Are Self-Directed IRAs Too Good to be True?

Regardless of demographics, many are becoming jaded as they witness their retirement funds slowly dwindling in the aftermath of ceaseless recessions and profligate government spending. Housing markets continue to have bubbles that threaten to burst, and the economy continues to spiral downward. Investors are reeling with disenchantment and well-deserved paranoia. In short, they’ve lost total confidence in traditional investment vehicles.

“It’s the economy, stupid!” and we can’t trust the government with it. Thus, we must nail it down ourselves. This is why self-directed IRAs (SDIRAs) are quickly becoming the retirement account of choice. For many, they are attractive alternatives to traditional IRAs, 401(k)s and other avenues. Yet you may be wondering with all the hype surrounding SDIRAs whether they’re really too good to be true. Let’s find out together.


Benefits of SDIRAs

The plain truth is that a self-directed IRA can be a very reliable prospect yielding many concrete benefits that are attractive to consumers, including those listed below:

* The potential for seriously higher returns on investment compared to traditional and Roth IRAs or 401(k) accounts.

* Much faster access to your money for making investments with no waiting on custodial approval for release of funds.

* Turnkey operation. You don’t have to jump through ridiculous hoops to get your account up and running, and there are many financial institutions offering these accounts.

* Far fewer fees. If you’re not careful, fees will take a bite out of your retirement income. Since checkbook control IRAs require no custodian, you can skip those fees. You can also forget about the pesky administrative fees so common with 401(k) retirement plans.

* Privacy protection. With the self-directed IRA LLC, your investments are private, as they should be. Nobody needs to know who owns the real estate or the business you just purchased. Be advised this is not the case with bank or custodian controlled IRAs.

* Options. You have an entire world of alternatives for investing as compared to traditional or Roth IRAs. They include businesses, real estate, precious metals, cryptocurrencies and more.

* Autonomy. Since custodians are part of self-directed IRA LLCs, you have more control over your account and how you invest the funds.

* Trust. Put your confidence in yourself and not the powerhouse financial advisors, and restore equilibrium by taking your investment matters into your own hands.

As you can see, the list of benefits is long and healthy. However, it would be ill-advised to overlook the potential risks that accompany these rewards.


Self-Directed IRA Risks

The risk of fraud can be high when it comes to SDIRA investments. Because transactions are often made without the advice of seasoned advisors (even if you opt for a custodian, his role is to facilitate transactions–not advise), people with ill intentions will target those with self-directed IRAs.

There’s always the risk of losing your investment, but that’s the same for any speculative venture and goes without saying. The other risks are largely regulatory in nature, but don’t dismiss them. Falling on the wrong side of financial law can have serious consequences.

Are SDIRAs too good to be true? While they are a good fit for accomplished investors, they can prove a little too hot to handle for new investors or people diving into investments they know little about (such as real estate or business investing). The best advice is to know your own strengths and weaknesses, and run everything by a qualified tax professional or financial planner before deciding that SDIRAs are the right choice for you.

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