What exactly is a self directed IRA?

Question

and how would I go about opening one. Please give as much detail as you can. Advice on retirement investing for a couple in thier early 20's (23 and 24) is also more than welcome

Answer 1

Basically a Individual Retirement Account is purchased by individuals to save for retirement. They're an essential tool when planning for retirement. Depending on the type of IRA you'll have different tax incentives. See this article for more info on Roth and traditional IRA info: http://www.themoneyalert.com/AnEssentialRetirementTool.html

You can purchase an IRA at any discount brokerage with minimal effort. Many to choose such as Etrade, Ameritrade, Etc.

You're very smart to think about retirement planning early...Good luck.

Answer 2

What does ‘self-directed’ mean?

The term ‘self-directed’ does not actually have any legal connotation. It does not imply a different type of IRA, or a separate set of IRS rules. ‘Self-directed’ is simply an accepted industry term indicating that the IRA custodian is allowing the IRA owner greater control over their investment decisions. When an IRA account is self-directed, the IRA owner makes all investment decisions and instructs the custodian to act. Even this control, however, can vary greatly in degree. For example, you might be offered - or have – a ‘self-directed’ IRA at a major broker dealer. This account, while offering more hands-on control, will still, in most cases, limit you to a range of publicly traded investment options such as stocks, bonds, and mutual funds.

The phenomenon of a self-directed IRA that still limits you to a brokerage account has spawned the use of yet another industry descriptive - the ‘truly self-directed’ IRA – to mean the type of account that allows for non-publicly traded assets like real estate or private placements (pre-IPO stock, Limited Liability Company membership, Limited Partnerships, etc.).

Whatever the terminology, the facts remain the same: All IRAs must adhere to the same IRS rules. The investment options available within an IRA are determined solely by the capabilities of the custodian sponsoring the IRA.



As for investing at your ages:

20 somethings.
Investing for your future while in your 20s is not the top priority for your hard-earned cash. You might even still be paying off some debts from those student days. So spending rather than saving will usually be the order of the day.

However, doing something will almost always be better than nothing! Start by building an emergency fund in a top-paying easy-access deposit account. Then look to the future. Consider putting some money aside for a longer period, say five years or more. A tax-friendly ISA based around a low-cost UK unit trust is one option.

If you are offered membership of your company pension scheme, make sure that you join.

30 somethings.
You might have some free shares from the building society and insurance company conversions of the last few years. Then there are those PEPs that you invested in during the early and mid 1990s. When was the last time that you reviewed them?

Depending on your attitude towards risk-for-reward, now will probably be the time to investigate building on your ISA portfolio and taking advantage of other investment vehicles, in particular unit trusts and investment trusts. We can help you find the best-performing fund managers for your money.

Now might be an appropriate time to look further afield than the UK stock market. For example, in one tax year you could take out an ISA built around a strong European unit trust. The following year, you could possibly consider a US trust, then maybe a broad global or specialist fund.

**Always max out on a 401k employer match throughout your career.

Answer 3

The term self directed is used to contrast an employer-sponsored plan, such as a 401(k), where you can only participate if you work for a specific company. Anyone can go out and set up an IRA, but you will have to go through a brokerage firm. You can use a real one, like Edward Jones where you can go to the office, sit down with an advisor, and discuss your goals, or you can use a discount online one if you need less advice choosing an investment. To minimize risk, many people choose to own mutual funds in a IRA or Roth IRA. I personally like PAEAX. It is a long term oriented world allocation fund, meaning the fund managers have the ability to invest in any security, style or asset class as they see fit, greatly minimizing downside risk. Lipper ranked it one of the best funds out there. Mutual funds have fees (to pay the people managing the fund for you), so read up before you invest.

Answer 4

As the name implies, the self directed IRA allows you to make the decisions on how to invest your money. Most brokerage firms will set one up for you. As an example, TD Ameritrade and Ameriprise both have on-line applications. In this you can select the stocks, exchange traded funds, etc that you wish to invest in. A good start is to maximize your contributions. ETF's such as the S&P500 would make a good foundation for your funds.