Self-Directed Account

What Does Self-Directed Account Mean?

A self-directed account is considered a retirement account because the investor is responsible for making investment decisions. This provides the investor with greater control over asset diversification, allowing them to purchase alternative investments such as notes, real estate, and private tax liens, in addition to traditional options like mutual funds, stocks, and bonds. These investments and securities are held in an account managed by a trustee or custodian.

Insuranceopedia Explains Self-Directed Account

A self-directed account, or self-directed individual retirement account (SDIRA), gives you full control over your investments. Unlike traditional accounts limited to bonds, mutual funds, or stocks, an SDIRA allows you to invest in alternative assets such as partnerships, gold, and real estate.

With an SDIRA, you can tailor your investment strategy to suit your preferred risk level, potentially achieving higher returns.

If you plan to invest in real estate using an SDIRA, it is essential to follow specific rules. For instance, your SDIRA cannot provide personal benefits since its purpose is to fund your retirement. Additionally, any income generated from IRA-owned real estate must remain within the IRA; you cannot personally receive or use these funds. Understanding these rules is crucial before venturing into real estate investments.

While there are risks involved, investing consistently in an SDIRA can lead to significant wealth over time, thanks to its potential for tax-deferred or tax-free growth.