The self-directed IRA has been allowing retirement savers to invest in alternative assets since 1997 when Congress lifted diversification restrictions.
While there are still restrictions on some types of investment vehicles, the Taxpayer Relief Act of 1997 opened the door to a whole new world of retirement investing, like gold, real estate, and now crypto. So how do investors take advantage of this opportunity now to put alternative assets in their IRAs, and what does that look like?
Opening a Self-Directed IRA
The first step to tax-advantaged alternative investing is to open a self-directed IRA. The process can be as easy as opening an individual retirement account (IRA).
First, investors should find a custodian, like Digital Trust, to hold the assets and ensure that IRA rules are followed. Next, they can roll other retirement accounts into the new IRA or use newly contributed funds.
Once the self-directed IRA is opened and the funding process is complete, investors can choose from a variety of investment options — like gold, real estate, LLCs, private equity and cryptocurrency — to add to their new IRA.
Precious Metals in Your Self-Directed IRA
Some experts suggest investing about 5-10% of an IRA in precious metals. Like some stocks, gold and silver prices tend to increase over time, but they can be volatile.
Gold and silver can be considered safe-haven investments, as they often increase in value when investors sense trouble in other markets. The primary rules around precious metals are that the IRS requires them to meet certain standards and they must be stored at a depository (not in your home). For example, to hold gold, it needs to be 99.5% pure, or 99.9% for silver. Meanwhile, some products like American Eagle coins are not as pure but are still considered acceptable investments.
Real Estate as a Retirement Investment
Real estate can be a viable investment vehicle in a self-directed IRA because of the potential tax benefits. Investors should keep in mind real estate is often a larger investment, so it may take up a more significant portion of an IRA than a precious metals investment.
This category has a few rules to remember compared to other types, too. One rule that easily trips up most people up is self-dealing. Self-dealing occurs when IRA owners make investments or loans that benefit themselves or family members.
One example of this includes self-funding the down payment for a property. A buyer will need their custodian to take care of all transactions surrounding the property. Another example comprises directly renting space to family members for specific purposes.
If you decide to put a rental property or other types of property into an IRA, consider consulting with someone knowledgeable about the rules and regulations behind what can be done with the property.
Cryptocurrencies as a Retirement Investment
Cryptocurrencies are a relatively new asset class and are becoming increasingly popular as retirement investments. Generally, investing in crypto for retirement is easier with a custodian that offers crypto trading, like Digital Trust.
When a custodian does not offer crypto trading, the self-directed IRA owner will likely need to open an LLC to make trades. Using a custodian that offers crypto trading eliminates this step, making it a less expensive endeavor.
Cryptocurrency investments in your IRA are similar to investing in stocks or precious metals as far as risk and suggested allocation size. But on the other hand, crypto can be a great way to add to your diversification strategy.
Why Digital Trust?
Digital Trust offers a variety of retirement account options, including traditional, Roth, SEP, SIMPLE and Solo 401(k)s. Our platform offers investors the ability to invest in a wide variety of alternative investment options for self-directed retirement accounts, including real estate, stocks, mutual funds and cryptocurrencies. Digital Trust is the one-stop-shop that gives self-directed and professional investors endless opportunities.
