What is a Self Directed IRA?
A self-directed IRA is an IRA (Roth, Traditional, SEP, Inherited IRA, SIMPLE) where the custodian of the account allows the IRA to invest into any investment allowed by law. These investments typically include; real estate, promissory notes, precious metals, and even private company stock.
Many Americans have not heard of self-directed IRAs before because large financial institutions, what we often refer to as the world of "traditional retirement," want to maintain control, and keep the dollars in the "system." Large financial institutions rely on your IRA dollars to charge large fees and make large profits, instead of allowing you to have control over your choices and your profits.
Despite the major financial institutions absence of interest in self-directed IRAs there are still plenty of companies our there that are looking to assist you in taking back control. You need to have a retirement plan custodian who specialize in this type of investment, and who will allow you to invest your retirement account into "alternative" investments, like real estate.
A self-directed IRA can invest in real estate or other alternative assets, and it will receive the same tax-deferred treatment, including the tax free treatment a Roth IRA receives. When you buy and sell stock or mutual funds in a retirement account, be it a Traditional IRA or a Roth IRA, you will not pay capital gains tax on the gains from the sale of the stock. Similarly, if you buy and sell, and cash flow real estate inside of your self-directed IRA (Traditional or Roth), your real estate will receive the same treatment by avoiding capital gains inside of your IRA.