“Alternative assets” is the broader name for the suite of investment opportunities afforded by self-directed IRAs (SDIRAs). These alternative assets include real estate, precious metals, private equity and more. Alternative assets could even be oil rigs, tractors or trees. According to the IRS, alternative assets can be anything except collectibles (wine, stamps, etc.) or life insurance.
The flexibility afforded by alternative assets and SDIRAs allow the IRA holder to choose what types of assets his IRA invests in. People with self-directed IRAs can rely on their own investment expertise, making tax-free or tax-deferred investments in assets they know and understand personally.
Alternative assets can be held in Traditional and Roth IRAs, SEP and SIMPLE IRAs, even Individual 401ks—as long as those accounts are serviced by a SDIRA provider. The truth is any IRA can be self-directed; it’s just that many IRA holders choose an IRA provider that restricts the types of investments it can make.
This new pool of alternative asset opportunities attracts many investors to SDIRAs. For instance, a self-directed IRA with investments in real estate can charge rent to tenants or visitors, let land appreciate in value, rent commercial space to business, fix and flip property and much more (plus, the property can be distributed for personal use after reaching retirement age.) This increases the value of the IRA as all income and payments must only be made to and from the IRA, not the account holder.
This ability to increase the value of your IRA with alternative assets continues to grow in popularity due to market volatility, favorable legislation, tax advantages, disaffection with banks and securities-based IRA and 401(k) providers, and the ability to invest in what you know.
According to IRS rules, investors need a self-directed IRA provider to handle the bookkeeping and administration for the account.