Did you know that since 1975 you have been able to use IRA funds to invest “beyond Wall Street”?

IRAs were created in 1974 by an Act of Congress with the intent of offering individuals not covered by a company-sponsored retirement plan a tax-advantaged way to save for their future. Today, there are five types of individual retirement savings plans: Traditional IRAs, Roth IRAs, SEP, Simple and Individual 401(k)s. The focus of this article will be on IRAs exclusively.

The only two investments that are not permitted in an IRA are life insurance and collectibles. Although truly self-directed investors may have to pass on investing IRA dollars in rare wine, vintage cars, rugs or art, they can consider adding real estate, trust deeds, unsecured promissory notes, private stock and other private placement investments to their retirement savings portfolios.

Many investors are still not aware of all their IRA investing options due to the fact that their trusted advisors don’t, can’t or won’t get involved in “non-publicly traded alternative investment strategies.”

Your financial advisor or broker/dealer may be restricted by the firm’s compliance department or by business practices that prohibit a registered representative from “selling away” from investment products sanctioned by the rep’s firm or broker/dealer. Your CPA or attorney may not specialize in retirement plans and therefore won’t be able to help you understand all of your savings options as well as the rules and regulations surrounding self-directed IRA investing in alternative investments. There are specialized IRA custodians that play an important role in educating the self-directed investor on the rules and regulations that need to be followed in order to protect the tax-advantages of the IRA.

Internal Revenue Code states that an IRA must have a custodian (bank, credit union or authorized trust company or broker dealer) to establish the IRA and hold the IRA’s investments. In addition to holding the assets in its name as custodian for the benefit of the IRA account owner the custodian must also perform certain other duties including: facilitating the purchase or sale of an investment; collecting and recording any income generated by the investment; paying and documenting any investment-related expenses and reporting annually to the IRA account owner and the IRS the current value of the assets in the account.

It is just as important to understand what the custodian does not do. Custodians who specialize in the custody and administration of unique assets held in IRAs are usually non-depository trust companies chartered at the state level and regulated by the state’s banking commission. These passive custodians DO NOT give tax, legal or investment advice nor do they endorse or promote any type of investment or investment sponsor.

When an investor chooses to self-direct their IRA investing the investor, and only the investor, is responsible for selecting the investment, performing due diligence on the selected investment and directing the custodian to finalize the transaction on behalf of the IRA.

When you’re ready to take the first step toward self-directed IRA investing there are plenty of great investor education resources in addition to the free education offered by those custodians who focus on the self-directed investor.

There are Government-sponsored sources of information found on the websites of the IRS (IRS.gov), SEC (investor.gov) and FINRA (finrafoundation.org). Additionally, valuable information on self-directed investing can be found at industry and professional websites including: the American Institute of Certified Public Accountants (AICPA.org), Retirement Industry Trust Association (RitaUS.org) and the North American Securities Administrators Association (nasaa.org).

About the author:

Sandra Reese has been in the self-directed IRA industry for over 12 years working for, and consulting to, various self directed IRA custodians. Sandra, a Financial Education Instructor certified by the National Financial Educators Council, is passionate about investor education. Sandra currently works with IRA Services Trust Company in a business development role.