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Difference Between Brokerage IRA vs Self Directed IRA What You Need To Know

Video Highlights

[0:21] How is Sunwest Trust is a tool for your retirement planning?

[0:59] Take a look at a framing ax and its use.

[1:35] Now compare this tool to a finishing hammer.

[1:50] What do these tools have to do with your Roth ira investment?

[2:32] Can you use either tool for your alternative IRA investments?

[3:12] See why it’s important to choose the right tool for the job.

[3:38] How does Sunwest Trust fit in?

[4:23] Check out what’s coming up in May!

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Difference Between Brokerage IRA vs. Self Directed IRA

Sunwest Trust is just another tool to help you reach your financial goals.

 A tool is a device or implement used to carry out a particular function.

Using the Right Tools

Growing up in a construction family, I learned over the years that particular jobs call for specific tools. Of course, many tools are multi-functioning and can perform a variety of tasks. However, the finished product can also vary significantly if the right tool is ignored.

 If you have the right tools you can get the job done much more efficiently.

As a kid, I worked for my father in the summers framing houses. It was always hot, and the work was endless, but there were perks too. I always had a good tan, and I never had to go to the gym because the work was demanding enough. As a framer, my team would dig in and “frame” the house so the other carpenters could finish the rest of the house.

There was another group of carpenters that were on the job site. They were the called finish carpenters. It was their job to finish the house and make it look immaculate and ready to move in.

The framer’s used a tool called a framing ax, or a rigging ax. The framing ax is sturdy and heavy. It is used to swing hard and drive nails quickly and securely. Whereas the finish carpenters used a tool called a finishing hammer, which is lighter and more delicate. The finishing hammer is used to avoid any markings made while driving the nail. The framers could use the finishing hammer if they wanted to, or if that was the only tool they had, but it would take them much longer to pound each nail in with such a light tool. Just the same, the finish carpenter could use the framing ax to attach the molding, but he runs the risk of marking up the wood by using a tool that is so heavy.

 The point is, you can use one tool for a thousand jobs, but having the right tool helps you reach your goal quicker and easier.

How to Invest Your IRA

The same is true in the IRA investment industry. If you have the right tools, you can get the job done much more efficiently.

Brokerage IRA vs. Self Directed IRA: Achieving Security for Your Retirement

Brokerages are a great way to invest your IRA.

  • Brokerage usually offers the usual stocks, bonds, and mutual funds
  • Investing with a brokerage is more of a hands-off approach, which is excellent and has its place, which is more like using the finishing hammer.

Self Direct IRAs offer the opportunity for the right tool for the right job

  • You can also invest in real estate, precious metals, private companies, LLCs, and so much more.
  • The tools are there it’s just a matter of knowing when to use the right one.
  • The framing ax, which is more like a self directed IRA where you have to go out and get your hands dirty for it to perform.

Neither tool is right or wrong until you put it into the context of how it will be used.

Seek Advice from Professionals or Specialists

If you don’t know how to use a particular tool, you had better find the owners manual, or better yet, someone who already knows how to use the tool.

The information provided is strictly for informational purposes only and it should not be substituted for legal advice.

A large part of self directed IRA investments involves doing your due diligence on every investment. Be sure to speak with a lawyer or tax professional who is knowledgeable in the types of investments you are making.

Key Takeaways

  • Using the right tools for any project, especially concerning your retirement, helps you reach your goals faster and easier
  • Do you prefer a hands-off approach (Brokerage IRA) or a hands-on approach (Self Directed IRA) concerning your retirement?
  • Use the right tools, but if you don’t understand them, seek help from people who know – professionals or specialists

Video Transcript

Welcome to Tuesday at Two. We’re coming up with a new marketing plan here at Sunwest Trust, and this is going to be my first opportunity to use some props to explain something and to explain the shirt that I’m wearing.

What I’m equating our business to is another tool that you can use to reach your financial goals, your goals in your retirement.

What I wanted to talk to you about is how I was raised in a construction family. My dad was in construction all my life, and I worked for him during the summers, and I was, what’s known as, a framer. I was the guy that got out in this hot sun and framed houses and worked hard. Then there’s another group of carpenters in the building business called finish carpenters. Those were the guys that I referred to as the white-collar construction workers. They would work inside.

I wanted to show you; this is what’s called a framing ax. This is what the real men in the construction business use. It’s got big teeth here on the front that will grip a nail, and it’s heavy. I think this is two pounds. You swing this thing, and you can drive a nail quickly, but it’s not pretty.

So I always tell people, “I’m good at building things that are going to get covered up” because you would use this rigging ax to frame a house, to drive 16 penny nails. You could get it done fast, and you could drive a nail fast, but it would mark up the wood quite a bit.

Then you have this delicate little hammer called the finishing hammer. This is what the finish carpenters would use. You can see the head of it is smooth there, so it didn’t mark up the wood when you drive in a little finish nail in the molding and stuff.

I equate this to if you want to invest in real estate in your current IRA at your brokerage house, you can buy what’s called a REIT where you just invest in stock in a prominent real estate conglomerate, a big building somewhere. You never really get your hands dirty. You never really get to work hard on it. It’s more of a finish hammer kind of thing.

Or you can use a self-directed IRA where you go out and find the real estate that you want to buy, you negotiate to buy it and you might even have to hire somebody to fix the plumbing, or you might have to hire somebody to come in and paint and do some work. You have to get out there and work hard on it. I relate to the rigging ax.

The main point is, that although you can do some framing with this, it’s going to be very difficult. It’s going to take a long time. This doesn’t weight very much. I think this particular hammer is maybe 10 ounces. It’s going to take a long time. It’s not going to work as well as if you’re framing and you want to use this thing because you can drive nails quickly and do something.

That’s the difference at Sunwest Trust. You can stay with a traditional brokerage house where you can invest in real estate through REITs, or some stock or something or you can go with a self-directed custodian like Sunwest Trust and get your hands dirty and get in there and own real estate in your IRA.

It just depends on what you want to do. It’s just the kind of tool to do what you want to do with your IRA. Are you just going to invest in stocks, bonds?–that’s sort of a hands-off thing, which is perfectly fine and a lot of people want to do that. Or do you want to get in there and get your hands dirty and control your investing, and have some real say in what’s invested and the house that you’re going to buy, the real estate you’re going to buy and what you’re going to do with it?

For May, we’re going to be talking about the fact that Sunwest Trust is just another tool that you can use in your arsenal of retirement investing [tools] and how that tool works. Although you might be able to do the same thing or two different things with one tool, it just doesn’t work as well, and you can’t do as good a job. In some cases, you can’t even do the job.

Keep that in mind, that when you’re thinking about what a self-directed custodian is for—what do they do and how do they do it, it’s just another tool. It can do the same work as a regular custodian, but with a different twist on it. You have to get that specialized tool to do exactly what you want to do.

Stay tuned for the next Tuesday at Two during May. We’re going to talk a lot more about Sunwest and self-directed custodians being the right tool and the right tool for what purpose you have in mind. I look forward to seeing you next week again on Tuesday at Two.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.