home loan finance blog
If you already have some sort of IRA or 401K account through work or one managed after retirement, please read this. It is not the only option for retirement investing. First, the manager charges you a fee. Second, they most likely have it invested in stocks, bonds, or annuities. Third, they make most of the decisions. Finally, they are more interested in keeping you there for life, so they can continue to make those nice fees.
But you have another option; open your own self-directed IRA where you control your own investing. Why would you want to do that? Because its your money, you dont need to be paying for a manager and fees and you can also choose almost any investment you like. Besides stocks and bonds, you could buy a vacation home or rental property, but you cant live in either. These are strictly for investments, per the IRS guidelines for IRAs. However, you could start a business or invest in a franchise. You could buy land or any type of commercial property. Or you could invest in trust deeds, which pay between 10% and 15%, on average. But lets get back to the way you create a SDIRA. These are the basic steps:
> You must create an LLC, or limited liability corporation that will house the IRA. Most states provide online forms or choose a paralegal. The cost should be less than $300.
> You must hire a custodian and associated bank where the money will shuttle through. Pick a local one you can find online under Self-Directed IRAs. Entrust and PENSCO are two examples. They will charge an annual fee to maintain your account.
> You must set up a separate bank account just for the LLC.
> You will have to arrange for your present IRA funds to be transferred to your bank account, via the custodian.
> You are now ready to write a check from that account into any investment of your choosing.
About the only thing the IRD forbids in a SDIRA is investing in collectibles, which they deem as a risky hobby. So you cant buy rare coins, art, guns, or such. But you can buy those trust deeds I mentioned earlier. They are basically mortgages issued by hard-money lenders to people that cant get financing from conventional, soft-money, banks. They therefore are willing to pay higher interest rates for a shorter term, often 1 to 2 years. It is just one of several high-interest opportunities. Anyway, the bottom line of a SDIRA is freedom; the freedom to invest as you want and when you want.
The term, checkbook control, is often associated with SDIRAs because you can literally write a check from your account and invest in anything the IRA allows. And, because all the interest flows back into your account, it grows tax-free until taken out. The only caveat is that the custodian must oversee the process and report to the IRS. Hence this is where they earn a fee. But it is substantially lower than the one you pay to the stockbroker.
You now have control of your investments and they can be as diverse or simple as your wish. No one will now talk you into something just because they make a hefty commission. Of course, as with any IRA, you will can remove money penalty-free at age 59 and 1/2 and eventually have mandatory withdrawals at age 70 and1/2. Consult with your accountant for your specific case but consider this form of personal investing. Your stockbroker will hate you but you will love those extra earnings even more, and the freedom.