The following is a guest post by Steve Hunt, a Sr. Advisor at Scottsdale Bullion & Coin and has over 14 years of experience in the physical gold & silver markets. Read more articles from Steve on Google+
In this unpredictable economy, many individuals are looking for new ways to leverage their self-directed IRA in order to take advantage of this retirement option’s flexibility. An IRA allows you to include several investment options, from stocks to mutual funds to CDs to more risky investments like startup companies and LLCs. Opening a self-directed IRA could be a wise move as a part of your retirement strategy to diversify your portfolio and invest in things that are not allowed in a traditional IRA. Those who already have an established retirement fund, for example, private or government employees, may still wish to consider the benefits of a self-directed IRA for the freedom and flexibility it allows.
Advantages of a Self-Directed IRA
Though the account is handled through a third-party custodian, a self-directed IRA allows the investor to make all the decisions regarding the investments. This allows a savvy investor to either take more risk in investments such as LLCs, or conversely invest in safe haven assets like gold. The direction of investing is entirely up to the investor. Especially for those with 401(k)s or government pension plans, a self-directed IRA could be a great supplement to your retirement strategy.
There are a few different ways to leverage your assets into a self-directed IRA. As with any form of investing, a little education goes a long way. For this reason, it is wise to take the time to learn about different options, so you can make your IRA work best for your needs and goals. While a self-directed IRA may not be for everyone, the variety of assets allowable in a self-directed IRA may make them worth considering. Read on for an introduction to two of the most common asset types.
Precious Metals Investing for Retirement
One option that has been gaining popularity among investors seeking security is the so-called precious metals IRA. With a precious metals IRA, you use the benefits of gold investments for your retirement fund. As precious metals are not nearly as risky as some other forms of investments, such as stocks, a precious metals IRA can take much of the guesswork and concern out of your retirement planning.
This type of IRA allows investors to buy and sell gold, silver and other precious metals through a specialized custodial IRA account. As a result, all of your precious metal investments go towards your retirement. Eligible precious metals are gold, silver, platinum and palladium bars, as well as certain bullion and proof coins. Examples of eligible coins include American Eagle coins, Canadian Maple Leaf coins, and Austrian Philharmonic coins.
One of the benefits of a precious metal IRA is that your retirement investment can be transformed into a tax-deferred asset. This special tax-deferred status applies only to precious metals in special custodial IRA accounts and does not apply to cash-based contributions such as stocks, bonds, or money market funds.
Real Estate Investing for Retirement
Another popular form of IRA leveraging, as reported by Market Watch, is real estate investing. Many investors are discovering the benefit of purchasing real estate with IRA money. An IRA that has been properly structured can be used to purchase residential property, which can then be used as an income-generating investment. This gives investors the ability to use funds from their IRA before retirement age without suffering early distribution or penalties.
It should be noted, however, that IRS code does not allow account holders to extend credit to their own accounts. Personal loans cannot be mixed with IRA funds. This means that an individual is limited to investments that are equal to or less than the value of the entire self-directed IRA. This regulation presents a challenge for many investors who need additional funds to buy real estate.
The solution to this is non-recourse loans. A non-recourse loan is generally defined as a loan that is made to an IRA rather than to an individual. The loan is based entirely on the value of the property that is being acquired with the debt and is not based on the credit of the beneficiary of the IRA. This allows for more possibilities for individuals who are looking for ways to expand their resources.
Other Investing for Retirement
Precious metals and real estate are just two assets you can leverage for retirement in a self-directed IRA account. A diversified self-directed IRA portfolio can also include stocks, trust or mortgage deeds, energy investments, private tax liens, unregistered securities, private LPs and LLCs, promissory notes and much more. A self-directed IRA isn’t for everyone, but could be a great addition to a retirement plan for someone who wants to invest in precious metals, real estate or other specific assets for retirement. There are plenty of IRS rules governing self-directed IRAs, so be sure to seek investment advice from a professional.