Alternative Assets in a Self Directed IRA
Why would an IRA invest in Alternative Assets?
There are a number of reasons why a retirement investor would want to place alternative assets in an IRA. Here are a few of the most common:
- Asset Comfort – Although most investors just place their funds in Wall Street products, the truth is that those products can fluctuate wildly. Market investors usually don’t possess a solid grasp of the assets involved and they have little control over their success. This is not the case for alternative assets. Alternative assets allow investors to choose investments that they understand and which allow for involvement in the process. For example, if a retirement investor has a comfort level with local real estate, they can utilize a Self Directed IRA to capitalize on that knowledge. The property of their choice can be placed in a Self Directed IRA and can then be actively managed for maximum profit.
- Long Term Investments – IRA funds are perfectly suited for assets which require a long holding period. Since the funds are inaccessible until retirement, they can be maximized in alternative assets which grow over the long term. Combine the high growth rate of certain alternative assets with the IRA’s tax advantages, and you get an investment with great potential.
- Stable Returns – The roller coaster of the stock market is not for everybody. With the ability to invest in alternative assets, investors can choose those assets which tend to offer predictable returns. Think a multi-family rental. The rental income is fairly consistent and dependable, while the property itself accrues value over the long term. Other potentially stable assets include private loans and tax liens.
Which kind of alternative assets are a good fit for retirement investing?
The choice of alternative assets really depends on the situation of the individual investor. A popular option for those who are strapped for time is to invest in a “maintenance free” asset. This can take the form of a private placement or some other hands-free asset. In such an investment, the funds are given over to a third party who then places them in a specific investment. The third party also performs all necessary maintenance for the investment.
If an investor has knowledge of a specific business area, they may want to consider an alternative asset related to that business. For instance, if the investor currently runs a bakery, they may consider using a Self Directed IRA to invest in a baking equipment company. By knowing what works and what doesn’t, they can focus on the products which have the greatest chance of success.
Other retirement investors look to alternative assets as a means of diversification. A Self Directed IRA allows for almost any kind of asset. Investors can balance their existing portfolios with alternative assets like precious metals, real estate, and promissory notes.
What are the most popular alternative assets to be placed in a Self Directed IRA?
The most popular alternative assets held by Madison Trust fall into four basic categories:
- Real Estate
- Private Placements
- Promissory Notes
- IRA LLCs
Please click below to find out more about each of these assets.
How does an investor place alternative assets in a Self Directed IRA?
Once an investor has decided on the right alternative asset, placing it in a Self Directed IRA is easy. For most investors, this means just submitting a form and supporting documents to Madison Trust that names the alternative asset to be purchased. Once the form is received, Madison will then acquire the asset on behalf of the investor’s account. This process works well for low maintenance assets like passive real estate investments, private placements, and private loans. If an investor finds they need a more robust platform for their transactions, then the account can be upgraded to an IRA LLC. The investor will then have the capability of purchasing assets directly with a dedicated checking account. This platform may be preferred for alternative assets that require multiple transactions.
Do you have a question about alternative assets? Speak to one of our specialists at 800.721.4900.