3 Unusual Ideas for Your Self-Directed IRA

The great thing about a Self-Directed IRA is that it really opens up your investment options. Bonds, certificates of deposit and mutual funds are fine for most people, but if you’d like something else to invest in try one of these three alternative investment opportunities opened up by self-directed IRAs. Each is quite a bit more specialized, and would make an attractive investment opportunity for someone with the right knowledge or experience.

Green Energy

As fossil fuel sources decline the importance of renewable energy sources grows and so do your investment opportunities. There are a variety of different companies in the renewable energy sector and you can easily invest in any of them by buying their stocks. If you believe that renewable energy sources such as solar or wind power is going to increase in popularity and value in the years between now and your retirement you might want to consider investing in some of these companies. Government agencies are beginning to put more emphasis on green energy sources and their importance. Getting in on these industries before they really explode could be a great way to boost your IRA account. For an even greater return on your investment you could also supply the startup capital for a new green company, but that increased profit potential would come along with increased risks as well.

Promissory note

Lending money to other people has always been a great way to earn interest as long as those people are dependable and you can count on them paying you back. Whether you want to help people get a house, a car, or just take a fancy vacation you could make great profits using your SDIRA as the funding source of someone else’s dream. The key to making this work is getting all the terms down in a comprehensive legal document, and to deal with people who are reliable. Buying a promissory note from someone is less risky if some form of collateral is involved, but doing your research is the most important step.

Private Mortgage

If you’ve ever had to pay a mortgage and wondered what it would be like to be on the other end of the deal now’s your chance. It is possible to setup a private mortgage using a self-directed IRA as the funding source. Private mortgages are very safe investment options as long as you only lend money for a home that is worth it, because the mortgage will be secured by the property. In other words, if the homeowner doesn’t make his payments you get the house to do with it what you wish. If you choose to go this route make sure you have a lawyer who is familiar with private mortgages working with you so that everything is legal and safe.

3 Unusual Ideas for Your Self-Directed IRA

Your Self-Directed IRA and Student Housing

Student housing is a great way to make steady profits off of real estate as long as you invest carefully. If you decide you want to invest in student housing but don’t have enough in savings you could use a self-directed IRA to make use of your retirement funds for the investment.

Student housing is often a great investment because once students begin renting from you they very rarely leave before the end of the lease period. Many students will want to pay for their lease up front and some colleges even enforce rent payments to stay in the schools.

If you have money tied up in an IRA account that you would like to access to try and get into real estate, you can roll it over into a more flexible self-directed IRA instead. Getting started with a SDIRA is simple after you find the right bank or custodian to handle your account for you. You may have to wait a few weeks for your funds to transfer from one IRA account into your self-directed account, so make sure you account for that wait period in your planning.

Always do your homework when you are considering purchasing real estate for student housing. Make sure that you are getting a good property and verify that you will have students to rent to as well. Talk with the local schools and find out what their housing policy is. Most schools allow their students to live nearby, and some even put together a waitlist of students trying to find housing that you could use as a resource to get tenants. Just make sure you have a market of students to rent to in the area that you pick out the property.

After you find the ideal property you need to make sure you have a rock-solid contract to give to each of your tenants to protect yourself. Always document the condition of your building before renting it out so that you will have proof when anything has been damaged. Also require a deposit from each student that you rent to and try to force parents to cosign as well to improve the chance that you will get all your money. Getting help from a lawyer to draw up a contract is an important step, and something that every investor should do.

As you begin making money from your student tenants you can increase the amount that you have in your retirement account. Many investors pick up a few different properties that they want to rent out to students and their retirement accounts slowly swell with steady profits coming in each year. Just remember that you can’t use the money from your IRA until after you reach 59 ½ years of age without incurring a ten percent penalty on any money that you withdraw.

Your Self-Directed IRA and Student Housing

How to Lend Money with Your Self-Directed IRA

Self-directed IRAs give you the power to invest in a variety of businesses and products that you wouldn’t be able to utilize with a traditional IRA, but they also allow you to lend out money without actually buying a stake in the company or product. This is a great alternative if you want a slightly lower-risk opportunity that still has the potential to pay off quite well.

Lending money from a self-directed IRA isn’t a very complicated process, but it is one that has to be completed carefully. If you make mistakes when setting up the loan, or picking who you loan money to you can end up losing a lot of money.

1.    Carefully choose a person or company to lend money to. Research the person or company and ensure that they are a worthy cause.

2.    Sit down with a lawyer and decide on the loan term as well as the interest rate that you believe is fair and profitable.

