By J.P. Dahdah, Founder & CEO of Vantage
Self-Directed IRAs aren’t for everyone. They are for those of us that believe that investments into alternative assets such as real estate, private companies, and private notes will produce higher returns than their stock market based counterparts. Besides investment appetite, self-directed investors typically find comfort in diversifying their nest eggs into tangible assets versus paper based options. One of the common objections for having a Self-Directed IRA, however, is that they require a large IRA account balance to fully gain their true value. Not true!
Sure, some investment opportunities are offered with a “minimum investment” limitation or only to investors that qualify for “accredited investor” status, but most don’t. Since Self-Directed IRAs can be used in partnership with other monies and can be leveraged via non-recourse loans, a small IRA balance shouldn’t limit anyone’s ability to diversify into non-traditional assets. They key question becomes “what is the lowest IRA balance I should have to justify the account fees I will be charged to invest via a Self-Directed IRA?” You certainly don’t want the account fees to eat up the returns you expect to yield from your IRA.
There are three restrictions that should be evaluated by every self-directed IRA account holder:
- The Investment Restrictions (allowable investment choices)
- The People Restrictions (prohibited transaction rules)
- The Balance Restrictions (do I have enough to buy what I want and am comfortable with the fees involved).
If your alternative investment strategy passes all three of these tests, then a Self-Directed IRA is a no-brainer! Happy Investing!