IRAs are the most widely utilized retirement account in the United States. What you may not know is that not all IRAs are created equal. There are IRAs held with financial institutions that only offer investments in stocks, bonds, and mutual funds or there are self-directed custodians that hold custody of alternative assets, such as real estate, digital currency, natural resources, private equity, and more.
The phrase “self-directed” is exactly what it means. It provides an individual with complete control over selecting the investments in your IRA.
Transitioning a portion of your IRA from traditional investments to alternative investments provides a way for you to diversify your retirement portfolio and potentially increase returns with tax deferred or tax-free equity and income growth. Diversifying your retirement portfolio also can reduce overall portfolio risk, enhance stability, and improve overall returns. Alternative assets have the potential to outperform traditional assets and can act as a powerful buffer during market disruption.
What types of self-directed IRAs are available?
Whether you are an experienced investor, an individual just starting to plan for retirement, a business owner, or a high-net worth individual, there is a self-directed IRA option for you. Below are the most utilized IRAs when investing in alternative assets.
The Traditional IRA is a tax-deferred option, which means that you do not pay taxes as you make contributions or when income is generated in the IRA, but you will pay taxes with each distribution you take from the IRA in the future. The Roth IRA is a tax-free option, which means that you will pay taxes on the funds you contribute or convert to the Roth IRA but will not owe taxes on the income generated in the IRA in the future.
The Simplified Employee Pension or SEP IRA provides business owners with a simplified method to contribute toward their retirement. This strategy could accelerate a business owners’ tax deferred retirement plan due to higher contribution levels allowed by the IRS than that of the Traditional or Roth IRA.
What should one look for in an IRA custodian?
Selecting the right financial institution to custody your retirement account should be as important as selecting your doctor. Not something to take lightly.
Performing your due diligence when selecting an IRA custodian is imperative. The IRS requires you work with a custodian who is licensed and specializes in the custody of alternative assets.
Not all IRA custodians are created equal; they are not all governed or regulated the same. It is important to look through all the hype out there and focus on what is important – the security of your funds. More and more people are seeking ways to take more control of their retirement portfolio, which has led to IRA service providers popping up all over the place that are not licensed.
While it may appear on the surface that all these companies follow the same IRA rules and provide the same service, the truth is they do not. Knowing the distinctions between them can have an impact on the security of your retirement portfolio and/or put restrictions on your investment choices.
Beware of administrators and facilitators using marketing strategies to get you to buy their products. These companies align themselves with investment sponsors with the priority to sell you something that they will make money on, rather than facilitate a compliant investment strategy that is right for you. Since they are not able to custody cash or investments, their only essential act is as intermediaries between the client and a partner custodian. Administrators, as their name describes, can process paperwork, while facilitators most often specialize in helping clients to set up single member LLCs and C Corporation IRAs, commonly referred to as a Checkbook IRA.
The most important component is that an IRA custodian is the only entity in this group that is regulated and authorized by the IRS to act as an IRA custodian. Because custodians are subject to regulatory oversight at the federal and state level, there is comfort and trustworthiness that is not there with the other entities.
Why is Preferred Trust a good partner?
Founded in 2007, Preferred Trust is a licensed, regulated, and audited custodian that has custodied over $3.4 billion in alternative assets on behalf of our clients. We empower, educate, and inform our clients through the process of transferring a portion of their IRA funds from traditional investments to alternative investments that are right for you. With our guidance and support, the process is fast and efficient and puts you in control of your retirement future. Our team of friendly, knowledgeable IRA experts are ready to help you every step of the way!
Members of the editorial and news staff of the Las Vegas Review-Journal were not involved in the creation of this content.