The custodians of a self-directed IRA can be banks, trust companies, or another entity approved by the IRS. A self-directed IRA is an IRA held by a custodian that allows you to invest in a larger set of assets than is allowed by most IRA custodians. Depositaries of self-managed IRAs are exempt from most investor obligations and may allow investors to invest retirement funds in “alternative assets”, such as real estate, promissory notes, tax lien certificates and private placement securities. Investments in these types of assets may involve unique risks that investors should consider.
These risks may include lack of information and liquidity, as well as the risk of fraud. If you have an investment plan that a traditional IRA doesn't support, a self-directed IRA may be your solution. A checkbook IRA is actually a checking account of a limited liability company (LLC) that is funded by its self-directed IRA. Available as a traditional IRA (to which tax-deductible contributions are made) or Roth IRA (from which tax-exempt distributions are obtained), self-directed IRAs are best suited for experienced investors who are already familiar with alternative investments and want to diversify into a tax-advantaged account.
A self-directed IRA is like a typical IRA in almost every way, with the main difference being what you can invest. Collectibles include a wide range of items, including antiques, works of art, alcoholic beverages, baseball cards, souvenirs, jewelry, stamps and rare coins (note that this affects the type of gold a self-directed Roth IRA can store). Self-directed IRAs allow investing in a larger and potentially riskier asset portfolio than other types of IRAs. Some self-directed IRA providers that should investigate are UDirect, Rocket Dollar, Equity Trust, IRA Financial, Alto IRA, STRATA Trust Company, and Entrust Group.
A self-directed IRA can invest in assets that go far beyond the traditional stocks, bonds, funds and more that are available at one of the leading online brokerage agencies, and that's the main advantage for investors looking to use a self-directed IRA.