3.    Establish collateral on the loan such as real estate, or an automobile to protect you in case the loan goes bad.

4.    Submit all of your loan documents to your custodian for approval and a sign off so that the money can be released.

5.    The custodian will send the money to the borrower so they can make use of it.

6.    The borrower will make regular payments to the custodian according to the terms of the contract.

When you are loaning money to a business or individual out of your IRA it’s important to understand that it’s not your money, it’s the IRA’s. In other words, any contract that you make has to be in your self-directed IRA’s name, not yours. The administrator of your account is the one who has to sign off on the loan agreement, and if the loan ends up being profitable all of those profits have to be rolled back into the account to avoid being penalized. That’s why it’s vital to get professional help when setting up the loan, especially when having the documents drawn up.

The necessity to keep all the loans out of your name does have some drawbacks by complicating matters, but there are benefits as well. For instance your retirement account will be earning money and you won’t have to worry about managing the loans, instead you have the custodian to handle that. In other words, if you choose your loans properly you’ll have a steady stream of income coming into your retirement fund and you won’t have to devote time to managing it.

How to Lend Money with Your Self-Directed IRA

How Self-Directed IRA's Can Save On Taxes

Self-directed IRAs are a great option for saving money for retirement because they offer you freedom to invest in what you want, but they are also a great way to reduce the amount of money that you pay in taxes. People are constantly looking for deductions that they can claim, or any other loopholes that they can use to reduce the amount of money that they have to pay to the IRS. A self-directed IRA gives you the opportunity to reduce the amount you owe the government immediately, and to get a tax break later on in life as well as long as you plan things out properly.

When you invest your money in a self-directed IRA you are effectively lowering your total adjusted gross income for the year, which is precisely what they base your taxes on. By contributing the maximum amount that you can to your IRA account each year you are reducing the amount that you have to pay on taxes immediately and also saving for retirement. Not only can paying into a retirement account reduce the amount of taxes that you owe because you are seen as making less money, but it could also push you into a lower tax bracket if you are lucky. As you move up into higher tax brackets showing that you earned more money you typically have to pay a larger percentage of your earnings back in taxes. So dropping down into a lower income bracket can reduce the percentage that you have to pay in.

It’s important to remember that by investing into a SDIRA you aren’t avoiding taxes altogether, but deferring them until later in life when you will finally have to pay them. However, the IRS will charge you a tax rate based on the income bracket that you are in when you retire and begin taking advantage of that retirement account and this provides another way for you to save on taxes.

If you make a significant amount of money at the moment and you believe that you will make less when you finally decide to retire you can cut the amount that you pay in taxes by saving the income for later in an IRA. If you are in a lower tax bracket when you are finally taxed for the money you won’t have to pay as high of a percentage of your earnings to the IRS. This is a great opportunity to save some money.

How Self-Directed IRA's Can Save On Taxes

How to Avoid Self Directed IRA Abuse?

One of the best things about self-directed IRAs is also one of the worst, all the additional control that you get over your investments of your retirement account. The additional control allows you to choose investments that you think will perform better than most of the standard opportunities do, but with increased control comes a higher risk of breaking IRS rules and incurring a penalty. If you have a self-directed IRA account or you plan on getting on it is very important to take these steps to help avoid being penalized, otherwise you could lose a large portion of your retirement account.

1.    Choose your custodian with care. When using a self-directed IRA you need a custodian to handle all of your money and your deals for you. This custodian is usually a bank or financial provider, and you need to make sure you have one that knows the rules and regulations of SDIRAs and is set on following them.

2.    Ensure that you have a custodian that will handle everything for you. There are some IRA accounts that offer a checkbook feature that essentially lets you handle all of yoru own money yourself through an online checkbook. This is a very convenient feature, but it breaks IRS rules and can get you penalized if you aren’t careful. You are better off finding a company that will handle your money and your transactions for you to keep you safe from the IRS.

3.    Another important rule to follow is that all of your IRA-owned assets have to be held by a custodian. While it may be cheaper to keep those gold coins at your house, it’s against the rules, and the only way to avoid penalties is to pay your custodian to hold onto the assets for you. The same thing goes for lien documents, or just about anything else that you would have ownership of.

4.    Never invest in collectibles or insurance policies. Either option could seem like a great way to make fast profits, but they aren’t allowed. Making investments in either of these items is a fast way to get slapped with a penalty.

5.    Finally you have to take steps to show that you aren’t self-dealing. Essentially you have to make sure that you or your family members aren’t benefiting from your investments. No family members can be living in a property that you purchased, you can’t use rent collected from your rental unit to buy groceries one month, and you certainly can’t use your funds to loan money to one of your relatives.

