How to Set Up a Self-Directed IRA the Right Way

Setting up an Individual Retirement Arrangement (IRA) is a very popular way for people to save money for retirement. They are investing in their future by depositing money every month, or even more often, to make sure they have enough resources to live on when they leave the workforce. However, a growing number of investors are frustrated with the lack of control they have over their IRA investments. They want to know how to set up a self-directed IRA, which will allow them to have full control over how their money is invested.

A self-directed IRA is just like a traditional IRA except you choose exactly the assets you want to invest in. You are not limited by the funds offered by your IRA custodian or trustee. You become the trustee and you can decide where your money goes. You are able to invest in almost anything you wish, including real estate, precious metals, unregistered securities, private businesses, and more. There are some investments you cannot make, though, so make sure you follow the IRS rules governing investments and you can have more control over how much your IRA earns.  Here are the steps for how to set up a self-directed IRA.

 

Steps for How to Set Up a Self-Directed IRA:

The first step you need to do to set up a self-directed IRA is to find an IRA custodian that offers self-directed IRAs. Not all of them do. Some companies are worried that if you lose a bunch of money when you make risky investments that you could hold them liable. However, many IRA custodians are starting to offer these products because there is a growing demand for them. Some companies have self-directed IRAs that give you control over a portion of your investments, but if you are ready to manage your entire portfolio, the company you go with will grant allow you 100 percent control over your investments.

Secondly, you will need to fund your self-directed IRA account with cash, a check, or with a transferred balance from another retirement account. This last option is known as a rollover and can be done quickly and easily by requesting the rollover from your current IRA administrator. You can rollover funds from another IRA or from a retirement account you have with an employer, such as a 401k plan.

Once you have money in your account, you can start to invest in any assets you choose. You will need to work with your IRA custodian to make this happen, but with a self-directed IRA, you will be making all the decisions. Be sure to research any asset you are planning to invest in to make sure you are making a good decision.

 

Risks Associated with a Self-Directed IRA:

All investments are risky. It doesn’t matter whether you are investing in conservative funds or aggressive assets, you will have to accept some level of risk. However, when you are working with a self-directed IRA account, you are taking more risk than with a traditional IRA. The reason why there is increased risk is because you are in charge of your own investments. You are not putting your money in the prearranged products offered by the IRA administrator, which usually consist of stocks, bonds, and mutual funds. You are putting your money in assets that could lose a lot of money if the market goes the wrong way.

For this reason, you really need to know what you are doing after you find out how to set up a self-directed IRA. You should carefully research your investments and even seek financial advice before committing to the transaction. Still, if you are a savvy investor, you can make a lot more money with a self-directed account than a traditional one, so it could be worth learning how to make wise investments on your own through a self-directed IRA.

 

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