An IRA is an Individual Retirement Arrangement, more commonly known as an Individual Retirement Account, which allows individuals to put aside money for retirement. To encourage savings, there are many tax benefits associated with these retirement accounts.
The term "self-directed" simply means that you, as the individual account owner, have complete control over selecting and directing your individual retirement account investments. A self-directed account will give you access to nontraditional assets, such as real estate, notes, limited partnerships, commercial paper, and many other alternative investments.
Self-directed IRAs that invest in specific assets are often given nicknames. Here are a few examples:
A Real Estate IRA is a self-directed IRA that holds real estate.
A Gold IRA is a self-directed IRA that holds gold and other precious metals.
An Offshore IRA is a self-directed IRA that invests in assets overseas.
With a self-directed IRA, you are not limited to the traditional investment options offered by most banks and custodians. By using Entrust as the administrator for your self-directed retirement account, you have much greater flexibility in the number of investment choices you have. Instead of being limited by a list of stocks, bonds, and CDs, Entrust allows you the freedom to control your retirement investments.
Self-directed IRAs have been permitted since 1975 as part of the Employee Retirement Income Security Act of 1974 (ERISA). At that time, qualified plans, such as defined benefit, profit sharing, and money purchase pension plans, were considered self-directed IRAs. Initially, the investments of choice were most commonly real estate and notes.
Over time, the self-directed portion of the retirement industry has become more recognized and accepted as a portfolio diversification strategy because investors can purchase a wide variety of assets. Many investors are venturing beyond stocks and bonds to other options that comply with the federal rules of permitted transactions.