The IRS has many different rules and regulations governing how you can use the money stored in a self-directed IRA. By surrounding yourself in professionals and learning many of the rules yourself you can avoid potential problems and keep your investments profitable.

How to Avoid Self Directed IRA Abuse?

Which is Better: A Self-Directed IRA or 401k?

If you have finally made a wise decision to save up for retirement, your next step would be to choose the retirement plan that would prove to be most beneficial to you. The first question you should be asking yourself is where you want the retirement funds to be invested. If you want to play it safe and just invest in the good old-fashioned stocks, bonds and mutual funds, then 401k is the way to go. If, however, you feel more adventurous and hope to earn higher profits by investing in real estate, gold bullion, or any private business that appears profitable, then you should open a self-directed IRA account. Below are some of the other differences between the two.

Checkbook control

Checkbook control means that the account owner or the investor has complete control over their retirement account and can conduct transactions instantaneously at any time. This is an option only with the self-directed IRA. With a 401k account, the investor will have to rely on their custodian to be available so that the transaction can be reviewed and approved. A fee will be deducted from the account every time a transaction is made. So the more transactions you intend to make within a year, the more a self-directed IRA under the checkbook model would make sense.

Amount of money to work with

The more money you want to invest in a retirement account, the more checkbook control you would need. It seems quite easy to let your funds just sit there in a 401k and allow the slow profits to pile up. But you never know when you might run into a short-lived investment offer that you simply cannot turn down. If you have 401k you would just be standing there in frustration while you wait for your custodian to answer his phone so that your transaction can be approved. With a self-directed IRA, you would have the checkbook in your pocket and therefore be able make the payment.

Borrowing money

A retirement account is meant to be used after retirement, therefore it wouldn’t make much sense to take a loan out of it before the age of 59½. If you do decide to do it for some reason, it will cost you an additional tax amount plus a 10% penalty. With the profits you stand to gain using a self-directed IRA, these penalties can easily be dwarfed. There are no such penalties with the 401k but, as mentioned before, you don’t stand to gain too much profit by investing in stocks, bonds and mutual funds.

Conclusion

It all depends on the amount of money you want to invest and the time you are willing to spend in building up your account. If you want to take up investment just as a hobby, you are better off with a 401k because the profits gained from the traditional investments that the 401k limits you to, you can be satisfied. If you are the more risk-taking type and analysis of businesses is your bread and butter, you stand to gain a fortune by going for a self-directed IRA.

Which is Better: A Self-Directed IRA or 401k?

Top 3 Differences Between Self-Directed And Roth IRA's

Most people are introduced to the concept of retirement saving through the traditional IRA. A traditional IRA is a special savings account that is used for setting aside some income for use after retirement. This account is approved by the government and are also tax-deferred. This means that the money placed in the IRA would remain free from tax until it is distributed at a later time. After exploring more of their options, people come across other types of retirement accounts like Roth IRAs and self-directed IRAs. But what is the difference between these two less common IRAs? Read on to find out.

Account Set-up

Typically, Roth IRAs are held by brokerage houses who, apart from the investment platform, also perform the duties of custodians. The Roth IRA funds are held by the custodian or the brokerage house and any transaction done on the account has to be approved by them. For a self-directed IRA account holder, there is an option whether or not they want to opt for custodian.

In the custodian model of the self-directed IRA, the brokerage house will take care of the transactions on behalf of the owner of the account. The checkbook model, on the other hand, gives a lot more freedom to the self-directed IRA account holder because ever transaction is executed personally by the investor. This results in the elimination of transaction fees.

Asset Choice

The products in which you can invest in with a Roth IRA are almost exclusively Wall Street products, namely stocks, bonds and mutual funds. Generally, the brokerage firm will give the investor a list of those products that they can choose as a destination for their IRA money. With a self-directed IRA, the investor has far greater choice. The investment can be made in any venture that appears to be profitable, whether it is a franchise or a private business. If you think that stocks and bonds are the way to go, you can choose those too with a self-directed IRA.

Fees

According to the rules of the US government, all IRAs are held by custodians. This is also true for both Roth and self-directed IRAs. As a result, every IRA holder will be liable to pay an annual custodian fee, which is meant to cover the holding and maintenance charges of the retirement account. As mentioned above, the self-directed IRA is broken down into two main models: the checkbook model and the custodian model. With the custodian model, there will be additional fees for every transaction. Those fees would cover the approval and verification by the custodian. With the checkbook model, no transaction fees are needed because the account-owner is his own boss.

