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What is a Self-Directed IRA?

Self-Directed IRA is a broad term with many applications depending on the context.  The term “self-directed” simply means that you as the account holder choose the investments, as opposed to having someone else act as an investment advisor.  There are many different types of self-directed IRA.

Self-Directed: Stock Market Only

Of the more than $5 trillion in retirement plans, 95% is invested into the stock, bond, and mutual fund markets through large institutional brokerages or banks.

Some of the accounts offered by these firms are characterized as “self directed”, meaning that you as the investor can take action to move funds around within stocks, bonds and mutual funds only.  The custodian carries out the transaction and you pay fees.

Self-Directed: Non-Traditional Custodian

Then, there’s a subset of “self-directed” IRA plans whereby you can expand your choices and invest into non-traditional assets like real estate, private company stock, cryptocurrencies, precious metals, etc.  There are several dozen specialty custodial firms that administer an IRA in the same fashion as the mainstream institutions, but have the ability to document the more individualized transactions that non-traditional investment assets require.

In the case of these “non-traditional” custodians, the term “self-directed” applies in the same sense it does with the stock market custodians – in that you will identify opportunities and direct the custodian to execute the transaction.  The custodian then carries out your direction by executing documents, issuing funds for the acquisition or maintenance of investments, and receiving the income produced by investments.  They handle the transactions for you and charge fees to do so.

Self-Directed: Checkbook Control

Then, comes the most flexible option – checkbook control.  Safeguard Advisors sets up a legal structure in the form of either an IRA-owned LLC or Solo 401(k) trust for which you will have signing authority.  This structure remains under the necessary umbrella of the retirement plan, but puts you directly in control of plan investments – both with respect to choice and to execution.

The retirement plan entity will operate from a checking account you choose at favorite bank or credit union.  You can then execute transactions simply by signing a contract and writing a check or issuing a wire.  You entirely control the process and all but eliminate custodial paperwork, processing delays and per-transaction fees (annual fees still apply).

You can see an illustration of this by going to this link: Custodian vs Checkbook Control.

Same Tax-Sheltered Status – More Choices

A truly self-directed IRA or Solo 401(k) is capable of investing in both conventional financial products and non-traditional assets.   The business model of investing is all that really changes.  The underlying IRA or 401(k) plan is still going to have the exact same IRS mandated retirement plan benefits of a conventional, more limited plan.  All activities of the plan are tax-sheltered, and plan features like contribution limits, age thresholds for distribution, beneficiary designations and the like are the same.

This Isn’t A New Concept

What Safeguard offers as a service has been done for high net worth clients ever since the Employee Retirement Income Security Act of 1974 (ERISA) was passed by Congress.

As a matter of fact, our tax attorney, has been setting up plans with checkbook control for more than 20 years. So, this strategy isn’t new. It’s just not been well known.

But, since the early 2000’s and the advent of high speed internet as a means to deliver knowledge-based services, the playing field has been leveled and this strategy, formally reserved for the wealthy, is now yours for the taking. Contact us today to get started.