By Iain Kennedy, President of Forge Trust
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Self-directed IRAs (SDIRAs) are individual retirement accounts that enable investors to choose the investments that best suit their retirement goals. While most self-directed IRAs only allow publicly traded securities to be held, there are SDIRA custodians that can house investments beyond publicly traded securities such as stocks, bonds, mutual funds, and ETFs. Called alternative assets, these include real estate, private equity, private credit, and precious metals, to name a few.
As more investors look for ways to diversify their portfolios, a Forge Trust self-directed IRAs offers a means to invest in real assets while benefiting from potential tax advantages before and during retirement.
What are the benefits of self-directed IRAs?
Thanks to the broader investment opportunities and increased autonomy they afford account holders, self-directed IRAs offer many potential advantages over conventional IRAs, including:
Increased Choice: Self-directed IRAs may enable investors to hold both traditional and alternative assets in a single account, offering a broader range of investment opportunities compared to conventional IRAs.
Tax Advantages: Like conventional IRAs, self-directed IRAs come in many forms — traditional, Roth, SEP, and SIMPLE — each with their own tax advantages. Traditional IRAs offer tax-deferred growth, meaning taxes are paid upon withdrawal, while Roth IRAs allow for tax-free withdrawals in retirement, provided certain conditions are met.
Portfolio Diversification: Investors can choose from a wide range of asset classes, both traditional and alternative, to align with their personal investment strategies. This diversification can potentially reduce exposure to risks from market downturns or global events that could negatively impact specific asset classes.
Greater Control: For investors who prefer to directly manage their investment strategy, self-directed IRAs offer a more hands-on approach, allowing investors to take control of their retirement planning.
Types of Alternative Investments
Self-directed IRAs provide access to a variety of investment options beyond traditional stocks, bonds, and mutual funds — each with their own unique risks, time horizons, and potential for returns. This variety enables investors to tailor their portfolios to better align with their individual goals and risk tolerance.
However, while alternative assets encompass a wide range of non-public market opportunities, it’s important to note that not all of them can be held within an IRA.
Some examples of alternative assets you can invest in using a self-directed IRA include:
Private Equity: Private equity involves investing in private companies, either directly or through an investment manager. This type of investment has the potential to offer higher returns and may be less correlated with market volatility; however, it comes with risks such as illiquidity, the potential for company-specific failures, and impacts from economic downturns.
Real Estate: Real estate investing involves purchasing of property with the goal of income generation or capital appreciation. Common real estate investment options can include homes and apartments, commercial properties, Real Estate Investment Trusts (REITs), and more. Real estate offers investors the potential for ongoing, predictable income, making it an appealing choice for those nearing or in retirement.
Secured and Unsecured Promissory Notes: These investments involve a written promise by one party to pay another a sum of money at some specified date. Secured notes are backed by a tangible asset, and unsecured are not. Examples of secured notes include mortgage notes and deeds of trust, while unsecured notes might be based solely on the creditworthiness of the borrower. It’s important to be aware that promissory notes can be risky, in the event of a default.
Precious Metals: IRA investors can hold precious metals such as gold, silver, platinum and palladium in their retirement accounts, subject to IRS limitations1. Because of their intrinsic value, these real assets have the potential to act as a hedge against inflation, though their value can fluctuate with market demand.
Private Credit: Private credit refers to loans and debt financing provided by non-bank lenders and offers investors a way to earn returns through interest payments. Though private credit can provide more predictable income streams than equity investments, it does carry risks such as limited liquidity and the potential for borrower default.
Forge Trust Expands Client Access to Private Credit through Percent
Speaking of private credit, we at Forge Trust, a leading custodian for alternative assets, are proud to work with Percent to empower investors, borrowers, and underwriters to participate in the $3.14 trillion private credit market by investing with Percent.
This offering enables Forge Trust’s IRA holders to easily invest in Percent’s exclusive private credit opportunities, offering a new avenue for portfolio diversification.
How to Invest in Self-Directed IRAs
Many legacy retirement account providers don’t offer self-directed IRAs, making it essential that you find the right custodian. Forge Trust provides secure, IRS-compliant custody of self-directed IRA accounts.
As with all IRAs, a custodian is required to administer a self-directed IRA. However, according to IRS rules, the investments held in self-directed IRAs must be selected and managed by the account holder.
To get started with a self-directed IRA, there are a few steps you need to consider:
- Choose an account type: Select the type of self-directed IRA best suited to your financial goals — traditional IRA, SEP, Roth, or SIMPLE.
- Fund your account: You can fund a self-directed IRA through a cash contribution, rollover from another retirement plan, or transfer from an existing IRA account.
- Begin investing: After an administrative review of the investment by your custodian, you can start investing in your preferred alternative assets.
Part of Forge Global, a leading private equity financial institution Forge Trust serves 1.3 million accounts with $13 billion in assets under custody.
Want to tap into your tax-advantaged retirement dollars to invest in alternative assets such as private credit? Click here to learn more about Forge Trust and open your Self-Directed IRA. As a special to current Percent clients, Forge Trust will waive the first three months of SDIRA account maintenance fees.
Forge Trust Co. does not give legal, tax, or investment advice, does not determine the suitability or appropriateness of any investments, and is solely a passive custodian for IRAs. This content is intended to provide general education regarding Self-directed IRAs (SDIRAs). Nothing in this post is an endorsement or recommendation of any investment, promoter, or investment product. You should seek your own legal, tax, and/or investment advice with regard to your SDIRA.
1Participant-directed accounts and IRAs can invest in certain precious metals only if they meet specific requirements as described in IRC Section 408(m).