Is Your Self-Directed IRA Working Hard Enough?

Financial Freedom
Sam Henry

Most working professionals understand the importance of saving for retirement, and have one type of retirement account or another. Yet, there is a common misconception that setting up the account and making regular contributions is all it takes to prepare for your golden years.

Most retirement account investors never venture beyond stocks, ETFs, and bonds. When you rely solely on these paper assets, you are essentially entrusting Wall Street to build your nest egg.

Self-directed retirement accounts, however, allow a lot more investment flexibility and potential for sizable returns.

As a matter of fact, self-directed IRAs give you the freedom to invest in a number of alternative investments including real estate, tax liens, precious metals, businesses, cryptocurrencies, and more. The IRS guidelines only prohibit a few specific types of investments. The only other limitations are those that your IRA custodian imposes.

Some of these alternative investment options are riskier than others but have the potential to  deliver much higher returns. It’s important to select investments that fit your risk tolerance profile. Real estate in particular has proven to be one of the most attractive investment options for several reasons. It balances the potential for high returns with many ways to mitigate risks.

Why Invest Your Self-Directed IRA Funds in Real Estate?

- Higher return on investment (ROI): Real estate can generate both capital gains and a recurring passive income stream. Since all earnings are going back into the retirement account, they can be reinvested in another real estate deal, thus creating the opportunity to achieve  an even greater ROI.

- Tax breaks: Contributions and rental income, which can be pretty substantial with the right real estate asset, grow tax-free in an IRA. If you have a Roth IRA, qualified distributions after retirement are also tax-free.

- Hedge against inflation and market volatility: Regardless of temporary ups and downs, both residential and commercial properties tend to increase in value overtime. For example, housing values in Florida have increased by approximately 243% over the last 30 years as per the Federal Housing Finance Agency’s HPI Calculator. Investment properties can also be renovated or improved to create  forced appreciation.

- Diversification of assets: You can choose to invest in any type of real estate including single family homes, duplexes, apartment syndications, commercial buildings, land, and even loan money to others for their real estate projects. You can invest in any market across the United States and even internationally.

The ultimate purpose of your self-directed IRA is to not only set money aside for retirement, but to work hard on your behalf to grow that money as effectively as possible in the meantime. With proper due diligence and advice from your trusted financial professionals, investing in real estate can provide for a very comfortable retirement.

Retirement Jar photo by freepik