How Do I Find Self-Directed IRA Investments?

Self-directed IRAs, or SDIRAs, are becoming increasingly popular because they allow account holders to choose from a world of investments. At New Direction IRA we’ve seen IRAs invest in everything from trailer parks to oil fields to Middle Eastern currency and more.

The sheer number of investments could seem daunting, but many investors view this as an opportunity to invest in what they know and trust. Here, we’ll go through the main alternative asset types and share how you might begin looking for investments.

Note that all due diligence is your responsibility and not the responsibility of the IRA provider, like New Direction IRA. (At NDIRA, we do not offer financial advice; we only service the investment that you choose.)

Real Estate

Real Estate investments come in all shapes and sizes. You can invest your IRA in commercial or residential real estate, fix and flips, rental properties, raw land and everything in between.

There are many options for real estate IRA investing

You may find it beneficial to search for investment property by contacting a realtor, driving around the area you in which you want to invest or attending real estate investment groups. What’s important to remember is that you can invest in nearly any real estate as long as it follows disqualified persons rules.

Disqualified persons to an IRA include the IRA holder, his spouse, his parents and grandparents, his children and grandchildren, their spouses, certain fiduciaries and any entity owned or operated by a disqualified person. So, for instance, you couldn’t buy a rental property or vacation property and let your kids live in it.

You can, however, partner with both disqualified and non-disqualified persons. You’ll have to be diligent about paperwork and incoming/outgoing funds but the flexibility afforded by the IRS to maximize your funds opens your investment options even further. You can even take out a non-recourse loan to mortgage investment property. For more information on funding, visit http://www.newdirectionira.com/real_estate_ira.html

Precious Metals

Your IRA can invest in gold, silver, platinum and palladium products. There are certain fineness requirements for each and you cannot invest in many collectible coins, but there are simply many options for a precious metals investment. For a full list of acceptable coins and metals, visit http://www.newdirectionira.com/gold_iras.html.

In an SDIRA, you find the dealer from which you want to buy metals and determine the terms of the deal with him. You send the terms over to your IRA provider and they will send money where needed. At New Direction IRA, you can then choose your depository (where your metals will be stored) and the dealer will ship the metals directly to the depository.

Performing due diligence is necessary for all investments, especially precious metals. Make sure you are comfortable with the dealer and depository and the terms of the sale.

Private Equity

Finding private equity investments often requires more leg work than real estate or precious metals investments.

Where you can often find listings of property or scores of dealers offering metals, private equity offerings require greater diligence. There are several website cropping off that seek to match investors to companies and individuals seeking investments.

You can also invest your IRA in entities that may be launching a new product or certain groups that are preparing to make large investments. As above, disqualified persons apply and full details can be found at http://www.newdirectionira.com/private-equity.html.

The best way to find private equity investments is to get involved. Visit investment groups, research companies, search for startups and find an investment opportunity that fits your IRA investment goals.

Partnering with disqualified persons to your IRA

There is a lot of discussion about “Disqualified Persons” when one is creating a strategy for acquiring IRA assets. The IRS’s disallowance of self-dealing with regard to retirement accounts means that if an investor is considering transactions such as purchasing real estate, investing in a company, making a loan, or even buying hard assets like precious metals, they need to identify persons who are disqualified to their IRA in order to avoid a prohibited transaction and its concomitant penalties.

It may sound like a simple matter to list those people and entities that are disqualified, but the fact that there are several pages of the Internal Revenue Code (section 4975) dedicated to this issue indicates just how gray this area can get. To make this matter even a little more difficult to keep straight, partnering with these “disqualified” persons is allowed. While an exhaustive examination of this issue may not be desirable (or even possible), it is helpful to review a few of the basics.

Disqualified persons include one’s self, one’s spouse, lineal ascendants and descendants and those descendants’ spouses. The designation also extends to business entities owned and/or controlled by these people as well as some fiduciaries associated with these business entities.

Transactions in which an IRA is not allowed to participate with a disqualified person/entity include buying from, selling to, paying compensation to, extending credit to, receiving a loan from, and allowing use of assets.

Partnering with disqualified persons/entities is allowed. The way that works is that an IRA acquires a specified percentage of the asset as does each of the other partners. All income and payments related to that asset must be divided along the percentage lines established at the purchase of the asset. This can be somewhat cumbersome, depending on how much activity is associated with the investment, but it is imperative to keep up with this arrangement.

A helpful way to think about whether you are contemplating a transaction with a disqualified person/entity, which is prohibited, or a partnership, which is allowed, is to think of a negotiating table on which a transaction will be made. On this table, money will move from one side of the table to the other, and, in return, a benefit or asset will move in the opposite direction. If the disqualified person/entity is on the same side of the table as your IRA, you are likely okay. If the disqualified person is on the other side of the table, you might be looking at a prohibited transaction.

In some cases, IRS parameters for IRAs can be confusing. The information above that describes some basic principles that apply to disqualified persons and what an IRA can do in relation to them is only part of the whole picture. Despite the fact that it can daunting, it is much better to invest the time to learn about the rules now, before making a move with your IRA, than to pay for a mistake with your hard earned retirement funds later. The good news is that you have a place to start the process in Entrust New Direction IRA. Their knowledgeable staff, informative website, and frequent educational programs are excellent sources of information about all aspects of IRAs.