Traditional individual retirement accounts and Roth IRAs are both good ways to save for your retirement while enjoying either a tax deferral or tax free benefits. In a traditional IRA, you invest pre-tax dollars and pay taxes when you withdraw the money. A Roth IRA on the other hand, you pay taxes on what you invest and are tax free when you withdraw.

Both types however lack choices and options in terms of the type of investments that you can participate in. Usually, you are limited to a portfolio of stocks, mutual funds, money market funds and CDs. The majority of the banks, insurance companies and stock brokers that are the custodians and plan administrators of these IRAs do not offer any other investment choices.

If you want more options and better control of your investments in an IRA, you will have to find a plan administrator that specializes in self-directed IRAs. Self-directed IRAs gives you all the tax benefits of the traditional or Roth IRA, but more freedom to invest in different types of assets.

What it means to be “self-directed” is as simple as it sounds. You, the individual investor, have complete control over selecting and directing your own IRA or 401K investments.

“In a self directed transaction, you make all of the decisions regarding your investments. The self directed IRA custodian or self directed IRA administrator completes the documents required to establish your account and purchase your investment.” – The Entrust Group

Here is a list of some of the assets approved by the U.S. Treasury regulation and IRS that can be held in a self-directed IRA, but not available in the non self-directed type:

• Real Estate
• Limited Liability Companies
• Private Limited Partnerships
• Secured and Unsecured Notes (Mortgages and Deeds of Trust)
• Partnerships and Joint Ventures
• Private Stock
• Judgments/Structured Settlements
• Tax Sale Certificates
• Car Paper
• Factoring
• Accounts Receivable
• Commercial Paper
• Equipment Leasing

The main benefits of the self-directed IRA are the variety of assets that can be invested in. There are restrictions that have to be complied with, like the penalties for early withdrawals when dealing with traditional IRAs; self-directed IRAs are no exception. Individual asset types for self-directed IRAs may have its own set of rules and restrictions when made part of a retirement plan as well.

It is beyond the scope of this article to go into all the details of the different type of assets and the many creative ways of using them to your advantage, but here are several scenarios.

1. Lending your IRA fund as a loan to friends and family; why pay a bank interest when they can pay you? A win-win for both parties.
2. Investing in raw land and turning the profits back into the tax deferred IRA for reinvesting
3. Investing in a start-up company through a private placement

There are countless ways that a self-directed IRA can be used to invest your money. Self-directed IRA accounts will require a specialized custodian or administrator to open an account and invest with. These accounts have to be held with a custodian who allows non-traditional investments in the IRA.

To learn more about self-directed IRAs you can visit The Entrust Group for additional information. They are a specialized plan administrator with over 25 years of experience in the self-directed retirement planning arena.

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