The Most Popular Assets for a Self-Directed IRA

July 9, 2021

A self-directed IRA can diversify your retirement portfolio far beyond what stocks, bonds and other typical investments provide. These individual retirement accounts offer greater flexibility with alternative investments not available in other tax-deferred retirement savings accounts. The most popular assets held in self-directed IRAs can provide substantial growth with advanced retirement planning.

The Most Popular Assets for a Self-Directed IRA

Investments for Self-directed IRAs

You can hold just about any type of investment in a self-directed IRA, as long as all transactions occur within the account. Mortgage notes, real estate, businesses, cryptocurrency and precious metals are among the investments legally held in a self-directed IRA. You can also buy the standard investments allowed in Roth IRAs and traditional IRAs in these tax-advantaged accounts.

With so many investments available for a self-directed IRA, it’s easiest to list assets you can’t buy:

  • Life insurance policies
  • Collectibles (art, coins, stamps and others)
  • S-Corp stock
  • Transactions you benefit from directly (outside of retirement savings)
  • Any transactions that benefit a relative, business partner or other disqualified person

The most popular self-directed IRA assets are real estate and gold or other precious metals. Cryptocurrency like bitcoin is growing in popularity as well.

IRA Custodians

Self-directed IRAs require a custodian, which is a company that manages the IRA transactions, tax reporting and other paperwork. Custodians charge a fee and ensure your investment options fulfill IRS requirements. However, they don’t provide investment advice. You’ll have to rely on your own due diligence to select the best assets for your account.

Gold IRAs

You can hold gold, silver and some other precious metals in a self-directed retirement account called a Gold IRA. The IRS allows only specific coins and bars in an IRA. We recommend using a Gold IRA company to help you choose the right investment metals.

Gold prices fluctuate, sometimes significantly. However, the price usually rises when the stock market takes a downturn. This movement makes precious metals a hedge investment to help balance and diversify your retirement portfolio.

You can’t provide the storage for precious metals held in an IRA. You’ll need to pay to store the physical metals securely, but the cost is affordable for most investors. A Gold IRA company can assist with defining all expenses so you can determine if the investment is right for you.

Self-directed IRAs for Real Estate Investments

You can buy a home or other property for a self-directed IRA. Some investors hold the property in anticipation of increased value over time. But treating it as a rental property with the monthly income going directly to the IRA is more favorable. You usually have to pay for the real estate up front since most custodians won’t allow a mortgage on the property.

The IRA pays for maintenance, repairs and any other expenses associated with keeping up the buildings and land. IRS regulations don’t allow you to keep up the property yourself to keep costs down. The IRA legally owns the property, so you get no deduction for property taxes or deprecation. However, you will get a steady stream of funds added to your account.

3 Ways to Buy Rental Property for a Self-directed IRA
Lease between IRA and tenant
  • Tenant sends monthly rent payments directly to the IRA
  • Custodian pays for property maintenance upon your request
  • Custodian takes a fee for service
IRA and property manager
  • IRA receives all rental income minus expenses and fees
  • Property manager and tenants have a lease agreement
  • Property manager takes a percentage of income as payment
Checkbook IRA
  • Create an LLC with the IRA as the sole owner or member
  • You handle all transactions without a custodian
  • Take care not to trigger a prohibited transaction with tax liability and revoked IRA

Cryptocurrency IRAs

Recent bitcoin IRA news reports the average return on cryptocurrency IRAs in January 2020 was 11.6%. This percentage is a solid one-month return. These self-directed IRAs are known to fluctuate a great deal, so they aren’t always increasing in value. But digital currency is less speculative than it once was.

You can use a custodian to help you manage cryptocurrency within a self-directed IRA. Also, a full-service company like BlockMint or Bitcoin Advizers will help you choose the best digital cryptocurrency and oversee transactions.

You may want to use a company specializing in cryptocurrency to help you with this type of self-directed IRA. There are now many types of virtual currency, ranging in average monthly gains from 5.1% to 61.6% over recent months. Cryptocurrency can also tread into the red zone with a loss, like any other investment.

Be Aware of Self-directed IRA Scams

Walk away from anyone who pressures you to fund an investment for your self-directed IRA. Scammers may use fear tactics or say you must invest immediately or lose the opportunity to earn high returns.

The North American Securities Administration Association’s top five self-directed IRA scams for 2020 are investments in:

  • Promissory notes
  • Real estate
  • Cryptocurrency
  • Ponzi schemes
  • Social media or internet-based schemes

Protect yourself from scams by checking the seller’s references. Be sure both the seller and the investment are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority (FINRA).

You’re unlikely to fall for a fraudulent investment if you refuse to allow anyone to pressure you. Always remember if a deal sounds too good to be true, it’s almost certainly a rip-off.

What are the Best Assets for Your Self-directed IRA?

Selecting assets for a self-directed IRA depends on the risk level you can tolerate. Think about how soon you need to start taking the required minimum distributions from an IRA. If RMDs are years away, a self-directed IRA can diversify retirement savings to the highest degree.

Balance the anticipated growth with the costs associated with the asset. You may want to consult with a financial advisor to learn the advantages and disadvantages of various self-directed IRA investments.

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