Self Directed IRA Investment Options
In the last two articles we pointed out the importance of diversification to achieving your retirement goals. We examined the recent performance of the stock market compared to the real estate market, and we learned that the only way to truly diversify and obtain control of your retirement plan is to self-direct your investments. This article provides examples of some other investment options from which you can choose if you have a self-directed retirement plan.
In addition to real estate, there are many different assets in which your IRA can invest. We will detail two of the more common options, but the opportunities available to your IRA are far greater than this list.
The first common investment outside of real estate is income-producing instruments, such as mortgages and notes. Your IRA can lend money for the purchase of a home and secure the loan with the deed of trust. Your IRA can make first mortgages, second mortgages, and even construction loans. Your IRA can make other loans called notes. Examples of notes are automobile loans, personal loans, and loans to businesses, and these loans can be secured or unsecured. For example, your IRA can lend money needed to buy a car, and the title to the auto can be used as security for the loan. Likewise, your IRA can make a loan to a business to finance the purchase of equipment needed for expansion, and the equipment can be used to secure the note. There are many other financing opportunities available to your IRA, such as factoring receivables and providing advances on commissions. Either way, you are in control; you make the credit decision, you set the interest rate, and you set the payment terms. This is a great way to diversify the income-producing portion of your retirement plan, and a second mortgage yielding 10% can be more far more compelling than a CD earning 4%.
The second common asset outside of real estate is private businesses. Small businesses are the backbone of the United States economy and investing in them is an option for your retirement plan. All around us, people are raising money to start, grow, or buy a business and your IRA can participate. Your IRA can invest in all different types of businesses, including “C” corporations, limited liability companies, partnerships, hedge funds, and private debt placements. About the only option unavailable to your IRA are shares of an “S” corporation. “S” corporations have to give up their favorable tax status if they accept IRA investments. Investing in private businesses presents a great growth opportunity for your retirement portfolio. As with any growth-type investment, this area comes with its share of risks, and the rules governing prohibited transactions must be followed. Security Trust can help guide you to your own successful growth company strategy!
True diversification, greater control, and investing in the things you know are wonderful benefits of self-directed retirement investing. Self-directed plans allow individuals the opportunity to invest their retirement plans in the areas in which they have expertise. They allow the loan officer to make loans, a real estate broker to buy and sell real estate, and an entrepreneur to invest in start up companies. As with any complex financial structure, the quality of your team of advisors can make a big difference. So, select a great team and begin enjoying the wealth-building benefits of self-directed, non-traditional retirement investing.
John Laughlin
President, Security Trust Company, Inc.
Article 1 -
Investment
Portfolio Diversification
Article 2 -
Checkbook Control IRA
Article 3
- Self Directed IRA Investment Options
