Are you looking to diversify your existing retirement investments to hedge risk? Do you wonder what it might take to invest your IRA or old 401k into alternative assets? Many people are surprised to find that their retirement funds can be used to purchase alternative assets. Those who are aware of that option are often unsure about how to get started. Even the term “self directed IRA” can be misleading. For many investors the term signals that alternative assets can be held in that account, but that is not the case with every provider.
Decide Which Assets You Would Like To Invest In
What can you do right now to get the ball rolling? Think about what types of assets you would like your IRA to invest in. The reality is that almost anything you do in your personal life to make money, can be done inside an IRA to build wealth as well, all the while retaining the tax benefits of their retirement account. There are a whole range of reasons why someone would wish to enter into the world of alternative assets. You might be a real estate investor looking to boost your purchasing power using funds from your old 401k, or a long time investor in the stock market looking to diversify your retirement holdings with precious metals or private stock.
Find an IRA Provider That Allows You To Invest In Those Assets
No matter the reason for wanting to make a change in your investment strategy, it is important to find a provider that allows you to invest into the assets that you want. The ability to invest into alternative assets with your retirement account has been available since the creation of IRAs in the 1970s. For a long time, banks and brokerage houses controlled the retirement space with satisfactory returns and national marketing campaigns. With the recent volatility in the stock market, savvy investors have turned to alternative assets to mitigate that risk. Simply being able to chose between the stocks and bonds their advisors offered became to limiting. This shift in sentiment lead to the proliferation in companies that offer true self direction, or the ability to invest in any investment allowed by the IRS. Some of these investments include:
- Physical Real Estate
- Stock in Private Companies
- Secured and Unsecured Loans
- Precious Metals
Not every retirement provider allows access to all of these types of assets, so it is important to do your research and find the company that will afford you the freedom of choice that you need.
Open and Account and Transfer or Roll Over Funds Into That Account
The Bureau of Labor Statistics reports that about half of the people in todays workforce have had jobs with at least four employers. Many of these individuals have old 401k accounts or funds that have since been forgotten or transferred into a rollover IRA. If you fall into this category, you have the unique opportunity to get those funds working for you again. There is a belief that it is difficult or time intensive to move those funds into a new account. The reality is that when you make the decision to use those funds for an alternative investment, your new provider will be there to guide you through the process and minimize the effort that you need to invest. Whether you are rolling funds over, transferring or contributing new funds to a new retirement account, your provider will be able to coordinate the process for you and make it as easy as possible.
Work With Your New Provider To Purchase An Asset
With a self directed retirement account, your provider is responsible for the bookkeeping and reporting for the account (something that is required of all providers by the IRS). Outside of that responsibility, you as the account holder are in charge of picking the investment, and deciding how it is handled during its lifetime. The benefit of using your retirement account to invest into alternative assets is that all of the returns from the investment come back to the account. By using this strategy, you are afforded all of the tax advantages of a typical retirement account, all the while potentially boosting your returns. Your provider should be working closely with you to ensure that all of the correct documentation is in place to retain those benefits.
Plan For Your Financial Future
The purpose of these types of investments is not only to diversify your retirement portfolio, but potentially earn much higher returns. For many individuals, retirement seems like a distant event, but the reality is that some day they will likely be turning to these accounts as a source of income. When the time comes to take a distribution out of a retirement account, the holder has a few options. Any returns that have accumulated in the account could be taken out as income for the account holder. The physical assets themselves could also be distributed. For example, the account holds precious metals, the account holder may remove some of those metals from the account and take personal possession of those assets.
The bottom line is that this is a good time to be an investor. With so many options the decision to make an investment is more involved than ever before, but the tools at your disposal are numerous and the opportunity to take control of your financial future is profound.
Bill Humphrey is the co-founder and CEO of New Direction IRA. A CPA with 20 years of experience, Bill is recognized in the industry as an expert in self-directed IRAs and other tax-advantaged accounts, and the IRS codes pertaining to these investments.