Unraveling the Mystique of Self-Directed IRAs: 15 Most Asked Questions

Embarking on the journey of managing your retirement funds evokes a mix of exhilaration and trepidation. It’s no small feat to enter the world of Self-Directed IRA (SDIRA) finances without ample preparation and a clear roadmap.?

For those of you feeling a bit lost at the mere mention of SDIRAs, I've gathered some of the most pressing questions asked of me personally and at my company, Horizon Trust.

Before making any leaps, I'd urge you to have a heart-to-heart with your financial advisor. It's crucial to understand if this form of investing aligns with your financial aspirations.?

As you wade through the vast ocean of personal retirement savings, here are 15 questions and answers about Self-Directed IRAs that you might be pondering:

1. What is a Self-Directed IRA?

It’s essential to comprehend the waters before diving in. A self-directed IRA is an account that allows you to have complete control of your investments. With a certified IRA custodian to report to, you decide on your investment, whether traditional or alternative, and oversee everything: selecting the custodian, the assets, where the money is placed, and what sort of IRA they want. You are in control of every aspect of your self-directed IRA. Additionally, you are allowed a wider range of potential investments.

A Self-Directed IRA is essentially your passport to financial autonomy. While there's a certified IRA custodian you'd liaise with, decisions about the assets, money allocation, and the type of IRA rests squarely on your shoulders. This IRA type broadens your investment horizon considerably.

2. So, What Can I Invest In With an SDIRA?

Beyond the conventional stocks and bonds, the SDIRA world opens doors to unconventional avenues. Think real estate, secured loans, precious metals, private lending, or even cryptocurrency.

3. Are There Any No-Go Zones for Investments?

The IRS is quite categorical about certain investment red flags. Steer clear of collectibles (like art or stamps), alcoholic beverages, life insurance, or S-corporation stocks. The forbidden list has a few more names; it's vital to familiarize yourself with them.

4. Can I Roll Over My Current IRA Into an SDIRA?

Absolutely! Rolling over from a traditional or Roth IRA to its self-directed counterpart is straightforward if you follow the requisite steps.

5. Is an IRA Custodian Mandatory?

Yes, the IRS mandates it. However, the ball is in your court when selecting one. Your choice should resonate with your investment aspirations. Due to the lack of trustworthy and responsive custodians, I founded Horizon Trust to help with all custodian needs.?

6. Can My Custodian Double as My Financial Advisor?

SDIRA custodians are the caretakers of your account but aren't licensed to advise. Their expertise lies in their industry knowledge, not investment counsel.

7. Are There Any SDIRA Pitfalls?

Indeed. From specific transactional limitations to strict stipulations around account management, it's crucial to be well-acquainted with the dos and don'ts.

8. Is SDIRA Everyone’s Cup of Tea?

While available to all, SDIRAs might not suit everyone’s palate. They demand diligent research, sound knowledge, and unwavering patience.

9. Can I Pump Money Into My Own Venture Using SDIRA?

No. Investing in personal ventures is a clear no-no.

10. Who Falls Under the 'Disqualified' Bracket?

The 'disqualified' tag extends to immediate family and certain business entities. It's vital to know who they are to avoid unintentional missteps.

11. What's This Buzz Around UBIT And UDFI?

They're specific taxes that come into play under certain investment scenarios involving borrowed money. Unrelated business income tax (UBIT) and unrelated debt-financed income (UDFI) occur in very specific situations. IRAs that borrow money to purchase investments must pay tax on the income received based on the borrowed amount. This happens when you take out a non-recourse loan to fund the investment.

12. Can I Borrow From My SDIRA?

You can, through a non-recourse loan. But remember, this route makes your account susceptible to UDFI. This is a type of loan that you can take out using your IRA to purchase real estate investments. Often facilitated by a private lender, these loans are owned by your IRA, are subject to UDFI, and must be repaid through your IRA.

13. Can I Personally Spruce Up Real Estate Bought Through SDIRA?

Tempting as it may be, you can't. Any hands-on involvement falls under 'self-dealing,' a clear transgression.

14. Any Shadowy Sides to SDIRAs?

While promising, SDIRAs aren't devoid of challenges. From potential oversight lapses to asset liquidity issues, there are aspects to ponder over.

15. Do I Truly Steer My SDIRA Ship?

Indeed! Your custodian may be your navigator, but you're the captain, charting the course and making pivotal decisions.

Choosing the ideal retirement vehicle is never easy, especially when you're eager to set the wheels in motion. SDIRAs come with their share of allure and apprehensions.?

Ultimately, the crux lies in discerning if they resonate with your retirement dreams. Engage with a seasoned financial advisor and, if you're convinced, embark on your SDIRA journey with a trusted custodian by your side.

Want to learn more? Check out the weekly flow of educational SDIRA content at Horizon Trust.

Also, check out my free seminar. I will show you the secrets of investing with a Self-Directed IRA and how to maximize tax benefits, including by starting an LLC.?

I will also show you the secrets the rich use to avoid taxes and the mindset they use to manage their money.?

Best of all, it’s all free and available at the link below.?

Free SDIRA Webinar

Sign up and learn how to maximize your wealth for retirement using dormant money in your IRA.

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