In recent years, self-directed IRAs have emerged as a powerful path for individual investors to diversify their retirement portfolio and build wealth. When investing in assets such as real estate, tax liens, and even precious metals, investors are not tied to the stock or bond market to fund their retirement. In fact, investors in self-directed IRAs have the freedom to invest in alternative strategies, including business start-ups trying to raise funds on an equity crowdfunding platform.
Self-directed IRA investors who have expertise or interest in specific businesses can now fund those startups with their retirement funds. This approach gives investors more control over their finances while maintaining all the tax advantages of an IRA account. Additionally, such startup investments have the potential for much greater return than traditional stocks, bonds, and mutual funds. While most financial advisors do not have direct access to the self-directed IRA, they can direct investors to the appropriate custodians. The investor then can establish the account and begin funding business start-ups, buy real estate or otherwise diversify their retirement assets.
Like any financial vehicle, the self-directed IRA is not without risk. Potential investors need to do their research and understand how their investment works. In fact, self-directed IRAs are held and administered through a custodian, but the custodian is not responsible for the investments. Again, individual investors must be prepared to fully understand and manage their accounts.
Unfortunately, self-directed IRAs are also at risk for fraud. Investors need to be wary of investments that promise specific returns, are protected from loss or simply sound too good to be true. Investors must do their own due diligence and understand the risk/reward balance for their specific investments.