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November 11, 2014 at 12:00 am

Changing the Status Quo of Investing with a Self Directed Retirement Account (SDRA)

Bachelder, along with Jean McDevitt of Baker Newman Noyes recently joined MEREDA members for breakfast to co-present on ways to protect your property through estate & retirement planning. Read on to learn more about self-directed retirement accounts.  In a future article, Jean McDevitt will provide an overview of avoiding potential pitfalls at the intersection of income and estate tax.  

Did you know

In 1974 the IRA was designed to be a self-directed retirement plan that provides tax deferred growth and was intended to provide the freedom to invest in an abundance of assets.  But somewhere along the way, one of the most important concepts of owning an IRA was lost, the concept of self direction and investing in assets that best suit investor. Many investors have been falsely misled to believe that the stock market is not only the best place but the only place to invest retirement money. There are many different permissible investments, investments beyond the traditional stock market which may suit different investors.  Investments such as: Real Estate, Tax Lien, Mortgage Note, Sports Teams, Businesses, Livestock, Private lending, Assets you know and understand.

The majority of qualified retirement plans can be self directed into non-traditional investments.  Plans such as Traditional and Roth IRA, Simple IRA, SEP IRA, and employer sponsored plans such as 401k and 403b. Hence the term Self Directed Retirement Account as they encompass more than just an IRA. 

The rules and regulations pertaining to each specific type of plan holds true even when invested in non-traditional investments.  Such rules as contribution limits, tax deferral, distributions, income and expenses related to the investment.  The key differential factor in self directed retirement accounts invested in non-traditional assets is the custodian.  A custodian needs to allow for and administer non traditional investments with in a qualified plan.

Self Directed doesn’t have to mean Self Supporting

The best chance of succeeding with a SDRA and non-traditional investments is to work with professionals that are knowledgeable, specialize in the SDRA industry and take the extra steps in making sure that the investment through the SDRA is in compliance with the rules and regulations put forth in the IRS Tax Code.

 Things to consider when investing with a self directed retirement account
· Understanding the Investment
· Understanding IRS Code Section 4975 Prohibited Transactions
· Structure of the Investment
· Transaction Oversight
· Fiduciary  Oversight
· Identify the risks of the investment
· Financial and reporting requirements
· Ongoing monitoring of the investment
· Exit Strategy
· Custodian/Third Party service provider Evaluation

The Reality

Many investors have seen significant fluctuations in the stock market. Couple that with the unstable economy and the lack of consumer confidence in corporate America, investors are actively looking for ways to diversify their retirement accounts in investments outside the traditional stock market.

Self directed retirement accounts can provide far greater diversification then allowed with traditional accounts, allow investors to invest in what they know and understand, all with the potential of tax-deferred compound growth.

Self directed retirement accounts allow investors more options, more control and more diversity. As long as the asset purchased is for investment purposes only and does not create a prohibited transaction, the opportunities and the list of non-traditional investments are virtually endless.

Laurie Bachelder is the principal of Freedom Wealth Advisors, an independent Registered Investment Advisory firm that provides objective advice on a breadth of investments opportunities, not just those in the traditional markets.  Freedom Wealth Advisors understands the importance of non-traditional asset classes such as real estate for a client’s portfolio. Reach Laurie at laurie@freedom-wealth-advisors.com or visit their website at  www.freedom-wealth-advisors.com

Disclosure: This is not an offer to solicit nor is it an offer for a security. There is risk associated with all investments, both traditional and non-traditional. Not all investments are for all investors, and appropriate portfolio planning for all investments, whether traditional or non-traditional is required prior to making any investments. 

This information is being provided for educational purposes only and is not an offer to solicit.

Categories: Maine Real Estate Insider