A Little-Known Universe of IRA Investment Options

BY STEVE DINNEN

Individual retirement accounts appear to be straightforward in their investment options, generally stocks and bonds. In fact, you have a wide range of investments available—everything from accounts receivables to commercial real estate—should you slightly alter the structure of this retirement wealth-accumulating tool.

Self-directed IRAs are not well-known, though they have been around since 1975 when the government first allowed standard IRAs. As the name implies, they are controlled by the owners in a fashion that allows them to direct money to a number of opportunities beyond the stock market.

Such as tax liens. Yes, you can buy a tax lien using an SDIRA and enjoy the same freedom from current income taxes as you would with a standard IRA. You also can purchase building bonds, gold bullion and single-family (sorry, not your primary residence) and multifamily residential property.

You even can buy a business outright. Des Moines tax attorney William C. Brown, of BrownWinick, discovered that when he purchased a day care center. He knew that SDIRAs existed, as a partner had once bought a farm with one. But, he says, “I just hadn’t seen the right thing for it.”

Then a friend’s wife presented the day care opportunity, which was structured as a standard business deal save for the source of the funds. Brown is collecting income from the investment, which is meant to be short-term and has an agreement that allows the business operator to buy it back.

Not everything qualifies for an SDIRA, including any S corporation (LLCs are OK as long as they don’t violate IRA rules) or collectibles, such as art, wine, furniture, even baseball cards. There also is a bar on conducting any business meant to produce an immediate financial gain, the theory being that IRAs are intended for the long haul.

There also are disqualified persons to do business with, starting with yourself. Other disqualified persons include your spouse and any beneficiary of your IRA.

Self-directed is not self-managed. As is the case with regular IRAs, you need a custodian, and not every IRA firm will take up that cause. That task is left to self-directed specialist firms, such as Equity Trust Co. (trustetc.com), based in Westlake, Ohio, or Madison Trust (madisontrust.com). They can handle administrative duties and arrange proper titling on any property or business that is purchased.

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