The Pros And Cons To Self-Directed IRA Investing

When it comes to working on your retirement investment portfolio, it’s easy to get lost in all of the difference investing options that are out there. For example do you go with mutual funds or annuities? Do you enlist the help of a stockbroker to help you play the stock market? Do you try to take on options trading? All of it can seem quite overwhelming, especially if you aren’t too familiar with how the investing world works. However, in this article we will focus on one type of investing, specifically self-directed IRAs. And we will show you the pros and cons to this method of investment.

The first pro to self-directed IRA investments can either be tax-free or tax-deferred. Whichever you decide upon, both can be pretty good. The most traditional type of an IRA account is tax-deferred. Meaning you’re putting the money in, and it will grow tax-deferred. However, when it’s withdrawn taxes are now due. Thus, you are paying tax on the crop.

With a less traditional Roth IRA account, your contributions are made with after-tax money. Meaning your account will now be able to grow tax-free. Furthermore, there are no taxes due upon withdrawal, and there’s no required age to start taking withdrawals. Thus, you are paying tax on the seed.

The second pro is that it is a safe and sheltered vehicle. Meaning self-directed IRAs are fairly safe vehicles in regards to things like creditors or judgments. In fact, insurance contracts and IRA accounts have some of the safest buckets where you can set money aside to be protected in an environment that is usually immune to things like bankruptcy, depending on your state. Also it is very difficult to sue an IRA account since it technically the trust account.


The third pro is that you control your own investment. Sometimes this can be looked upon as a negative thing, especially if you’re not one to want to put a ton of time or effort into your investments. By if you’re knowledgeable with what you’re investing in, active, disciplined, and responsible you can find that this would be an extremely profitable wealth-building tool. Plus, with self-directed IRAs you don’t have to limit yourself to traditional investments offered by your brokerage firm. Meaning, you can invest in many different alternative assets such as real estate, gold and silver, mortgage notes, private placements, commodities, tax liens, hedge funds, oil, gas, mineral, lumber, etc. In fact, aside from a few transactions that are prohibited by the IRS and the U.S. Treasure Department, you have almost unlimited access to all investment opportunities.

Just like with anything there are also a few cons to self-directed IRA investments. The first one is fees and paperwork. While there can be a lot of paperwork, there really aren’t any true performance fees, and if you’re an active investor, they can be somewhat nominal. Usually the fees are based upon the number of investments or the total value of the account.

Blurred business success

The second con is that IRAs tend to be heavily regulated and can be very complicated. (Any retirement account for that matter has a tendency to be heavily regulated.) And there are so many rules and so much paperwork, at times it can seem overwhelming to some. Of course all of this is meant to keep you in check so you aren’t running a full-blown business from an IRA account. Because believe us when we tell you that the last thing you want it is to have your account disqualified.

Although self-directed IRA accounts are best for folks you want to actively use their accounts, there are still tons of investment options out there. You just have to figure out what is best for you, and do your due diligence in order to build the best retirement portfolio you can.