Self-Directed IRAs & Alternative Investments Explained | Custodian - Millennium Trust Company

Self-directed IRAs and alternative investments explained

May 17, 2023
By Millennium Trust

As we face a growing retirement crisis, Americans are looking for more ways to save. Investing in your work 401(k) and traditional assets, like stocks, bonds and mutual funds, are commons way to save for retirement. But could you do more?

In addition to your employer plan, like a 401(k), self-directed IRAs are another tax-advantaged way for you to save for retirement. Here are some of your options with a self-directed IRA.

What is a self-directed IRA (SDIRA)?

Let’s start with the basics. A self-directed individual retirement account is an IRA that allows you to choose your own investments including alternative investments. It is managed by the account owner, which is why it’s called “self directed”, and a custodian or trustee administers the account. A self-directed IRA can still be either a Traditional IRA or Roth IRA.

Many custodians who offer IRAs, such as banks, typically only offer the ability to hold traditional assets in your IRA. Custodians of self-directed IRAs, like Millennium Trust, offer you the ability to hold alternative investments in your IRA, as well as traditional assets.

What are the benefits of investing in your self-directed IRA?

Self-directed IRAs can provide a variety of benefits for investors, particularly in comparison to employer-sponsored plans. Some of these benefits include:

  • Full control over the account.
  • Opportunity to diversify your portfolio with alternative investments.
  • Tax-free growth of investments.
  • Potential to qualify for yearly tax-deductions.

Things to consider

There are a few things to keep in mind before opening an account and investing in alternative assets. Some of these include:

  • The IRA custodian cannot offer financial advice.
  • Alternative investments are typically not very liquid.
  • You need to be conscious of Internal Revenue Service (IRS) tax rules.

Self-directed IRAs are not for everyone, but if you are someone who wants to diversify your portfolio outside of stocks, bonds and mutual funds, it could be right for you.

Before opening a self-directed IRA, work with your investment advisor to see what best meets your retirement goals. You should also talk to your tax advisor to understand the types of investments that can be in your IRA and the IRS rules around those investments.

What is an alternative asset?

An alternative asset is any asset that is not a traditional asset such as stocks, bonds or mutual funds. Investing in alternatives can add layers of diversification to your portfolio to protect against market volatility, and include:

  • Private equity/debt
  • Marketplace lending
  • Real estate
  • Managed futures
  • Precious metals
  • Hedge funds
  • Multi-strategy

How to open a SDIRA

If you want to invest in alternative assets, you will need to open an account at a qualified custodian that offers self-directed IRAs. You can search for those online but it's important to research these custodians. Many custodians allow you to open an account, do research and discover investment options online.

Millennium Trust's self-directed IRAs give you the control and flexibility you need to manage your own diversified portfolio of both traditional and alternative assets. Learn more about opening a self-directed IRA today.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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