Definition - What does Self-Directed Account mean?
Self-directed account is considered a retirement account because the investor is in-charge of the investment decisions. This gives the investor a bigger hold on asset diversification since notes, real estate, and private tax liens can be purchased as opposed to only being able to purchase traditional mutual funds, stocks, and bonds. An account managed by a trustee or custodian holds all these investments and securities.
Insuranceopedia explains Self-Directed Account
A self-directed account or self-directed individual retirement account enables you to have control on all your investments. You are not limited to the basic bonds, mutual funds, or stocks. You have the means to invest on alternative assets like partnerships, gold, and real estate.
When you have a self-directed retirement account, you are able to be flexible on the type or amount of risks you will invest in and thus increase potential for higher returns.
If you want to venture and invest in real estate with self-directed IRA, it is important to know some rules to follow such as that your SDIRA cannot provide you with any benefits because the purpose of an IRA is to fund your retirement. In addition, any income gained from real estate must belong to your IRA, you cannot take any receipt of any income coming from IRA-owned properties. These are just some important points you need to study before going into real estate.
There might be risks but on the other hand, you will still be able to gain significant wealth in the future when you invest over time on self-directed IRA that allows tax-deferred or tax free growth.