The words “Self Directed IRA” to me has many different meanings. On a purely Functional level Self Directed means that after you have identified and done your due diligence for an investment. You “Direct” your IRA custodian to send money or “buy” it from person X. Most often using an Escrow company or something like it. Then in return you get the Documents and either wait for appreciation as in the case for a stock or get monthly payments in the case of a Note or Loan.
Another meaning for “Self Directed IRA” would be that you have the Choice of the types of things you can invest your money in. As long as it’s not a
Prohibited Investment or
Investment in Collectibles like these:
- Artworks
- Rugs
- Antiques
- Metals
- Gems
- Stamps
- Coins
- Alcoholic beverages
- Certain other tangible personal property
You can invest in it. The pool of available investment options just became almost limitless, but most definitely larger than stocks, bonds, mutual funds, stock options, etc. The best part is that you can use your own creativity to find things that you already know about to invest in your retirement. I’ll bet that some of those ideas could be pretty cheap to start with and even if you only had $4,000.00 or less to start with you get started right away.
“Self Directed IRA” can also mean Freedom. Not only is it the Freedom of choice as I mentioned just above but also it could mean freedom from fees or at least making sure the fees you are charged are less than traditional investment options. For me one of the biggest draws was reducing management fees to a yearly fee based on the amount in my account and ultimately capped at what I think is reasonable. No more 1-2% per year plus transaction based fees, etc. This is not the biggest cost but every little thing helps and I want IRA funds compounding tax free as much as possible. If I can save a little now and put it to work at a good interest rate, like 10-12% or more, I know I’m getting ahead.
Another way this is Freedom is of course at the end when you’re in harvest phase. The work now will be Freedom later. Compared with just a Savings account below, see what $4,000.00 IRA could be if you added that much to it every year for 35 years. I’ll let you figure out how much $4,000.00 is per month or even daily.
| Savings |
0.0% |
$8,000.00 |
$44,000.00 |
$84,000.00 |
$124,000.00 |
$144,000.00 |
| SDIRA |
10.0% |
$8,800.00 |
$80,499.64 |
$278,920.00 |
$793,571.31 |
$1,304,916.97 |
| SDIRA |
12.0% |
$8,960.00 |
$91,041.73 |
$361,380.11 |
$1,201,010.11 |
$2,145,050.94 |
Lastly, “Self Directed” to me means, that after doing all the diligence in looking at an investment and making sure that it’s good for me, that I reap the rewards of it. I’m responsible for it and I also get the benefits of that work.
The Yield, on the type of investments I have in my Self Diredcted IRA, above 15% are common and it can be even more.
Will
