What Is a Self-Directed IRA?

As an investor, it’s your job to keep your portfolio protected as much as possible. You never know when the next financial crash or an economic downturn could have a deleterious effect on your stock and bond investments. 

Investing in alternative assets like cryptocurrencies and precious metals is a great way to hedge against the inevitable downturn. The right way to do this is to invest for your retirement for the long term with a self-directed IRA.

For those new to this type of investing, please note that a self-directed IRA gives you the option to invest in alternative assets including physical precious metals and cryptocurrencies. It’s important to note that these investments are volatile and they can increase in value very quickly and also decrease in value quickly at times.

Learn more about a self-directed IRA below.

A Description of a Self-Directed IRA

More than anything else, there are two types of self-directed IRA accounts that you can technically open when you begin precious metals are cryptocurrencies investing. The first option is to open a traditional self-directed IRA. This gives the account holder certain tax breaks that they’ll find quite advantageous. 

Or the other option is to go the tax-free route and open a Roth self-directed IRA. Anything earned in this account is yours to keep since it’s funded with income that was already taxed.  Visit IRA Investing to find out more.

The great thing about both of these accounts is they provide certain tax breaks and benefits that you don’t get with other types of investments outside of the IRA family of investing strategies.

The Differences between a Regular IRA and Self-Directed IRA to Enhance Your Understanding

Mainly, it’s important to know that a regular IRA is there for investors looking to own common investment types including stocks and bonds. These are the more traditional investments that a wide majority of retirement accounts can easily invest in. For the most part, within a regular IRA, the typical future retiree purchases stocks, bonds, and mutual funds.

On the other side of the coin,

A self-directed IRA offers a number of expanded investment possibilities. It allows investors to purchase investments that are considered non-traditional that they aren’t allowed to purchase within a typical IRA.

For example, did you know it was possible to purchase real estate or a privately held company through a self-directed IRA? And that’s only the tip of the iceberg, because you can also invest in other physical assets like precious metals or popular digital assets including Bitcoin, Ethereum, and other cryptocurrencies.

The critical area of focus is finding a custodian for your self-directed IRA. This person will handle all transactions with the account on your behalf including funding the account after you send them the money, making purchases within the account based on choices you’ve made, and having the precious metals shipped to your dedicated storage facility amongst other responsibilities.

3 Critical Differences between Self-Directed IRA and Regular IRA Accounts

• The biggest benefit of the self-directed IRA account is the opportunity to purchase non-traditional assets including cryptocurrencies, precious metals, real estate, and other businesses that aren’t traded on the stock market. If you were ever inclined to buy an ice cream parlor, you can invest in it through this retirement account.
• All self-directed IRA accounts require a custodian or trustee. This person is a specialist in their field and they will manage this account for you as mentioned earlier. This is an absolute must and it’s a rule that the IRS has in place. The account holder is not allowed to manage the account on their own. They must have a custodian in place to work for them.
• Alternative assets are typically high risk and high reward assets. You can make a tremendous amount of money quickly investing in gold or cryptocurrencies at the right time. It’s also possible to lose money quickly with these investments as well. They are risky, which is why it’s best to hold them for the long term because they make great returns over time.

How to Open a Self-Directed IRA

The fastest and easiest way is also the only way that I personally recommend. You must find a gold broker or cryptocurrency broker to work with. They have strong working relationships with the top self-directed IRA custodians operating in the US. They will provide you with an excellent recommendation, plus they will even help you set up your new account by handling the bulk of the paperwork on your behalf.

What is a custodian? It’s an organization that specializes in opening precious metals IRA accounts. Banks and trust companies offer this specialized service in some cases as well.

You may need to shop for a custodian depending on what you plan to invest in. Some custodians specialize in certain areas that others do not, so you may need to ask around. Remember to get help from your gold company because they can connect you with the best custodian.

What to Look for in a Custodian

• Find someone with experience managing precious metals IRA accounts. Typically, if you connect with a financial advisor they will be able to guide you on the right path.
• The IRS has strict rules and regulations about the precious metals allowed within a self-directed IRA. They do not allow collectibles and gold, silver, platinum, and palladium investments must meet specific fineness and purity requirements.
• Discover the best gold company to work with and learn about their custodian recommendations. They’ll even take care of the majority of the paperwork on your behalf.

Major Self-Directed IRA Benefits

• Bigger yields – investors love the fact that precious metals and cryptocurrencies are typical high-yield investments. Remember, they come with a lot of volatility, so there’s definitely risk involved in this investing strategy.
• Tax breaks – the tax benefits of the self-directed IRA are the same as the traditional and Roth IRA. Traditional self-directed IRA accounts achieved tax-deferred status. Roth self-directed IRA accounts achieved tax-free status because the account is funded with income that was already taxed.

Bottom Line

Investing in a self-directed IRA provides future retirees with a great way to add to their portfolio while providing excellent diversity. This investment strategy protects against stock market crashes, economic downturns, and inflation. Begin investing in a self-directed IRA sooner rather than later and watch your retirement account grow by leaps and bounds.