When you are planning out your investments, you may be interested in diversifying your portfolio. Just as you diversify your overall portfolio to include a variety of investment options, you can diversify your retirement savings with a self-directed IRA. This option allows you more freedom to adjust for current market conditions.
What Is a Self-Directed IRA?
A self-directed IRA is an individual retirement account that gives you more control over your investments. Traditional IRAs limit the type of investments you can choose from to CDs if you open it through a bank or credit union or stocks and mutual funds if you open it through a traditional investing firm. This type of IRA allows you to expand your investments to real estate, gold and even things like art. You are in charge of your investments and you can determine how to diversify them.
Are There Rules About Self-Directed IRAs?
The IRS has set up clear guidelines about the types of transactions that you do with a self-directed IRA. For example, you are not allowed to buy any items from yourself or family members to put into your portfolio. You are not allowed to sell to yourself or family members either. If you have investment property, you are not allowed to live or vacation in it, and you cannot operate a business on the property that you own. You can rent the property to others however.
How Can I Tell If I Am a Good Candidate for a Self-Directed IRA?
One easy way is to talk to your financial advisor about diversifying outside of the stock market. A balanced portfolio that contains both property and stocks is the best way to go. It helps to spread your risk across more markets. It also helps if you have a large amount in an IRA to make the purchases. For many people, this happens as a result of rolling a 401(k) into an IRA after they switch jobs.
Where Can I Open a Self-Directed IRA?
Not all investment firms will allow you to open an IRA. Many of them will offer you selection of mutual funds or stocks to include based on how much investment risk you want to take. If you want to open a self-directed IRA, you will need to look for a firm that specializes in them. When you look for a firm, take the time to check the reputation of the firm and to interview them to make sure you are comfortable working with them.Read More