The Four Stages of an IRA
Stage 1 – Regular IRAEveryone knows what the traditional IRA is. It is what most of us have our money in. We call up Fidelity, Charles Schwab, or Merrill Lynch and give them our money. With this IRA, they make the investment choices for you. They charge you for this, as they are managing your money. It could be either fee based or commission based depending on the custodian you chose.
Stage 2 – “self directed” IRAStage 2 takes it a little https://us-southeast-1.linodeobjects.com/precious-metals-pr/index.html step further. You still have your money with Fidelity, Charles Schwab, or Merrill Lynch but they allow you to make the decisions. They have given you a “self directed” IRA. However, you can only invest in their products which can include stocks, bonds, and mutual funds. What happens is that they will offer you Microsoft, GM, or Starbucks stock and instead of them choosing which is right for you, they allow you to choose the stock. With this control (over which stock you choose), they call it a “self directed” IRA.
A simple test to see if you really have a self directed IRA is to ask your custodian if you can invest in real estate and other non-traditional assets. If they say “no, you cannot buy a house with your IRA”, then it is not a “true” self directed IRA.
Okay, here’s where we take the big jump from traditional investments to non-traditional investments. Remember, the traditional investments are typically stocks, bonds, and mutual funds, which all of the larger custodians will offer to you. The non-traditional investments include real estate, energy, tax liens, and many more.
Stage 3 – Self Directed IRAWith the self directed IRA you are now allowed to invest your IRA funds in non-traditional assets. The custodian for the non-traditional IRA will hold your funds for you. They make their money by charging different types of fees. These fees can include asset fees, transaction fees, and maintenance fees. Each custodian is a little different, so you may want to check a couple of them out and see if any of them are a good fit for your particular types of investments.