Self-directed retirement accounts allow investors to make unconventional investments, and more and more people are opting for these higher-risk strategies in hopes of great gains, according to Business Week Online.
"For some investors, stocks and bonds don't make sense, and they're just more comfortable in other assets," said Paul Maxwell, COO of Trust Administration Services.
However, not everyone is game to such strategy. As Ed Slott, an IRA consultant, puts it, "There are a whole set of rules for self-directed IRAs, which require investors to be extremely careful."
Self-dealing goes hand-in-hand with self-directed retirement accounts and could be dangerous. For example, if an investor uses tax-deferred funds to buy land and then uses that property for personal use, the IRS may consider the purchase a distribution, making it subject to an income tax and withdrawal penalty.
Setting up a self-directed IRA is a synch. All one has to do ask a bank's trust division to set one up, and the bank actually does the bookkeeping, disburses money, and also collects the profit for the IRS, according to Business Week.
However, the bank does not provide investment advice, which means that the investor needs to have knowledge and education in that area, or should pay someone like an investment adviser to do the homework.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.