1. What is a Self-Directed IRA?

A Self-Directed IRA or SDIRA is an IRA allows the IRA holder invest in alternative assets other than publicly traded stocks, bonds and mutual funds. They are like any IRA in regards to IRS Publication 590 regarding contributions, distributions, rollovers and transfers. Self-Directed IRA’s are available in Traditional, Roth, Health Savings Accounts, Coverdell Education Accounts, SEP’s and Solo-401K’s.

  1. Is the SDIRA new?

No, they have been around since 1975 when Congress created ERISA laws allowing individuals to save money for their retirement in a tax -preferential way. Congress foresaw the coming end to company pension plans.

Pension providers such as banks, brokerage firms and insurance companies shifted their marketing focus to IRA’s which today represents approximately 98% of IRA’s. A little known IRS code, 4975, is the basis for IRA providers offering SDIRA’s.

  1. What is the difference between an IRA and a SDIRA?

SDIRA’s can invest in almost any asset class other than life insurance, collectibles like art, and S-Corps. Common examples of alternative assets invested by SDIRA’s include private equities and debt, 506-c and p2p loans, real estate, futures and commodities, promissory notes, LLC’s, precious metals, and tax lien certificates.

  1. Why didn’t my broker/attorney/CPA/realtor tell me about a SDIRA?

In all fairness, it is unlikely that they are familiar with SDIRA’s. It is a small industry, representing approximately 1-2% of the $7.3 trillion IRA industry. Every day I explain the mechanics, process and IRS regulations of SDIRA’s to advisers, attorneys and CPA’s.

  1. Why doesn’t my broker offer SDIRA’s?

Traditional brokerage firms do not offer SDIRA’s. Their business model is based upon the annual fees for assets under management, underwriting and trading in the investment products offered. Traditional brokerage firms are bound by the advice they give as it relates to investor suitability, goals and objectives and risk tolerance.

A SDIRA provider basically provides the IRA platform for the IRA holder to invest in; a SDIRA provider does not sell any type of investment offering nor may give any investment advice.

  1. What is involved in investing with a SDIRA?
  • Open a self-directed IRA account – 2-7 days with complete correct paperwork
  • Fund the self-directed IRA account – 2-8 weeks with complete correct paperwork
  • Direct the A/C to make the investment – 3-5 days with complete correct paperwork
  1. What is the opportunity for investors?

Clearly, investors have a choice to diversify their portfolios and invest beyond the often redundant and over-allocated Wall Street world of mutual funds and ETF’s into asset classes more traditional reserved for the wealthy. Real estate is the #1 asset class for wealthy investors, followed by private equity and debt, now available via crowd funding equity (Reg A+) and marketplace lending. The small investor can now take advantage of these returns in a tax-efficient way.

  1. What is the opportunity for investment sponsors and advisors?

The Government Accounting Office recently determined that IRA’s are now the largest class in the $23 Trillion Retirement Industry with $7.3 Trillion, surpassing the 401k market with $6.7 Trillion, with another $324 Billion rolling over annually from 401k’s to IRA’s. This opens up a tremendous market for companies raising equity and debt, and for advisors to gather new assets under management.

  1. What are the drawbacks of SDIRA’s?

The biggest issue is the manual and somewhat cumbersome 3 step process. Investors that may have deadlines or specific time frames to complete a transaction need to be aware of the potential bottlenecks, and have a good educational resource to guide them through the process.

  1. What is the future of the SDIRA industry?

Just as crowdfunding equity and P2P lending platforms have disintermediated banks through technology, there will be Fintech companies that will obsolete the current SDIRA providers and resolve the issues of process, pricing and promotion.


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