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Tips for Dealing with a Self-Directed IRA

A Self-Directed IRA can be a great vehicle to increase your earnings for your IRA investments. However, there are a few things to consider.

The basics of a self directed IRA are you set-up a custodian to hold your IRA assets, but unlike IRAs held by traditional brokers, you make the decisions as to what the assets are. You arrange for the transfers, the custodian just acts as an umbrella for reporting and tax purposes. The custodian does not do much in the way of policing your IRA so you need to make sure you are following the proper guidelines. Unfortunately, I can't give any recommendations, because we have only dealt with a few over the years and for only a few limited transactions. The custodian usually charges a small fee because of the record keeping they have to do and may charge additional fees depending on the vehicles you are using.

There are three main limits on what your may invest your funds into. First, you may not invest the funds into life insurance contracts. Secondly, you may not invest into collectibles such as fine art, coins, etc. Finally, you may not do a "prohibited transaction" with a "disqualified person". Of course, you ask, what is prohibited and who is disqualified? I'm so glad you asked. Here are some examples of "prohibited transactions": Borrowing money from the IRA, Selling property to the IRA, Receiving unreasonable compensation for managing it, Using it as security for a loan, Buying property for personal use (present or future) with IRA funds. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). A good rule of thumb is investments that are made, must be made for the sole benefit of the IRA. So, you can't borrow money from your IRA even if your promise to pay a 25% return. Or You can't go buy a vacation home for your personal use and sell it to your IRA. It is best to have a professional help you decide whether you will run afoul of the rule or not. However, since Self Directed IRAs are supposed to help you save money, it may be best to just not engage in gray area investments.

When done properly, self-directed IRAs can hold some very creative assets. Of course, you are making the decisions so you can hold gold (or other minerals and precious metals), real estate, stocks, bonds, etc. The fact is you are in charge. Of course your self-directed IRA can hold CDs. And we can help with that.

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Chris Duncan is a FINRA Registered Representative. He works for Jumbo CD Investments, Inc., a leading CD placement and research firm.  He specializes in helping clients find the  best CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies. Visit us for Best IRA CD Rates.