Brokerage firms act as custodians for many types of IRAs, but most reputable brokers don't offer self-managed IRA accounts. A self-directed IRA is an IRA held by a custodian that allows you to invest in a larger set of assets than is allowed by most IRA custodians. Depositaries of self-managed IRAs are exempt from most investor obligations and may allow investors to invest retirement funds in “alternative assets”, such as real estate, promissory notes, tax lien certificates and private placement securities. Investments in these types of assets may involve unique risks that investors should consider.
These risks may include lack of information and liquidity, as well as the risk of fraud. The two main reasons why investors take the risks of self-directed IRAs are to seek higher returns and greater diversification. Self-directed IRAs allow you to invest in a wide variety of investments, but those assets are often illiquid, meaning that if you're faced with an unexpected emergency, you may have difficulty getting money out of your IRA. Self-directed IRAs allow investing in a larger and potentially riskier asset portfolio than other types of IRAs.
The main difference between an SDIRA and other IRAs are the types of investments you can keep in the account. Given the complexity of self-managed IRAs, you may want a financial advisor with experience managing investment transactions for self-directed IRAs to help you make investments with due diligence. Advocates of self-managed IRAs claim that their ability to invest outside the mainstream improves their diversification, but a self-directed IRA can just as easily lack diversity as any other retirement account. Find and select an SDIRA provider that specializes in alternative investments and that offers the type of account you would like to open.
A common ruse is to say that the IRA depositary has examined or approves the underlying investment, when, as the SEC points out, custodians generally do not assess “the quality or legitimacy of any investment in the self-directed IRA or its promoters.” A self-directed IRA is like a typical IRA in almost every way, with the main difference being what you can invest. Depositaries specializing in self-managed IRAs will have the appropriate staff, experience and capacity to maintain custody of the alternative assets usually chosen by investors. Here are the key things to know about self-directed IRAs and the points that some investors may stumble upon. A self-directed IRA can invest in assets that go far beyond the traditional stocks, bonds, funds and more that are available at one of the leading online brokerage agencies, and that's the main advantage for investors looking to use a self-directed IRA.
Collectibles include a wide range of items, including antiques, works of art, alcoholic beverages, baseball cards, souvenirs, jewelry, stamps and rare coins (note that this affects the type of gold a self-directed Roth IRA can store). The difference between self-managed IRAs and others lies only in the types of assets you have in the account. They're quick and easy to open and offer the same tax benefits as a self-directed IRA without being exposed to all of the additional IRS regulations.