The less regulated nature of the investments available to investors with self-directed IRAs make it difficult to find good data. In broad terms, however, it appears that the most common alternative asset held through self-directed IRAs is ultimately real estate, whether this is direct ownership or indirect through notes, LLCs, REITs, and so on. This makes sense as real estate is an asset many investors are even more intimately familiar with than the traditional ones in the financial market.
All of the self-directed IRA companies above can help you purchase and maintain real estate inside an IRA, but they offer different ways of managing maintenance payments and different fee structures. There is also a difference in how much support SDIRA companies put into helping you with the paperwork, supporting you in setting up an LLC IRA, and backing you in case of an IRS audit. The more complex your self-directed IRA portfolio becomes, the more value these additional services may add despite coming with higher fees. In the end, selecting the best self-directed IRA company comes down to your particular situation, investment goals, and, to a lesser extent, the alternative asset mix you are looking for.
Frequently Asked Questions
What Is a Self-Directed IRA?
A self-directed IRA is really just an IRA with the same rules and limits as an IRA through a large broker. While traditional brokerages may offer an account referred to as a self-directed IRA, these generally limit the investor to making their choices among the typical financial market investments.
A purer version of a self-directed IRA is available through companies that act as custodians and give full purchasing control to the account holder to guide investments into any assets that are not prohibited under IRS rule. This opens up the worlds of real estate, private placements (shares in private companies), and private loans. The private placements can be made in companies whose sole purpose is to own specific assets, like precious metals, Bitcoin, or foreclosures, for example, so the flexibility of these investments is really only limited by the IRS prohibitions on self-dealing.
Who Should Get a Self-Directed IRA?
While anyone could get a self-directed IRA, they are best for people with some background in a particular alternative asset that they can’t leverage in a traditional IRA arrangement. For example, if you already hold real estate investments and are looking for a way to buy more in a retirement account, then a self-directed IRA is an ideal vehicle. Self-directed IRAs also work well for experienced and/or accredited investors who want to find assets that are less correlated with the financial markets.
It is important to note that alternative assets tend to have a higher risk profile as well as higher potential returns. Moreover, while fraud does occur in the financial markets (see Enron, Bre-X, WorldCom, Tyco, Bernard Madoff, etc.), financial regulators have noted that self-directed IRAs are at particular risk for fraud as custodians have limited responsibilities in terms of protection and bad actors are attracted to easier to access pools of capital. If you are not in the habit of digging into investment details and other due diligence, self-directed IRAs may not be the best fit.
What Does a Self-Directed IRA Cost?
The costs of a self-directed IRA vary according to company and the services included in the account. Some SDIRAs charge flat fees, while others go by some combination of flat fees and annual fees based on account size. For companies in this review, fees range anywhere from $0 to $999 for setup and from $100 to $2,250 for annual fees. Some SDIRA companies have additional transaction fees ranging from $10 to $250 per transaction. It is important to compare the costs to the service levels provided and the type of self-directed IRA (LLC or not) to see whether the fee is reasonable for the services you will be using.
Because self-directed IRAs open the door for investors to go beyond the regular mix of stocks, bonds, and funds, choosing the right SDIRA custodian is critical. When reviewing several of the top SDIRA custodians, we prioritized a number of key criteria like reputation, investment options, checkbook control, fees, and the level of support in setting up and managing the legal obligations.
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