Self Directed IRA

A self directed IRA account is for investors who are familiar with high-yield trading and don't mind making monetary decisions. Not many people travel by bus these days, but an old bus company advertising slogan used to suggest to travelers to, "Leave the driving to us." But an investor who holds a self directed IRA account wants to take the steering wheel when it comes to making investment decisions. Some investors have been trading on the stock market for several years and know the ropes of smart investing. Others feel more comfortable self-managing retirement monies and taking a hands-on approach when it comes to researching and making wise choices. Even though traders may consult investment bankers or stock advisors, some still enjoy the challenge of steering the bus and mapping out the directions assets will take. Self-managers are independent thinkers not afraid to gamble on new ventures, yet savvy enough to know when to hold em, fold em and when to walk away.

An Individual Retirement Account (IRA) is a tax-deferred savings plan designed to allow taxpayers to avoid paying income tax on contributions deposited into retirement each year. Tax-free contributions are also tax deductible, but account holders must comply with age and limits imposed by the IRS. Individuals under the age of 70 during the same year as contributions will be made are eligible to participate. Prior to 2002, contributions were limited to just $2,000 annually. From 2008 to 2010, limits for individuals under 50 years of age reached a maximum of $5,000 per year. Contributors aged 50 and up can deposit a maximum of $6,000 annually during the same time frame. But anyone wanting to invest needs to hurry; limits will once again cap at $2,000 in 2011. Single and married participants should take advantage of the higher standard contribution limits for larger account balances due to greater accumulated earnings. Participants may consult with bankers to determine potential earnings resulting from the 3-year contribution increase.

Deposits held in trust can be invested for greater earnings and to allow investors to build diverse portfolios, or a collection of hopefully, profitable ventures. In a traditional IRA, investment decisions are made by a qualified trustee who holds and manages retirement assets. But a self directed IRA account allows owners to decide on which investments are made. The Internal Revenue Service (IRS) mandates that IRAs be held by a self directed IRA custodian. The custodian safeguards the investors retirement funds by providing guidance and professional advice; managing assets under the direction of the owner; filing reports in compliance with IRS regulations; issuing statements of net gains and losses; and recording all transactions pertaining to the IRA. The self directed IRA custodian uses wisdom and discretion in governing the owner's affairs. Just as Pharaoh placed the administration of his household in Joseph's hands, so does the account holder place confidence and trust in the custodian. (Gen. 41:39-40): "And Pharaoh said unto Joseph, Forasmuch as God hath shewed thee all this, there is none so discreet and wise as thou art: Thou shalt be over my house, and according unto thy word shall all my people be ruled: only in the throne will I be greater than thou."

Custodians are like talent agents: an actress may have a pretty face and lots of skill, but she needs a seasoned professional to help her take advantage of every opportunity. The self directed IRA custodian can avail account holders of good opportunities to make prudent and timely investments, diversify portfolios, and manage assets to ensure a lucrative retirement. A traditional IRA is limited as to the type of investments that can be made, primarily mutual funds, stocks and bonds. But, there is virtually no end to the variety of investitures available for self directed IRA account holders. Portfolios may not only contain mutual funds, stocks and bonds; but domestic and foreign real estate holdings, franchises and partnerships, publicly and privately held corporations, private limited liability companies, secured and unsecured notes, tax liens, and mortgages. While almost an infinite number of choices exist, the federal government prohibits certain types. For instance, owners who invest in real estate are prohibited from employing the property for personal use or benefiting personally. In addition, assets withdrawn before contributors reach the age of 59 1/2 are subject to a 10% penalty for early withdrawal. The self directed IRA custodian is there to clarify IRS regulations and requirements and keep owners abreast of legislation and guidelines affecting retirement plans and investments.

Stock market novices or seasoned traders can set up a self directed IRA account by first consulting a financial advisor or logging onto the Internet to get familiar with the basics of stock purchasing. Potential participants should determine contribution limits based on age, income and marital status. The next step is to investigate the myriad of investment choices and select several that have a low level of risk and a track record of good returns. A self directed IRA custodian, investment banker, or financial planner can offer expert advice. Publicly traded stocks are safe investments for novice investors because information about the company is usually available online and in the public domain. The Internet is an investor's best friend: log onto NASDAQ Stock Market and NYSE Group web sites to find out about potential investment opportunities and whether selected stocks are performing favorably. Browsing corporate home pages will also give added insight into management, profitability, and longevity of ventures which may interest the investors.