Self-Directed IRA Investment Options
What are Alternative Investments?
Alternative investments are financial assets that lie outside the realm of traditional investment categories like public stocks, bonds, and mutual funds. Alternative investments — such as real estate, private equity, private debt, LLCs, precious metals, and more — provide greater freedom and diversification for your retirement planning.
With a Self-Directed IRA, you can explore a variety of investment options. Traditional IRA custodians may suggest or endorse specific investments, while Self-Directed IRA custodians don’t offer investment advice. Instead, you have the freedom to select and pursue investment opportunities that align with your personal goals or interests.
Types of Alternative Investments
LLC/LP: Invest as a member or partner in a Limited Liability Company or Limited Partnership. As the company grows, so does your nest egg.
Real estate: Rental properties, fix and flip, commercial properties, raw land, Real Estate Investment Trusts (REITs), etc. See more about real estate below.
Private Placements: Private placements are an investment vehicle often used by sophisticated investors to diversify their portfolio and earn higher returns. Private placements often include private debt offerings, equity offerings, and more.
Private debt/notes: Earn interest just like a bank in the form of a construction loan, note and deed of trust, straight loan, etc. Investing in private debt involves lending capital to individuals or businesses in exchange for interest payments over a specified term. Self-Directed IRAs allow investors to participate in peer-to-peer lending platforms, private notes, private mortgages, and other debt instruments. Private debt investments can provide regular income streams and diversify risk exposure.
Private stock: Get in on the ground floor of the next big startup company before it goes public.
Precious metals: Metals — such as gold, silver, platinum, palladium and some coins — are a timeless tangible asset that often serve as a hedge against inflation. You are required to store physical precious metals in a secure facility called a depository.
Cryptocurrency/bitcoin: As of 2024, there are only a few custodians who specialize in holding crypto. Be sure you choose a Self-Directed IRA custodian that can hold your intended investment before opening an account.
Others: There are countless other ways to structure an investment, including Private Placements, tax liens, intellectual property, oil/gas drilling projects, and many more.
Real Estate as an Alternative Investment
Direct real estate ownership is undoubtedly the trickiest asset to invest in using your IRA, as additional rules and limitations must be considered. The most significant hurdle is that you cannot personally guarantee a loan when IRA funds are involved in the purchase. If a loan is needed for the purchase and involves any IRA funds, the loan must be a “non-recourse” loan — a specialized loan with higher rates and more restrictions than a conventional mortgage loan.
Obtaining a non-recourse loan becomes more complex because of Unrelated Debt-Financed Income (UDFI), an additional tax designed to prevent tax-advantaged entities from gaining an advantage over taxable entities. It’s important to carefully consider the potential UDFI implications when investing in real estate using borrowed funds within an IRA. Savvy investors will bring in additional co-investor(s) to avoid a non-recourse loan/UDFI tax, which can be the IRA owner as an individual.
The golden rule applies to real estate: an investment made in an IRA cannot benefit the IRA owner, or any “disqualified individuals.” This means the IRA owner and disqualified individuals can never use the property for personal use, with no exceptions. Family members who are lineal ascendants and descendants are disqualified, so you can rent out the property to a sibling, aunt, uncle, cousin, or friend.
How Can I Get Help With Alternative Investments?
Alternative investments through a Self-Directed IRA may be a sound option if you are seeking more freedom and diversification in your retirement planning. Before selecting a Self-Directed IRA custodian, do your research and decide exactly what you intend to invest in. Once you have decided on your specific alternative investment, you can open and fund your new account with a custodian.
Investment documents must use the IRA title as the investor/buyer, not the IRA owner as an individual. The custodian will carefully review the investment documents and confirm the investment is allowable. If approved, they can purchase the investment on behalf of your IRA.
Stadia allows SDIRAs and works with self-directed IRA custodians who specialize in administrating these types of complex assets within IRS compliance laws. Let us help you ensure your financial security today!
Stadia Capital Group is a unique firm focused on the needs of our clients. Our mission is to provide capital preservation, reliable monthly income, and conservative growth opportunities, while providing protection from market volatility. Call 800.893.6184 or contact us to learn more today.