You may be thinking that your standard IRA, whether it be a traditional IRA or a Roth IRA, is already "self-directed" by yourself.   Well, that is not really the case. A standard IRA will usually be with a bank, insurance company, brokerage firm or a mutual fund company.
If you are looking for more growth from your IRA investments, an IRA that is self-directed may be the answer.  Self directed IRA's have surged in popularity because of the uncertainty and volatility of the stock market; and miniscule interest rates on corporate bonds, U.S Treasuries, CD's, and Money Markets. 

Potential large profits in real estate and foreclosures have also fueled the interest in self directed IRAs.

Your Self Directed IRA Can Invest In Real Estate and Foreclosures

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How Do I Open a Self-Directed IRA

But since there are considerably fewer self directed IRA accounts, the number of IRS approved self directed custodians is somewhat limited.  You will though, be able to find many choices online but you must be sure that your IRA custodian will handle your investment choices.
On the other hand, investing in a self directed IRA will allow you many more potential investment choices.  These choices can enable you to diversify your IRA investment portfolio.  These additional investments can include:

  • Real Estate & Foreclosures - Includes houses, apartment buildings, commercial property and land.
  • Secured Notes - This is money that is loaned to someone and the note is usually secured by real estate which is the collateral for the loan.
  • Unsecured Notes - You loan someone money and your collateral is only their word to pay back  the note -- extremely risky for your IRA.
  • Private Placements - These are investments in small closed companies that are not offered to the public. They are usually for start-up companies that are seeking capitalization.
  • Tax Lien Certificates - These are sold by a county for unpaid property taxes.  You buy the certificate and get paid back with high interest when the property owner finally pays the taxes.  If the taxes are never paid, you have a lien against the property and could take possession of the property.
  • Green Investing / Socially Responsible Investing (SRI) - Investing in a way that improves society and your community.
  • Mutual Funds and Certificates of Deposit (CD's) - I am referring to  mutual funds and cd's that are not available to you at your current standard IRA account.
  • Others - This includes just about everything except what the IRS specifically excludes.
How Do I Open a Self-Directed IRA?
Self-Directed IRA Investments
Internal Revenue Service Rules
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Should Everyone Have a Self Directed IRA?
The answer is probably not. A truly Self Directed IRA requires a more hands-on approach from the IRA owner.  The IRA owner would need to be more knowledgeable and more comfortable with different types of investments.

There also are more fees for a self-directed IRA, than for a standard IRA.  These include set-up fees and higher custodial fees. 

Even if an IRA owner is savvy about investing, a self-directed IRA will inherently carry more risk.  That is the nature of investing  -- shooting for higher investment returns will usually increase the risk of a decline in the value of your self directed IRA account.

Even if you decide to open a self directed IRA account, it would be prudent to do so with a relatively small portion of your total IRA assets -- maybe 20% or less.  Remember, this is your retirement nest egg -- you must use common sense.
Opening a Self Directed IRA account is generally more difficult than opening a standard IRA account.  First of all, all IRA accounts must be with an IRS approved custodian
Once you have selected a self directed IRA custodian, you now must fund your new self directed account.  This really is the same as funding a standard IRA account.  Your funding options are:

All transactions in your self-directed IRA account must be made by the custodian.  When you want to buy or sell an investment, you simply notify the custodian of your intentions.
There also is another type of self-directed IRA called a Self-Directed IRA Limited Liability Company (LLC) or also known as a "Checkbook IRA".   This IRA structure is very complicated and somewhat controversial.
If you don't follow the IRS rules, your self-directed IRA could be a financial disaster.  You must be aware of the IRS allowed investments and prohibited transactions.

Even though the information on this page will provide you with valuable information about Self-Directed IRA's, the information is general in nature and not intended to be personal advice. The information on this web site is not offerred as legal, investment or tax advice.

You must be careful when investing, especially with your IRA.  See this message from the IRS.
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These financial institutions will generally limit your IRA investments to CD's, stocks, bonds, and their own mutual funds.  A large financial institution may offer what they say is a "self-directed IRA".

The investment choices may still be very limited and therefore is not a truly Self-Directed IRA.
Besides the self directed IRA custodian, there can another third party that will administer your IRA transactions.  Actually, this administrator will usually be your first contact when starting the self-directed IRA process.  The administrator will supply your IRA custodian.
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You can have a 401k for your small business even if you are self-employed or a sole owner.
IRA Mutual Funds
Choosing mutual funds is not easy .... read more »

Self-Directed IRA
More investment choices including real estate.

IRS Rules For Self-Directed IRAs
They are complicated but important.

Checkbook IRA LLC
Learn if you need a Checkbook LLC for your self-directed IRA.

There is no doubt that some of the above investment choices are complicated and a little unfamilar to most people.

Investing in real estate is probably the top choice for owners of a self-directed IRA. 

The reason being that you own something tangible and real -- unlike a tax lien certificate which is really just a piece of paper.  Plus, the potential for an increase in the value of the property.