Traditionally, standard IRAs do not allow for much flexibility and typically only provide the investor with a limited selection of options such as mutual funds, stocks or bonds. Therefore, up to this point investing your retirement has been conventionally restrictive and traditionally outsourced to your investment advisor. However, as people have become savvier and more involved with their IRA investing, we are now seeing many IRA holders converting to self directed IRAs. Self directed IRA investing is becoming more and more popular since these alternative IRA arrangements offer investors greater investment choices.

What is a Self Directed IRA?

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Before discussing the various investment options available through a self directed IRA, we must understand exactly what one is. A self directed IRA is a different type of IRA account that is, you guessed it, “self directed”. This means that typically the owner of the IRA will make the investment decisions themselves, although it is possible to enlist the help of a financial advisor. Even if you decide not to hire a financial advisor, it is still required that a qualified custodian or trustee holds the account for you. In most other ways, self directed IRAs are similar to standard IRAs in that the same contribution limits for traditional IRAs apply to self directed IRAs and they both get their funds from 401k rollovers or IRA transfers. However, where they differ tremendously is in the amount of investment options available.

Real Estate Investment Options

One of the more common options that people invest in through self directed IRAs is real estate. There are a number of different ways to invest in real estate with a self directed IRA.

One option is to invest directly into real estate such as rental properties or commercial buildings and then collect rent. Another choice is to invest in trust deeds or mortgage notes, which offers the IRA account holder the security of placing the deed to a property into the IRA. In the event the borrower defaults, the IRA account claims ownership of the property after foreclosure and you can make some or all of your investment back by having your IRA selling the property.

Precious Metals

Another investment option available through self directed accounts is precious metals. Owners of self directed IRAs often invest in precious metals to round out and truly diversify their asset portfolio. Owners of self directed IRAs can invest in a wide array of precious metals including gold, silver, platinum and palladium.

LLCs and Private Businesses

Similar to real estate, owners of a self directed IRA can invest in LLCs and private businesses. Banks are becoming more and more restrictive due to changes in the lending laws, which are causing more and more businesses to look for private investors. Through self directed IRAs, you can invest and purchase interest in these businesses at the ground level.

Alternative Self Directed IRA Investment Options

Along with the aforementioned options, there are also a number of alternative investment options that are lesser known, but might fit your approach. Some examples of these include natural gas, storage unit investments, currency exchanges, investing in ATMs, etc. As you can see, the list of possible investments is quite extensive and there are only a few restrictions.

Prohibited types of investments include collectibles; such as artwork, gems, and antiques, as well as life insurance and alcoholic beverages. It is always a good idea to speak with an attorney or a financial advisor before making an investment to help protect yourself from either a bad investment or possible IRA penalties that may result from a prohibited transaction.

Self directed IRAs offer investors a much wider range of options than standard IRAs. While there is always risk associated with any investment you make, the vast array of options available through self directed IRAs make it possible to diversify and mitigate risks. As our economy continues to struggle, people are searching for new and alternative ways to invest their money. Self directed IRAs provide individuals the option to select from a larger variety of investment options. Could a self directed IRA be in your future?

Joshua Geary is an experienced blogger and financial writer. He currently writes on behalf of self directed IRA custodian, Sunwest Trust. While he enjoys reading, blogging and swimming, he truly enjoys the time he gets to spend with his wife and two dogs.

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