Menu

(866) 818-4472

Open Account Client Login

PENSCO Blog

PENSCO Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Q&A: Frequent Self-Directed IRA Questions from the MoneyShow

Students raising hands with questions

  |  By Justin Farian, CISP®

A few weeks ago, I spent three exciting days at the financial whirlwind known as The MoneyShow. The symposium, held in San Francisco, covered all things related to—you guessed it—money. Session topics ranged from trading options and futures, to navigating stock market volatility, to investing in cryptocurrency and even cannabis stocks.

I attended The MoneyShow San Francisco to help educate investors about an often overlooked retirement investment option: using a self-directed IRA to invest in alternative assets, such as real estate, private equity and promissory notes.

I always find it fascinating to talk to savvy investors who are unaware of self-directed IRAs and the fact that they can own alternative investments in a retirement account. I love being able to help investors understand the potential of self-directed IRAs and answer their questions about using these accounts to build a nest egg.

Here are some of the most frequently asked questions that I received from MoneyShow attendees.

1. What is a self-directed IRA?

A self-directed IRA is one that puts investors in the drivers’ seat when it comes to choosing and managing the investments in their retirement account. Investors who use a self-directed IRA are not limited to investing in traditional investments like stocks, bonds and mutual funds. Rather, they can also invest in alternative assets—which are generally described as any investment that is not made up of stocks, bonds or cash and is not typically traded on an exchange. People often think it’s a “type” of IRA but it’s not. It’s a management style. You can use a traditional, Roth, SEP or SIMPLE IRA.

To use an IRA to invest in alternatives, all it takes is working with an IRA custodian that allows you to self-direct your IRA funds into alternative assets.

2. Why have I never heard of a self-directed IRA?

Self-directed IRAs actually got their start in 1974, when IRAs were introduced as part of the Employee Retirement Income Security Act (ERISA) legislation. However, because IRAs were then typically only offered through banks and brokerage houses, investment choices were limited to stocks, bonds and mutual funds.

However, IRAs have always been allowed to hold non-standard assets and invest in everything from mineral rights to rental housing to private stock. It simply means working with a self-directed IRA custodian that has expertise in holding alternative assets. Life insurance and collectibles are the only two assets the IRS has stated clearly cannot be held in an IRA.

3. Do self-directed IRA custodians like PENSCO offer investments to clients?

No. The role of a self-directed IRA custodian like PENSCO is to ensure assets are qualified to be held in an IRA. Self-directed IRA custodians do not (cannot) provide any investment opportunities or advice; nor do they offer tax or legal advice. Self-directed investors are urged to conduct careful due diligence or work with a seasoned investment professional before making any investment decision.  

4. Can I invest in alternative assets using my current IRA custodian?

While it’s possible to open an IRA at almost any financial institution, only a handful of custodians have the know-how to hold alternative assets in an IRA. Good custodians can guide you through the complexities of self-directed IRA ownership and educate you about potential pitfalls, such as prohibited transactions and fraud red flags. To help you vet potential self-directed IRA custodians, you can read our blog, 7 Questions to Ask Before Choosing a Custodian.

4. What types of assets does PENSCO specialize in holding?

Some custodians have a particular area of specialization, such as private placements, private stock, LLPs, hedge funds, LLCs, direct real estate or exchange-traded assets. Some also only offer services in specific geographic locations.

However, with more than 43,000 assets, PENSCO offers custodial expertise on a vast array of alternatives. We have helped clients invest their IRAs in everything from manufactured homes and virtual reality gyms, to indoor mini golf courses and mineral rights. We serve clients throughout the United States.

5. What is the process for opening a self-directed IRA?

Opening a self-directed IRA is typically a straightforward process. At PENSCO, you can open an account quickly and easily online. You can fund your new IRA by electing to transfer cash and/or assets into the account. You can also transfer funds from a traditional, Roth, SEP or SIMPLE IRA.

6. Can I rollover a portion of my current IRA into a self-directed IRA?

Yes. If you do not want to do a complete transfer of your funds from your existing IRA to the new self-directed IRA account, you can rollover a portion of your IRA.

But remember: The number of traditional rollovers you execute is restricted. In the timeframe of one year, you may execute only a single rollover from a given IRA account. However, this restriction does not apply to direct transfers. Most people think rollovers and transfers are the same—they are not. They can create an unfortunate taxable distribution if used incorrectly.

7. What type of fees are involved with owning a self-directed IRA?

Self-directed IRA fees vary from custodian to custodian. They typically also vary based on investment type.

At PENSCO, there are essentially four types of services charges: one-time account establishment fees, quarterly account administration and maintenance fees, account transaction costs, and account closure fees. Our fee schedule also varies based on investment type. 

You can learn much more about opening, owning and using a self-directed IRA to invest in alternative assets by visiting our website and reading our blog. We are always happy to answer your questions, and you can also reach us by phone at 866.818.4472.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.