An IRA is a common investment option for those who are trying to plan for retirement. However, a standard IRA provides limited options who choose from and typically restricts investments to assets such as mutual funds, bonds, and stocks. One way to avoid these restrictions is to invest in a self-directed IRA.
Defining a Self-Directed IRA
Self-directed IRAs share many of the same qualities as other IRA accounts. With a self-directed IRA, you are still allowed to save for your retirement in a way that gives you an advantage at tax time. Your contributions will also be restricted with similar limits as a traditional IRA. The difference between a traditional IRA and a self-directed IRA involves the type of assets that you are allowed to choose as investments.
Types of Investments in a Self-Directed IRA
Self directed IRA real estate options are the most common investments. You can choose to invest in traditional real estate or nontraded businesses. Other popular options for a self-directed IRA include precious metals and cryptocurrency.
Restrictions on Self Directed IRA Real Estate
Federal regulations place certain limits on the type of real estate you can use for your self-directed IRA. Neither you nor your family can use the real estate property, and it must be used for investment purposes only. You must also pay entirely in cash using funds from your self-directed IRA account. Due to the restrictions placed upon a self-directed IRA account, the real estate property cannot be used as secured collateral for a loan.
