Self Directed IRAs

The reasons for opening a retirement account are quite clear. They offer tax advantages over regular accounts that help people prepare, on a tax favorable basis, for the day when their earning power will decrease and their desire to retire will increase. Among retirement accounts, some are better suited to people in certain circumstances than others. Generally, though, the Roth IRA is considered to be superior with the traditional IRA following close behind.

IRAs can differ quite significantly too. Some investors have the idea that IRAs are necessarily restrictive. However, an IRA can be handled in a number of different ways that allow for various investment strategies without forfeiting its tax favorable status. A traditionally custodied IRA in the hands of an experienced investor can grow at a snail's pace when compared to the growth that can be realized by an experienced investor with a self-directed IRA.

Traditional IRA custodians, like banks and mutual fund companies, almost exclusively offer securities. Their plan documents can be quite restrictive and investors must ask permission to change their portfolios--and pay fees to do so. Self-directed IRAs give their owners the ability to make investments as they see fit, when they see fit, without having to get their IRA custodians' to sign off on them.

Opening a Self-Directed IRA
The favorite instrument for opening a self-directed IRA with checkbook control is the Limited Liability Company. The investor owns the IRA which owns the LLC which owns the non-traditional assets therein. This allows the investor to write checks from the LLC for real estate transactions, expenses associated with such holdings, and other types of investments. Such an arrangement can be very beneficial financially with greater returns on investments and far fewer fees. However, one should seek the advice of an advisory group that specializes in the drafting of the IRA LLC.

Written By Scott Janko, The National Association of Financial and Estate Planning (NAFEP)

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