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Benefits of the Self-Directed IRA

Self-Directed IRA benefits

The majority of Americans’ wealth is invested in traditional equities and fixed income markets.  There are approximately 60 million IRAs, worth approximately $12 trillion dollars. It is estimated that close to 94% of IRA assets are invested in traditional investments, like stocks and mutual funds.

Since the creation of IRAs in 1974, alternative investments, such as real estate, have always been permitted to be invested by IRAs. But few people seemed to know about this option until the last decade or so. Why can’t you invest your IRA in alternative assets at a bank or traditional brokerage firm?

Not surprisingly, the answer comes down to money. Traditional brokerage firms make money and fees on your cash and from selling traditional investments, like stocks, mutual funds, and ETFs.  They do not generate any revenue or profits when your IRA invests in alternative investments.  Hence, it is not in their financial interest to publicize the fact that the IRS allows all IRAs to invest in alternative assets, such as real estate, precious metals, cryptocurrencies, private placements and much more.

What is the Difference Between an IRA and a Self-Directed IRA?

A Self-Directed IRA is not a legal term you will find anywhere in the Internal Revenue Code. It is essentially an IRA account which is permitted to be invested in alternative assets, such as real estate or even cryptocurrencies.  In other words, a Self-Directed IRA follows the same rules as a traditional or Roth IRA from a contribution and distribution standpoint.  The only difference is that a Self-Directed IRA can invest in more than just equities and fixed income.

Banks and traditional financial institutions are legally permitted to allow their clients to invest their IRA funds in alternative assets. However, for financial reasons, they have elected not do so. As a result, the Self-Directed IRA industry has flourished.

Many banks and brokerage firms advertise themselves as offering a Self-Directed IRA. But, what that really means is that you are free to invest in only the investments they offer, such as stocks, mutual funds, and ETFs.  The fact is the Internal Revenue Code (IRC) does not describe what a Self-Directed IRA can invest in, only what it cannot invest in.

IRC Sections 408 & 4975 prohibits “disqualified persons” from engaging in certain type of transactions, such as the purchase of life insurance, collectibles, and any transaction that directly or indirectly personally benefits a disqualified person.   The definition of a “disqualified person” extends into a variety of related-party scenarios Generally it includes the IRA holder, his or her spouse, and any lineal descendants or ascendants of the IRA holder. Plus, any entities in which the IRA holder holds a controlling equity or management interest is also disqualified.

Therefore, many Self-Directed IRA providers, including IRA Financial, serve a growing market of retirement investors looking to better diversify their retirement portfolios. So long as it is not prohibited by the IRS, you can make any type of investment you want with IRA Financial!

Benefits of the Self-Directed IRA

The main advantage of a Self-Directed IRA is that one can use his or her retirement funds and invest in what they may know and understand.  There is a growing segment of retirement savers that don’t want to have all their personal and retirement savings tied into Wall Street exclusively, and want the opportunity to diversify their retirement portfolio.

The Self-Directed IRA allows them to invest in assets outside of the financial markets, allowing many to diversify their retirement accounts in hard assets, such as real estate, or emerging asset classes, such as cryptos.  In addition, there is an increasing amount of retirement savers that are familiar and comfortable with other asset classes. Using a Self-Directed IRA allows one to invest in assets they know and understand.  Furthermore, investing in hard assets, such as real estate, is seen as a good option against inflation or a falling stock market.

What are Some Potential Disadvantages?

Like any investment, whether it is stocks, mutual funds, real estate, or cryptocurrencies made with personal or retirement funds, there is always some risk.  No investment is guaranteed! It is important for any retirement investor, regardless, to do his or her due diligence and understand how the investment works from a financial standpoint. One must weigh the potential risks vs. the rewards, the possibility of fraud, and who exactly are the parties involved with a transaction.

Of course, you should work with a financial or tax advisor before making any investments. Do your research and don’t be afraid to ask questions; if something just doesn’t seem to make sense regarding the investment, better to ask prior to investing.


Starting a Self-Directed IRA today is easier than ever. You can do everything online and never need to use a printer or even step in a bank. The best part of using a Self-Directed IRA is that you get to invest in what you know and understand.  Don’t forget – Self-Directed IRAs are often considered a valuable diversification option and hedge against inflation.

So, what are you waiting for? Now’s the time to control of your retirement with the freedom a Self-Directed IRA offers you!

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