What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" IRA)?

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corp_sharecropper
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What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" IRA)?

Post by corp_sharecropper »

I can't envision a scenario where I'd go through the trouble of establishing a self directed IRA but I'm curious about some the assets/investments that are possible and do cause people to have such accounts. Does anyone have some good general (or specific anecdotes) of the sorts of things that would only be possible to hold in a self directed IRA as opposed to regular old Roth/traditional IRA?

Also, am I completely off base in thinking establishing this kind of IRA and managing the investments is a big hassle these days?
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David Jay
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Re: What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" I

Post by David Jay »

My son just bought a home that was a single family rental held in a trust for a self-directed IRA.

Not recommending it, you are not allowed to add value to your IRA by personal labor, so you have to contract everything (even unplugging toilets) to outside contractors. But it is a use for a self-directed IRA.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Ralph Furley
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Re: What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" I

Post by Ralph Furley »

I know a couple who max out their Self Directed SEP IRAs each year and invest the money in apartment buildings. I recall them telling me nearly 10 years ago that when they retire, that IRA will provide over $500,000 in annual cash flow (with additional growth through principal appreciation). The market they were in has exploded since then, so I imagine the number will be even higher. Hard to do that in an IRA with index funds.
xenorg
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Re: What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" I

Post by xenorg »

The bulk of my portfolio is now in Self-Directed IRAs (Roth and Traditional, converted from 401K Rollovers over time). Have transitioned from market over about 7 years, now under 5% portf in stock market - essentially pulled out of over-valued market. Am into direct private equity (not PE funds) from a couple startups (experienced starters with Harvard MBAs) to private pharmaceutical about to IPO to first lien loans in private established smallish companies that are very good at what they do. About 20 active investments now via SD-IRAs, a few past loans have closed with nice returns. It's easier to get into private world when qualified as an 'accredited investor' (such as net worth over $1M excluding home) but some private transactions are possible below that, not possible or more difficult from 'regular' IRA accounts. Got my sister into SD-IRA/private world yet not qualified as accredited investor.

This approach allowed me to retire early 50s a couple years ago (from IT) but not yet drawing from IRAs, still burning cash and have one direct PE cash investment that I'll be selling when able to. The downside to private world is liquidity issues but I don't find it that difficult to manage as I slowly transitioned into it, now have many investments staggered enough to increase chances of enough liquidity events, plus getting far more interest from loans than my expenses, which are re-invested into more loans. Loans are also staggered where principal is probably actively returning from at least one. Also took out a line of credit against condo to manage any future liquidity issues or cash flow issues, haven't used it yet, for emergency use only. Still burning cash but intend to live off the interest from SD-IRA loans after that, reinvest the remaining and then there are the equity investments as icing on top.

BTW, my SD-IRAs are with 'checkbook control', which allows me to simply write checks or wire funds for investment from an LLC biz checking account within the SD-IRA. Interest/dividends also go straight into the LLC checking account. Must be very careful to follow SD-IRA rules or can get into much trouble, IE must not write checks for personal use. SD-IRA custodians sell services to ensure compliance but I avoid most of their services after first year. They may want to get their fingers into managing your IRA, which defeats the purpose of being self-directed.
ensign
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Re: What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" I

Post by ensign »

I’ve had a self-directed IRA with Equity Trust for 12 years. I opened it to buy rental property during the 2008 housing crisis. It’s been good for me. I bought a duplex for just over $200k and rents have yielded 7-8 percent annually (after taxes, insurance and maintenance).

Every few years I transfer most of the cash to my Vanguard IRA and buy VT and VTI.

Despite some here saying self-directed IRAs are a bad idea, it’s worked well for me. Because I paid cash for the property, I am able to adjust rental amounts based on demand and I can be picky about my tenants. My property is worth about $350k now to boot, but I don’t plan to sell it.

But one has to accept the responsibilities of being a landlord. I address problems quickly and keep my tenants satisfied. There are IRS restrictions on what you can and cannot do as an owner of a property in a self-directed IRA but those are manageable.

In summary, I view my self-directed as an annuity that nets about $1,200 a month.
tim1999
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Re: What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" I

Post by tim1999 »

There is an individual in my area who buys/sells vacant land using his self-directed IRA, using a custodian called PENSCO/Pacific Premier Trust.
xenorg
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Re: What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" I

Post by xenorg »

BTW, most SD-IRA custodians will set everything up for you... LLC Articles/EIN with the State, Operating Agreement, etc. but some get too involved. I'm with IRA Financial Trust and they keep raising fees and try to get into managing IRA, through their sister division IRA Financial Group. If doing 'checkbook control', might want to setup your LLC biz checking acct with own bank as the custodian will probably want you to setup with their bank through their service, which means the custodian will monitor every transaction and charge more fees, which isn't necessary even though they imply it is (it isn't). You can also use your own accountant for Transaction Reviewer (IE getting Rollover IRA into SD-IRA LLC checking acct) than pay for their services, some custodians don't require TR. I'm using a different bank and my own CPA who understands SD-IRAs. Once in checking acct, they are no longer involved outside yearly valuations. And valuations need more scrutiny if at point of RMDs. I would recommend them only if willing to go with their services (extra fees) and nanny you through all transactions and willing to let them be involved in every transaction. It's not really as self-directed but would help keep you compliant.
xenorg
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Re: What sorts of assets/investments are on the self directed IRA menu that aren't available otherwise (in a "regular" I

Post by xenorg »

ensign wrote: Fri Jan 22, 2021 8:26 amDespite some here saying self-directed IRAs are a bad idea, it’s worked well for me.
Am somewhat new to this site, what's the position on being a bad idea? Is likely too complicated for avg retail/workplace investors but once reaching $1M net worth in say 401K via DCA approach, it can be a natural next step if wanting to expand into broader opportunities such as real estate and direct private investments, especially in an era of apparently overvalued stock market. $1M net worth outside home is a sweet spot as that qualifies as 'accredited investor', making it easier to get into direct PE/loans (I did this through a pooled group of investors, allowing for smaller investments sometimes well under $100K each). Would suggest slowly transitioning though if planning to put most of portfolio into SD-IRA, I transitioned over about 7 years.
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