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What is a Self-Directed IRA?

Self-Directed IRA

Self-Directed IRA Definition

A Self-Directed IRA (SDIRA) is a retirement account that gives you complete control over your investments. Unlike a traditional account, you don’t have to invest strictly in stocks, bonds and mutual funds. You can now make alternative investments, like real estate, cryptocurrencies, private business, gold and much more. Step away from Wall Street and diversify your retirement portfolio. Diversity offers a more secure IRA (individual retirement account). Also, you’re now investing in assets you know and understand.

As you may know, individuals often invest their IRA funds in traditional equity-type investments, such as stocks and Exchange Traded Funds (ETFs). However, after the 2008 financial crisis, the Self-Directed IRA became more popular. Many began to consider it as a viable investment strategy.

The financial crisis cost some retirees approximately 25 percent of their retirement assets. Many are still trying to get back to where they were prior to the crisis. The sudden and steep stock-market fall, along with the lack of faith in Wall Street and the global financial markets had Americans seeking balance and diversity.

As a result, the Self-Directed IRA became an appealing vehicle for attaining diversification. This is thanks to the investment of alternative-assets.

Self-Directed IRA Investment Opportunities

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 and 4975 prohibit disqualified persons from engaging in certain types of transactions. The purpose of these rules is to encourage the accumulation of retirement savings. It also prohibits those in control of IRAs from taking advantage of the tax benefits for their personal use.

Essentially, there are three different types of Self-Directed IRAs. Each provide the IRA holder with different levels of investment and control options:

  1. Traditional financial institution Self-Directed IRA
  2. Custodian-controlled Self-Directed IRA without Checkbook Control
  3. Self-Directed IRA LLC with Checkbook Control

1. Financial Institution Offered Self-Directed IRA

The most popular Self-Directed IRA account comes through financial institutions. The reason they’re so popular is because major financial institutions offer them. Of course, you’re certainly familiar with Bank of America, Wells Fargo, Fidelity and Vanguard. With this type of Self-Directed IRA, you can make IRA investments these financial institutions – but no other investment. These include financial related investments, such as stocks, mutual funds, and ETFs. Even though people refer to these IRA accounts as “Self-Directed,” they are very limiting. IRA investors cannot make non-traditional investments.

Why do financial institutions limit the investment options?

Financial institutions that offer IRA accounts have no requirement to offer their investors more diverse opportunities. For example, real estate is an IRS approved investment. In fact, an IRA custodian has no requirement to offer that investment option. Most financial institutions offering IRA accounts will restrict the IRA investments to financial products they offer. The reason behind this is clear. A financial institution earns fees from the sale of financial products. They don’t make money by allowing clients to use their IRA funds to buy real estate from a third-party.

2. Custodian Controlled Self-Directed IRA

Until a 1996 court case, the custodian controlled Self-Directed IRA was the only way to use IRA funds to make non-traditional investments. With a custodian controlled Self-Directed IRA, every step an IRA holder wants to make must be done by a custodian, like IRA Financial Trust Company. In this set-up, the IRA holder directs the IRA custodian to make the investment. All transaction related activity (paying expenses or depositing checks) must be paid by the IRA custodian.

IRA Financial Trust Company offers SDIRA investors full IRA custodial services. This means you can invest in traditional and alternative asset investments. Your IRA funds are held with Capital One Bank, providing FDIC protection up to $250,000, before the client directs the funds for investment.

3. “Checkbook Control” Self-Directed IRA LLC

With a “Checkbook Control” Self-Directed IRA, the IRA holder (you) will have total control over your IRA funds. Therefore, you don’t need an IRA custodian to approve each investment of your account. Instead, with IRA Financial Trust Company’s Checkbook Control IRA account, all decisions are truly yours. When you find an investment that you want to make with your IRA funds, write a check or wire the funds straight from your Self-Directed IRA LLC bank account to make the investment.

Under the Checkbook IRA format, the Checkbook Control IRA is set up as a Self-Directed account with IRA Financial Trust. Funds from your previous retirement account roll over to your new SDIRA account. The funds go to Capital One Bank. Then comes the establishment of a Limited Liability Company (LLC). Your new IRA purchases all the membership units/interests. Now, the LLC holds your money and you are ready to invest at your discretion. A “Checkbook Control” Self-Directed IRA allows you to eliminate the delays, IRA custodian transaction fees, and IRA account annual valuation fees. This allows you to act quickly when the right investment opportunity presents itself.

Checkbook Control Services with IRA Financial Trust

IRA Financial Trust is proud to offer Checkbook IRA custodial services along with its full service IRA administration services. And we provide our services at one low price without transaction or asset valuation fees. IRA Financial Trust Company is one of the few full-service IRA custodians who specialize in establishing Checkbook Control IRA LLC accounts.

IRA Financial Trust Company is a regulated non-banking financial institution that is made up of retirement tax specialists. Our commitment is to help you make Self-Directed retirement investments quickly while minimizing annual fees. IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law firms in the world, including White & Case LLP and Dewey and LeBoeuf LLP. They have helped over 12,000 clients Self-Direct their retirement funds through their ownership in the IRA Financial Group LLC.

Our experience working with Checkbook Control IRA LLC structures is unmatched in the industry.  If you have any questions, feel free to contact us @ 800.472.1043.


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