IRS Guidelines

• The IRS allows a variety of investments in a retirement account. These choices include bank accounts, securities, annuities, precious metals, real estate and private stock. For investments such as real estate and private stock, the IRS is very specific that the investor may not have immediate gain from the investment. This means real estate must be for investment purposes only and private stock purchases have many restrictions, particularly if the investor is part owner or on the board of directors. The IRS does not require a custodian to offer every investment allowed in the IRA account.
  
  

Custodian Responsibilities

• The custodian is responsible for maintaining all the IRS and Employee Retirement Income Security Act provisions for the IRA. Think of the IRA custodian as your compliance officer to maintain proper disclosure to the IRS of contributions, withdrawals and helping you maintain the rules in a self-directed IRA. The custodian prepares statements and sends notice when compliance documents need to be met, such as required distributions or annual filings in a real estate IRA. Don't rely on the custodian for investment advice in self-directed IRAs. Speak with a tax adviser or expert in the field if you have questions.
  
  

Misconceptions

• Investors often talk about the "real estate IRA," which is a self-directed IRA. Many investors don't realize the variety of the investments they may choose in a self-directed IRA and can potentially assume that any self-directed IRA is a real estate IRA. This isn't the case.
  
  

Benefits

• Self-directed IRAs allow investors to take advantage of the full spectrum of investment disciplines allowed in IRA accounts by the IRS. This means investors are not locked into equities or bank accounts. Some investors are much more knowledgeable and comfortable with real estate or metals investments. This allows an investor to save toward retirement based on his strengths, not the advice of a market he might not understand.
  
  

Disadvantages

• Some significant disadvantages to a self-directed IRA should be reviewed by the investor prior to rolling or transferring funds into the account. The first disadvantage is the fees associated with these accounts. Annual custodial fees may be significantly higher than general brokerage accounts. Many self-directed IRA accounts only offer the specialized investment or have higher fees to allow several. So you may be limited to real estate in your self-directed IRA rather than being able to have real estate, precious metals, equities and private stock. If your firm allows several investment disciplines, be sure to check what the costs are to perform transactions as they may be higher than normal accounts.