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INVESTING 101 EDUCATION

7 Things You Can Buy with Your Self-Directed IRA

The U.S. government established the IRA to help citizens save money for retirement. IRA funds grow tax-free or tax-deferred until you make withdrawals. The IRA offers distinct advantages, including compound interest. Most IRA custodians offer a variety of investment vehicles to facilitate IRA account growth through the purchase of mutual funds, stocks, and bonds. The custodian takes over funds, invests them where they see fit, and the investor receives reports of how the IRA fund is doing. For this service, the custodian charges the investor a monthly fee.

A self-directed IRA operates slightly differently. The U.S. government still regulates a self-directed IRA. Funds in the account still grow tax-free or deferred until those funds are withdrawn. Moreover, self-directed IRA funds can still make compound interest. However, the features of an IRA versus a self-directed IRA diverge at that point.

As the owner of a self-directed IRA, you have many more investment options as compared to a regular IRA. You aren’t limited to the investment vehicles proffered by your IRA custodian, like stocks, bonds, and mutual funds. Instead, your investment choices are broadened considerably; only limited by what the government deems as allowable. This opens up a whole new world of interesting alternatives for savvy IRA owners.

If you are the type of person who is financially knowledgeable, has the knack for spotting an opportunity and is willing to assume a reasonable risk to reap big gains, a self-directed IRA is highly recommended.

Among other things, having a self-directed IRA means your money isn’t tied up in your retirement account. How many times have you seen a great investment opportunity, only to have to watch it go to someone else because you didn’t have the cash on hand to move on it? A self-directed IRA is like having a stash of investment dollars at your disposal, ready for you to use as you see fit. So long as the transaction complies with government regulations, you have the power to invest your retirement funds in many different ways. As the name implies, you—not your custodian—direct where your self-directed IRA retirement funds are invested. Are you curious as to what kinds of things you can buy with your self-directed IRA? There’s a long list:

7 Things You Can Buy With Your Self-Directed IRA

Tax Lien Certificates

States sell tax lien certificates to third parties as a way to collect past due taxes on privately-owned properties. These certificates pay guaranteed interest, which goes directly into your IRA account. If the property ends up converting to the tax lien holder, your IRA account would be the new property owner. Information about the tax lien certificate program is available through state governments.

Digital Currency

Digital currencies like Bitcoin and Ethereum have gained some acceptance as valid assets. They can be invested in much like any other national currency. As such, the U.S. government allows this investment via a self-directed IRA. As with any other investment, caution should be exercised, as digital currency has a rocky history.

Traditional Investments

You can enjoy the best of both worlds by investing in traditional vehicles like stocks, CDs, bonds and mutual funds just like a regular IRA. This scenario is interesting because you can personally pick and choose which funds or individual stocks your self-directed IRA buys.

Business Entities

You’re permitted to buy businesses with your self-directed IRA. This is a tricky investment because you have a whole new set of regulations to follow to ensure that the transaction—and future transactions related to that business ownership—complies with the law. It’s still allowable; it’s just a more complex arrangement than some of the other things you can buy with your self-directed IRA on this list.

Structured Settlements

This is an allowable long-term investment that you can buy with your self-directed IRA. When a person receives a structured settlement, they typically get annual or monthly installments. Many people would rather have that settlement money upfront in exchange for losing out on the full amount of the settlement. Your self-directed IRA could fund that lump sum payout and take over the receipt of the higher sum of the installment payments, thereby profiting over time from the difference.

Precious Metals

You can invest in precious metals like gold and silver. These can be in almost any form, including some coins. You could even buy rights to a gold or silver mine if you have a yen for speculation. Your self-directed IRA custodian can help to ensure you stay within compliance regarding the purchase of precious metals.

Real Estate

Real estate is one of the most exciting and diverse things you can buy with your self-directed IRA. The real estate can be in the form of raw land or property, and it can be improved or unimproved. It can be in the form of outright ownership or fractional ownership. It can be a buy and hold transaction, where your self-directed IRA makes money from rents, or it can be a flip situation, where you buy property, improve it and resell it. You can also invest in real estate with your self-directed IRA by lending money to private developers. This is called private money lending, and your IRA funds are essentially the bank for developers. You lend the money, take monthly payouts, and then when the development is finished, you get your initial investment back. If you’re looking for a variety of things to buy with your self-directed IRA under one big “umbrella,” real estate is the way to go.

For anyone looking to amp up their potential earnings for retirement funding, a self-directed IRA is a great option. Moreover, don’t worry. You don’t have to completely take the reins when you first decide to invest in real estate with your self-directed IRA or any other investment. There are custodial companies that will help you set up your IRA to be self-directed and get you on your way to taking charge of your financial future. One thing is for sure.  If you have an IRA, you already have the funds available to make your money work for you. Now it’s just a matter of taking over and deciding what you want to invest in.