What is a Self-Directed IRA?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 16 October 2018
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In a time when individual retirement accounts have become commonplace, the self-directed IRA has gained a lot of attention. The self-directed IRA is simply an individuation retirement account that is managed and directed by the account owner, rather than placing full direction in the hands of a third party. Here is some information on how a self-directed IRA works, and why it may be the best option.

Government regulations require that a custodian or trustee hold the assets associated with the retirement program on behalf of the account owner. This is true for any type of retirement account, whether the structure is self-directed or not. In most cases, this also means that the trustee or custodian will handle the transactions involved with managing the plan, as well as make decisions on how to invest the funds so the account balance can grow. The trustee is usually a bank or some other type of financial institution. In general, the account owner simply makes the deposits into the account and leaves the rest of the management process to the custodian.


However, a self-directed IRA functions a little differently. While there is still the need for a custodian to hold the assets, the account owner who opts for a self-directed IRA will be much more involved in determining what is done with the assets that are connected to the account. For instance, the account owner will have the final say on the buying and selling of any stocks or bonds associated with the self-directed IRA. Contributions are made at the discretion of the account owner. With a self-directed IRA, the account owner is responsible for working with the custodian to determine what needs to be done to maximize the growth potential for the plan, rather than expecting the custodian to handle everything associated with the account.

One of the key advantages of the self-directed IRA is that the account owner is directly involved in making the account grow. For persons who possess a great deal of financial ability, self-directed IRAs are an excellent vehicle for increasing the overall net worth of the retirement strategy. Anyone who prefers to have hands on approach to saving for retirement and who has the ability to make competent decisions about the assets will find that this sort of program is both financially and personally satisfying. At the same time, persons who are more comfortable with having professionals handle the growth of their IRA can opt for a more standard structure, and simply make contributions to the account on a regular basis. While self-directed IRAs are not for everyone, they are certainly worth considering.



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