Conclusion

Dollar for dollar, Roth IRAs are easier to set up but the heavy fees here and there tend to accumulate and in many cases defeat the purpose of a retirement savings account. Self-directed IRAs with checkbook control provide practically unlimited investment choices under a model that minimizes the amount of external fees. It wouldn’t take a rocket scientist to make a choice between a Roth IRA and a self-directed IRA.

Top 3 Differences Between Self-Directed And Roth IRA's

Top 5 Differences Between A Traditional And Self-Directed IRA

If you’re considering an IRA, then you have a few different options to choose from. Depending on what needs you have, you might find that one works better for you than another. However, you have to know the differences to make an informed decision on which one you should choose to go with. They both have many different options that come with them, so deciding which way you’d like to go is the big question when it comes to choosing whether to get a traditional or a self-directed IRA. Here are five of the major differences that you’ll find between the two.

1.)  The Limits

Traditional IRA’s are limited to the stocks that you’re able to purchase, where with self-directed IRAs you’re more open to other possibilities that you can do with them. For instance, a regular IRA allows you to get stocks, bonds and mutual funds but with a self directed IRA, the owner is able to get the same stocks, bonds and mutual funds but they can also invest in different assets as well such as real estate, precious metals and more.

2.)  Your Amount of Power

Do you want more or less power when it comes to decision making? With traditional IRAs you get less of the power since you’re limited to very few options but this can make things easier for people that are unsure of what they would use the IRA for otherwise. However, if you like to be involved and make the decisions than a self directed IRA would be ideal to get involved with.

3.)  How Long Will it Take?

Traditional IRAs generally have to mature over time in order to purchase those stocks, bonds and mutual funds. With self directed IRAs, you’re able to purchase the IRA and get started when it comes to investing in something or moving forward. It is more of a financial decision rather than a savings account.

4.)  The Fees

Traditional IRAs have different fees that have to be paid on them every year from transaction fees, taxes and so forth. There are three sums taken out of them. Self directed IRAs only have the transaction fees that are taken out of them which means that you’re paying less out of the IRA compared to a traditional IRA.

5.)  The Way the Account is Setup

Brokerage houses are who are in charge of the traditional IRAs and they execute everything that is done with them and where they can go. With self directed IRAs, the person that owns the account is in charge of them once they are open. They keep track of them and the money that is being put out and any investments that they continue to make.

Top 5 Differences Between A Traditional And Self-Directed IRA

How To Protect Your Assets With A Self Directed IRA

How To Protect Your Assets with a Self Directed IRA

Protecting your assets is an important thing to think about if you own a self directed IRA. However, if you’re new to the IRA scene, then you may be confused and unsure of how to go about the protection methods. This is normal and it is fairly easy to protect those assets that you work so hard for. Self directed IRAs are powerful financial tools that can be used which means that people will want them more and more, but you have to protect your own so find out the ways that you’re able to protect the assets that you have with your self directed IRA.

Checkbook Control and Being in Control

Protecting your assets with a self directed IRA means knowing what to protect and what might be in jeopardy when it comes to protecting them. Without knowing the ins and outs of your particular self directed IRA, you’re not going to be able to protect anything. Trust in yourself, do the research needed on this particular IRA and ensure that you’re keeping a checkbook of the IRA and assets that you have. When you’re in control, you’re then able to move forward with the right protection.

Bankruptcy and Your Accounts

When it comes to going through a bankruptcy, a lot can happen and part of this being that your accounts are put on hold and you’re entire financial situation is wiped clean. The one thing that can protect your retirement funds, real estate or other investments is your self directed IRA. The money inside this is not able to be touched and you can use it to get back on track if needed. You’re then able to protect the assets that are on your IRA account since they cannot be touched. This is a new law that has been passed in 2005 and those seeking to go through with a bankruptcy should familiarize themselves with the rules and laws in their particular state before going through with the process.

Reduce Income Costs with Self Directed IRAs

When you own a self directed IRA, you’re able to protect additional assets that you have since you do not have to pay taxes on them. This can save you money so you’re able to stay on top of payments and invest wisely. Those assets that are purchased using a self directed IRA are exempt from taxes that would normally be taken out if paying using cash or a loan. Consider purchasing real estate through a self directed IRA to ensure that you’re investing in something smart – but also skipping the extra tax costs.

Protecting your assets does not have to be difficult to do if you have enough information. Being informed throughout the decision is always a good thing when it comes to being able to protect the investment that you decided to make. A self directed IRA might be the best thing that you could have found if you’re trying to protect your assets for various reasons.

How To Protect Your Assets With A Self Directed IRA