McLaughlin & Quinn, LLC - Providence | Boston

I recently attended a seminar sponsored by PENSCO, one of the leaders in self-directed IRA custodians. I was amazed at how many ways self-directed IRAs are being used. I knew about direct real estate investments and direct loans, but self-directed IRAs are being used for so much more.

A self-directed IRA is merely an IRA with the ability to invest in any types of qualified investment. Most IRAs have restrictions on the types of investments that are allowed. These restrictions are in place because the custodian of the IRA, for a variety of reasons, does not want to allow these alternative investments, even though the law clearly allows them.

The only restriction on the type of investment found in the law is that an IRA cannot invest in collectibles, life insurance or own stock of an S corporation. Other than that, it is wide open. People are investing in LLCs that buy leveraged real estate, run start-up companies and buy tax lien certificates.

Care must be taken to avoid so-called prohibited transactions and dealings with disqualified persons, but if these can be avoided, investors can realized enormous returns on thier investments, on an after-tax basis.

I will be writing more about self-directed IRAs in the near future in an attempt to spread the word. Like with 1031 exchanges a few years ago, a signficant number of professionals and investors are still not aware of this very powerful tool.