How to Invest in a Self-Directed IRA

Unlike traditional IRAs, which deal primarily with stocks, bonds and mutual funds, self-directed IRAs allow investors to put their money in a wider range of assets, such as real estate, limited liability companies, private limited partnerships and precious metals. The major appeal for investors, however, is usually the freedom a self-directed IRA affords. While investment choices in a traditional IRA are dictated by a custodian of the account, a self-directed IRA allows you, the account holder, to call all the investment shots.

Decide what type of investments you want to make with your self-directed IRA. The investment types that are available may be limited, depending on the bank or investment firm you use to open your IRA. Some banks only allow investment in the bonds and certificates of deposit that they offer, while some investment firms only allow investment in certain markets or funds.

Shop around for a bank or investment firm that offers self-directed IRAs and allows the type of investments that interest you. Discuss your financial goals with each and choose the bank or firm that seems best able to help you meet your goals.

Make your initial IRA deposit based on the amount you've put aside for retirement planning, making sure that it's at least equal to the minimum deposit required by the bank or firm you choose. Once your self-directed IRA is set up, you can roll over or transfer other IRAs or retirement accounts into it if you want to maintain a single retirement account.

Name a beneficiary for your IRA. Most people choose their spouse as the beneficiary, but you can choose your kids if you have any as well. The beneficiary is the person who will inherit the IRA in case you pass away before you've collected all of the money in the account.

Make investments through the bank or investment firm. The real estate, stocks, bonds or commodities that you choose will be purchased in the name of the IRA and will be paid for by the money the IRA contains. Most banks and investment firms will work with you to help you choose the best investments for your self-directed IRA, though not all will. Take the time to research potential investments yourself beforehand just in case.

Continue making payments to the IRA each month, letting the money be invested into the commodities and other investments that you choose. Check in with the bank or investment firm when making payments to see how your investments are doing and to get their recommendations on changes to your investment strategy if they have any to offer. Keep researching potential investments that you could invest your money in as well so that you'll be able to take advantage of new opportunities as they arise.

Warning

  • Most IRAs feature penalties for early withdrawal, and any money received from an IRA must be declared on your taxes. To get the most out of your self-directed IRA, don't withdraw money from it until you reach retirement age and take yearly distributions instead of withdrawing all of the money at once.

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