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What is a Self Directed IRA?

Have You Ever Pondered About What is a Self Directed IRA?

This brief review of what is a self directed IRA may help clear up some misconceptions about them. Also, if you have ever wondered about What is a Self Directed IRA? this is for you.

Technically, almost all IRAs are considered “self directed.” Why is that? Because almost all IRA investments are directly or indirectly selected by the IRA owner, even if the IRA owner has selected and authorized an investment counselor.

Therefore, the IRA Owner is individually directing the IRA investments. Even IRAs that are only invested in the saving accounts or certificates available at the IRA Custodian or Trustee, the IRA Owner, at least, selected the financial institution that best fits into their investment strategy; thereby they are also self-directing the IRA.

In a few instances, the IRA Owner may have given complete control over to a selected agent, but even then they are indirectly selecting the method of investment by the selection of the agent/broker. Therefore, it still falls into the self-directed category.

However, some time ago, the term “self directed” has come to mean something much more than just selecting investments and the financial institution. Now the IRA industry uses “self directed IRA” to refer to an IRA that is invested in something other than saving accounts/certificates available only at the financial institution of choice. Self directed IRA now means an IRA invested in stocks, bonds, mutual funds, real estate – foreign and domestic, LLCs, gold, other entities, etc.

Many IRA Owners, as well as IRA Custodians and Trustees, do not realize it just is NOT as easy as selecting different investments.

First, the IRA Custodian or Trustee must allow the types of alternative investments that the IRA Owner wants to select. Are you interested in opening a self directed IRA to truly diversify your retirement Sunwest Trust can help you?

NOTE: IRA Custodians or Trustees are NOT required to allow any investment even though it is a qualified IRS investment. The custodian can limit what types of investments they will administer.

Second, the IRA Plan Agreement and Disclosure Statement must allow the selected type of investment. And again, the documentation is NOT required to allow all types of investments. Both the IRA documents and the IRA Custodian or Trustee can limit what approved investments are acceptable.

IRA documents can be different from financial institution to financial institution. The IRA Plan Agreements and Disclosure Statements must be reviewed carefully because the documents can even differ from branch to branch.

IMPORTANT: The IRA Owner (and the IRA Custodian or Trustee) must carefully read the IRA Plan Agreement and Disclosure to make sure the selected investments can be administered appropriately. If the financial institution allows the selected investment, the IRA Plan Agreement and Disclosure Statement MUST also allow it.

Managing an IRA outside the language of the IRA Plan Agreement or Disclosure Statement could result in disqualification of the IRA with likely tax and penalty results. Still, have questions? Reach out to one of our IRA specialists.

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.