Nearly A Third Of Advisors Are Seeking Alternative Investments For Their Clients — But A Self-Directed IRA Is Needed To Invest

According to a recent survey by the Financial Planning Association, 28% of advisors were actively investing in alternatives for their clients while 19% said they were considering adding them within the next one or two years. The growing interest in alternatives comes as more and more investors look for more creative ways to protect their retirement accounts from high interest rates and increasing volatility in the stock market.

Alternative investments like precious metals or real estate can help provide needed diversification to your retirement portfolio in markets like this one. But most  IRAs from a bank or brokerage  will only hold the assets that they sell so, for most investors, that means they’re limited to stocks, bonds, ETFs, and mutual funds. So if you want to add alternatives to your IRA, you’ll need to set up a self-directed IRA (SDIRA). Here’s how. 

Find An SDIRA Custodian

The first step to opening an SDIRA is to choose a custodian that will hold the account for you. One of the biggest factors that determine which custodian you go with is what kind of assets they are able to hold. If you want to invest in cryptocurrency, for example, you need to make sure the custodian you go with can hold crypto. 

Beyond making sure the custodian can hold your preferred investments, you also want to look at what tools and services they offer to help you manage them. 

One of the unique advantages of The Entrust Group, for example, is the myDirection visa card. For investors in real estate, the IRS requires all expenses related to their investment properties to be covered with funds from your SDIRA. 

With most custodians, that means submitting a check request anytime you need to pay property taxes or utility bills, make repairs or pay for a renovation. It’s slow and usually carries a fee for each check. With the myDirection card, you can skip all that and just swipe a card. Instead of waiting and paying fees on checks, you can pay for expenses as they come up, paying just a one-time $25 setup fee and a quarterly administration fee of $9. 

Entrust’s online client portal also makes it easy to see the status of all of your investments at a glance, complete and submit paperwork online, and even browse new investment opportunities in the Entrust Connect marketplace. Named the best online portal in the space by Investopedia, it offers one of the most convenient and user-friendly platforms for managing alternative investments of all kinds. 

Decide Whether To Set Up A Traditional Or Roth SDIRA

Just like a regular IRA, an SDIRA can be traditional or Roth.. And the best choice for you really comes down to your investment goals and strategy. 

Traditional IRAs are funded with pre-tax dollars, meaning your annual contributions can lower your taxable income right now, but you’ll pay taxes on it later when you start making withdrawals. A Roth IRA, on the other hand, is funded with post-tax dollars, meaning your taxable income right now stays the same. But since the money you deposit has already been taxed, it won’t be subject to tax again when you start making withdrawals, provided certain conditions are met. 

While there are multiple factors that go into this decision, it basically comes down to whether you expect to be in a higher tax bracket now or after retirement. 

Set Up Your Account

Once you’ve chosen your custodian and figured out which type of account you want to open, the next step is to go ahead and open it. When doing that, you’ll typically pay a one-time account establishment fee, which can range from $50 to $360 or higher.

After that, you’ll also pay an annual administrative fee, which can range from about $150 to $2,000 or higher. At Entrust, the annual fee is a flat $199 per year for accounts under $50,000 with just one asset or $299 per year for accounts with two or more assets. When your account is larger than $50,000 (excluding cash), you’ll also pay a small percentage on the asset value over $50,000.

Fund Your New Account

Once your SDIRA is set up, the only thing left to do is add your funds. You have three main options for this. The simplest is to just make direct contributions to the account via check or direct deposit. However, you can only contribute up to the maximum amount allowed by the IRS each year. That limit includes all contributions made to any IRAs you have. So if you’ve already maxed out your contributions for the year, your best option for funding your new SDIRA is with a transfer or rollover of your existing IRA or a previous employer’s 401(k).

With a transfer, you are moving an existing traditional or Roth IRA over to your new SDIRA custodian. It’s important to remember that with a transfer, the account type must remain the same - so from one IRA to another IRA.  Since the funds inside it aren’t paid out to you in the process, the account remains tax-protected, and you don’t have to worry about contribution limits. 

With a rollover, you can move funds from an employer-sponsored plan like a 401(k) to a new retirement plan or IRA. It can be direct: from one institution to another. Or it can be indirect: where the account holder briefly takes possession of the funds to facilitate the rollover. Whichever route you take, you can initiate the process online through Entrust’s Client Portal.

For those ready to take their first steps towards a more diverse portfolio, the Basics Guide from Entrust offers a full breakdown of the essentials needed to get started with self-directed investing.

Featured photo by Firmbee.com on Unsplash.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.