June 17, 2024

The Independent Investor: Navigating Your Financial Future with a Self-Directed IRA

Written By: Daniel Gleich

Key Points 

  • A Self-Directed IRA provides flexibility for alternative investments, while standard IRAs are typically limited to Wall Street products.
  • SDIRAs often appeal to independent investors looking to diversify their investments.
  • Opening a Self-Directed IRA with Madison Trust involves three simple steps: open, fund, and invest.
successful confident independent investor who opened a Self-Directed IRA

Investing for retirement is a critical step toward securing your financial future. For those whose research leads them beyond the conventional Wall Street products to more diverse investments, discovering the concept of a Self-Directed IRA (SDIRA) can be like finding a hidden gem. Unlike standard IRAs, SDIRAs empower investors to broaden their retirement portfolios with alternative assets such as real estate, private placements, precious metals, and more, offering a degree of control and customization that many find to be empowering and enlivening.

What Is a Self-Directed IRA?

Block letters on a table that spell out “SDIRA” next to a calculator and money.

A Self-Directed IRA is similar to a standard IRA. Both accounts are designed for retirement savings and offer tax advantages. The key difference lies in which assets are available. SDIRAs provide flexibility for alternative investments, while standard IRAs are typically limited to Wall Street products.

Alternative investments cover a broad range of assets, from real property to private businesses to promissory notes. With an SDIRA, you can potentially grow your retirement portfolio with assets you understand, and possibly capitalize on your expertise. An investor with a keen eye for real estate deals, for example, can use retirement funds to purchase a rental property and create an opportunity for relatively steady income.

Your SDIRA can be a Self-Directed Roth IRA or a Self-Directed Traditional IRA. Self-Directed Roth IRAs allow any gains to accumulate tax-free, while gains from Self-Directed Traditional SDIRAs grow tax-deferred.

Do You Prefer a Hands-on Approach to Investing?

An SDIRA grants investment flexibility—but with a classic SDIRA, you'll need your Self-Directed IRA custodian to complete transactions at your direction. If you're interested in a Gold IRA, a type of Self-Directed IRA focused on investing in precious metals, the custodian model might not be a noticeable hindrance. But if you’re pursuing a transaction-heavy investment such as a rental property, the extra time may mean missing out on an attractive opportunity and can also create somewhat of a lag for everyday investment transactions such as maintenance and property management.

If you want to fully take the reins yourself, you can opt for a Self-Directed IRA LLC or Self-Directed IRA Trust to create what is known as a Checkbook IRA. With a Checkbook IRA, you gain more direct control over your retirement funds and can write checks or send wires in real time from a dedicated checking account tied to your IRA and selected IRA entity. Madison Trust's sister company, Broad Financial, can help you set up a Checkbook IRA seamlessly, with Madison Trust serving as your custodian.

Benefits of Opening an SDIRA

Self-directed investing often appeals to those who prioritize diversification and have specialized knowledge in certain markets. If you’re well-versed in a specific niche, you might be able to invest in it through your SDIRA and avoid paying capital gains taxes on any profits while the investment is held in your IRA.

The main advantages of an SDIRA include:

  • Investment Flexibility: Self-Directed IRAs open the door to exciting investment opportunities. You can build a portfolio suited to your long-term retirement objectives. A Real Estate IRA, for example, is an SDIRA centered on holding various types of property.
  • Diversification Opportunities: With an SDIRA, you can distribute funds across different types of assets and potentially reduce your overall risk. Diversification may also help safeguard retirement savings by hedging against volatility in the stock market.
  • Control Over Retirement Funds: For the independent investor, the self-directed aspect is perhaps the most compelling benefit. An IRA LLC or IRA Trustoffers even more control over your funds by giving you checkbook control. Checkbook control allows you to act on investments immediately.

Opening a Self-Directed IRA

With Madison Trust, creating your SDIRA is streamlined into three easy steps:

  • Open: Open a Self-Directed IRA by completing our easy online application.​
  • Fund: Fund your Self-Directed IRA by transferring or rolling over all - or a portion of - your funds from an existing retirement account, such as an IRA or 401(k), or by making an initial contribution.​
  • Invest: Instruct Madison Trust to send your IRA funds by writing a check or sending a wire directly to your investment.

If you opt for a Checkbook IRA, we will put you in touch with Broad Financial (our sister company and IRA LLC Facilitator) and they will assist you through the final process of establishing an entity for your SDIRA. You will then open a dedicated checking account for your IRA.

Does a Self-Directed IRA Fit into Your Future?

If shaping your retirement portfolio with a broad spectrum of personally selected alternative assets resonates with your investment philosophy, a Self-Directed IRA may be your ideal vehicle. This approach not only matches your desire for flexibility and diversification but also grants the autonomy to directly influence the trajectory of your retirement investments.

Have questions? The SDIRA Specialists at Madison Trust can help you navigate the process of opening a Self-Directed IRA. Schedule a discovery call today!

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

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