Not All IRAs Are Created Equal - Introducing the SDIRA

Ridiculous? Yes.

Accurate? Unfortunately, also yes.

 This scenario gets played out all the time. Like many hard-working people, you open a traditional IRA to prepare for retirement. Each year, you max out your allowable contributions and invest in a mix of traditional funds to grow your nest egg.

All in all, this proactive approach makes you feel pretty good about retirement.

 But what if I told you the traditional IRA you have isn’t the best option.

 And, if you stay in the dark you could end up like the guy above, wondering why other people (i.e. your peers or your financial advisor) have more money.

 The truth is you don’t know what you don’t know. And when you’re faced with tough decisions like planning for retirement, it’s easy to overlook the best strategies when you’re presented with so many other options.

 The Fast Lane to a Comfortable Retirement

 As we live in the wake of the damage caused by the 2008 Financial Crisis, more and more people have started looking outside of traditional investments (Wall Street) and towards alternative investment strategies to grow their retirement accounts.

 They're rebuilding their nest eggs using versatile wealth building accounts called SDIRAs, or Self-Directed IRAs, that at one point were primarily used by high net worth individuals. Now, they're known and being used by people at all income levels.

 If you’re working hard and maxing out your contributions to a traditional IRA, you probably think you’re heading in the right direction. After all, you’re doing things “by the book.”

 But by simply investing in a SDIRA instead, there’s an opportunity to drastically increase the gains that you would have had with the traditional version. Why? Because you have control over your investments. You’re the captain of the ship. You’re telling your money where it goes.

 According to Adam Bergman, Esq., the author of Self-Directed IRA in a Nutshell, “people who have special knowledge or insight in an investment area are more attentive about their money and more motivated to grow it. They take action and stick to a plan because it’s fun, and it feels good to have all the power in their hands.”  

 A SDIRA gives you that power!

 SDIRA: The Schematics

 What is a SDIRA?

●     A SDIRA is a type of Individual Retirement Account (IRA) that’s like a Roth, Traditional, or SEP and is administered by a custodian or trustee but…

○     You’re in charge of all investment decisions

○     There’s more opportunity for diversification (that’s means protection!)

 What can I invest in?

●     You have a number of options that include:

○     Precious Metals

○     Commodities

○     Businesses

■     Check out the “Checkbook IRA” which is funded by your SDIRA and gives you complete signing authority over an account for ultimate freedom.

○     Cryptocurrencies

○     Real Estate

○     And our absolute favorite: Mortgage Notes!

 How is a SDIRA different from a traditional IRA?

●     You can see more detail here, but the big thing is you’re restricted to investing in stocks and bonds only with a normal IRA.

 So what?

●     A SDIRA offers you more freedom, flexibility, and control. You have the ability to invest in things you understand instead of the messy stock market, and they’re excellent vehicles for long term, sustainable returns.

●     You can even cover the cost of your child’s textbooks and college tuition with a Coverdell ESA and kiss the nuisance of student loans goodbye.

 Avoid the Potholes

 Nothing’s worse than finishing first only to be disqualified and stripped of the title, which can happen with your SDIRA if you don’t follow the rules.

It doesn’t matter if you committed a prohibited transaction unknowingly or not, you can still lose your account, and get dinged by a ton of taxes and penalties. Having a good custodian, tax attorney, and CPA on your team will help you avoid these potholes.

●     Transactions between the SDIRA and a disqualified person such as:

○     IRA account owner

○     Certain family members and fiduciaries of the account

●     Investing in life insurance and collectibles

 Let the Rubber Hit the Road

“Traditional retirement strategies themselves no longer fulfill the need for increased, long-term sustainability. As a result, the trend toward investing in alternative assets has accelerated.” - Jaime Raskulinecz

The emergence of alternative investments through the use of SDIRAs is a result of investors wanting more protection from the stock market. And who can blame them?

 Nobody knows exactly how the stock market is going to perform.

 Nobody.

 So really, when you fund that traditional IRA or contribute to your 401(k), it’s a complete gamble because you could lose money as soon as you invest. Why? Because 96% of all actively managed mutual funds don’t beat the market average. That means only 4% of mutual funds outperform the market, leaving you hoping it will work even though your chances are slim to none. It’s like trying to find a golden ticket in Willy Wonka and the Chocolate Factory.

 There’s a chance - a small chance - that you’ll find a “golden ticket” (aka a stock or mutual fund worth having) in this scenario. But in reality, you’ll buy hundreds of chocolate bars - only to never find a golden ticket, and end up with a bunch of junk food.

 For years, the wealthy have avoided these headaches by controlling their destiny with self-directed accounts, but now people like you and me are capitalizing on these incredible opportunities too.

 And the good news is alternative investing seems to be trending in the right direction.

●     McKinsey & Company found that during the fallout from the Great Recession of 2008, alternative investments grew at a five-year rate of over seven times that of traditional asset classes reaching a record level of $6.5 trillion.

●     PwC predicts that this number will reach $13.6 trillion by 2020.

 Opportunities abound for investors with SDIRAs!

Your Journey Thus Far

Do you have experience with self-directed investing, or is this all new to you?

If you have a SDIRA please let our community know how it’s worked out for you! Leave a comment below or join the discussion on Facebook.