Benefits of Self Directed IRAs | CheckBook IRA LLC Video
In this first lesson, we’re going to talk about IRAs and go over some of the history of these accounts and why they came into existence. We are going to tell you why custodians have restricted your ability to invest in what you want and then finally we will talk a little bit about Self-Directed IRAs and how they work
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In this first lesson, we’re going to talk about IRAs and go over some of the history of these accounts and why they came into existence. We are going to tell you why custodians have restricted your ability to invest in what you want and then finally we will talk a little bit about Self-Directed IRAs and how they work. But we are going to go a little bit more detail on that subject on lesson two. I will not go through the entire history of the IRAs but just to give an overview.
There was actually a time when the only way you could save your retirement in a tax preferred account was if you have actually have a pension, and the only way you get a pension was if you work for a company that offered one. In 1974, the congress address this issue by creating individual retirement account or IRAs. This kinds of accounts can be open by anyone and as long as you earn an income you could make a contribution to it.
Technically, IRA is a trust and the custodian is the trustee. Anytime the IRA engages in any transaction, to buy, to sale, to loan money, to distribute the money, etc. or anything at all, it is the trustee that actually facilitates or carries out that transaction. You can see why if you want your IRA to buy stocks in let us say like apple computer. You could not do it yourself, you’d have to call your custodian and tell them what stocks you wanted to buy and then they’re the once who would actually carry out that transaction on behalf of your IRA.
There were a couple of problems with IRAs when they were first created. First of all, the contribution when it was only fifteen hundred dollars per year. So, you could not exactly put very much money in this account. The second problem was the fact that the company met all the federal requirements to be a custodian or a trustee were banks and this banks has made a lot of money by recommending traditional investment to their clients and collecting referral fees for that.
When they began offering IRAs, they restricted the IRAs ability to invest than anything but to stock market. It is perfectly legal for an IRA to buy real state or other non-traditional investments but the banks would not let you invest on those things. Since they were the trusty of the IRA they would simply refuse to facilitate any investment that was outside the stock market. Here we have this trust accounts, these IRAs that had been created by act of congress and could according to the law, invest anything but life insurance and collectible but from the start they are been hampered by this custodian.
This bring as to self-directed IRAs. Eventually, the law was change so as to allow people to roll their pensions into their IRA. All of a sudden people started moving money from their pensions to their IRA and some of this them had quite a bit money to move. For the first time, people begin to have a lot in their IRA. As they felt the restriction that the custodians place on their account to keep them in the stock market, they begin to look at the law and found that IRAs actually did not have to invest just in the stock market. They found out that IRAs can buy anything but life insurance and collectible. This was where the self-directed custodian was born.
A self-directed custodian is no different than any other IRA custodian except that the self-directed custodian allows an IRA to invest anything that is legal and they do not sale investment to their clients. Do you want to buy real state? Fine. Do you want to make hard money loan to your neighbor? Also fine. A self-directed custodian will allow you to invest in anything you want as long as the IRA law allows it; if it’s legal, they will facilitate the investment. An IRA that is held by a self-directed custodian is called a self-directed IRA. You can see know that a self-directed IRA is actually no different than any other IRA. The only different that it’s held by a custodian that will let you invest on what you want. Traditional IRA will, let’s say fidelity, for example is no different from traditional IRA with IRA Services trust companies which is the custodian that we use. Both IRAs are the same and so were the custodians but the self-directed custodians does not restrict what your IRA can invest in.