Investing World Today

SelfDirected IRA Advantages and Disadvantages

May 23rd, 2011 Filed under: ira investing — Investing Author

You have all the advantages of traditional IRAs, as well, including tax advantages (more with a Roth IRA than a traditional one) to help your retirement income grow. With self-directed IRAs you can invest in things like rental property and funnel the rental income back into your IRA; your account can grow much faster with this type of investment than the same amount of money invested into any type of bonds, as it might with a regular IRA, for instance.

If you have your self-directed IRA set up like a Limited Liability Company (LLC) you have even more advantages, including what’s called “checkbook control.” You’ll no longer have to get each non-traditional investment approved by the custodian of your account. Instead, all decisions are truly yours. Another advantage to an LLC-structured account is that you can save a lot of money on custodian fees.

Self-directed IRAs do have some disadvantages, though. If you want to invest in real estate but really don’t know anything about real estate, don’t start with your self-directed IRA. Do plenty of homework first and make sure you really understand the market. Because you have control over your investments, if you make poor ones and lose money from your IRA, you have no recourse and no one to blame. Any investments you make could be bad ones, and your money can grow or shrink according to the markets.

Real estate investors who choose to purchase rental property with their self-directed IRAs also have the added responsibilities that come with being a landlord; renting the property, maintaining it, etc. Some people aren’t prepared for all the things that go along with owning rental property.

Also, if you choose to sell real estate you’ve invested in, it may not sell exactly when you want it to. Money tied up in real estate is money that’s not available for other investments. So if you want to liquidate some real estate to invest elsewhere, you could have quite a wait before the real estate sells, which could be too long if the investment you were considering was time-sensitive.

There are many rules and codes you are responsible for learning, understanding and following when you open a self-directed IRA. If you don’t fully understand each transaction and how it fits into the IRS’ code regarding the accounts, you could end up with problems.

Investing in any property that you want to use, for instance, is prohibited. And there are strict rules regarding which family members you can and cannot finance loans for, or whom you cannot allow to use, rent or purchase any property you’ve invested in.

The disadvantages in owning a self directed IRA can be overcome, though, by your willingness to learn the rules and understand your responsibilities.

To learn more about Self Directed IRA’s or find some great investment opportunities
stop by http://www.selfdirectirainfo.com