional or Roth—can be a game-changer for investors looking to take control of their retirement portfolio. But with great power comes great responsibility. If you’re willing to do the research and navigate the rules, an SDIRA could open doors to high-growth investment opportunities.
A member of our AWP team will help walk you through your options. There’s no better time to take control of your financial future than now!
