As someone who regularly structures truly self directed Individual Retirement Accounts for clients, I find that there are a lot of misconceptions about them in general and truly self directed plans in particular. Consequently, I thought it might be a good idea to generally discuss some of the misconceptions related to these specializesd options based on recent feedback we have received.
Is An Individual Retirement Arrangement An Investment?
An Individual Retirement Arrangement, is a financial instrument that allows you to create a temporary tax-deferred shelter. It is not an investment in and of itself. It is just a investment vehicle you can use to hold your investment portfolio and build your retirement funds.
Who Manages A Qualified Retirement Account?
All types of retirement accounts will require an administrator, who is referred to as a custodian. However, if you have a truly self directed account, you are in charge of your own investments. You will not have to deal with the constant intervention of the custodian for each and every transaction within the account. Learn the benefits of having a truly self directed arrangement.
What Kind of Retirement Arrangements Are There?
There are three basic varieties of Individual Retirement Plans:
• A standard arrangement, which does not allow for alternative assets such as individual real estate investments, residential or commercial properties or tax liens.
• A self directed type, which has many of the features associated with a standard account, but also allows for a broader range of investments, including individual real estate investments and precious metals like gold and silver bullion.
• A truly self directed Individual Retirement Account, which gives you complete checkbook control and allows you to invest in a broad range of investments like, real estate, oil and gas, and investing in private businesses. Although, you don’t need to rely on your custodian to make investments, you are still required to report what assets exist within your account at least once a year.
The purpose of this is to ensure that you stay within the rules of the account as stipulated by the IRS. There is sometimes confusion between a self directed retirement and a truly self directed account. One way to distinguish between them is to understand whether the program set up allows you to write a check for or wire your funds from your bank account to buy an investment is truly self directed one. In other words, this particular type of retirement system gives you checkbook control of your investments. This particular type of structured account is also known by other names like checkbook control, checkbook plan, or self directed retirement LLC.
Does Having a Individual Retirement Arrangement LLC Allow Me To Be My Own Custodian?
Although, you will be set up to have full checkbook writing privileges within your retirement LLC, this does not make you a custodian for the account. The custodian is required and they are allowed to establish your savings account and administer the account in compliance with the IRS code.
With A Self Directed Retirement Arrangement, A Custodian Is Not To Be Confused With A Financial Advisor?
Although in a standard self directed account (meaning one you are not truly self directed), the custodian can buy assets and wire funds at the specific direction of the plan holder and even take title to a property for the benefit of you, the retirement account holder, however, the custodian is not akin to a financial advisor and nor are they allowed to advise you or speculate, which assets will provide the best returns for your account. They are to remain objective 3rd parties to your self managed investment portfolio. They can; however, work with you to help you ensure, although this is not 100% guaranteed, that you are not making a prohibitive transaction and breaking the account rules within your account. They can’t foresee and they don’t have the responsibility, or the manpower I might add to evaluate whether you are making a good investment or one that will be profitable. This highlights again the simplicity of the truly self directed account. With this type of account, there is not any confusion as to who is calling the shots in the account — that person is you.