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Investing From Within An IRA

Jun 16, 2008
If you're not happy with how fast your IRA is growing and you're willing to take on a little extra risk, you might be the perfect sort of person to engage in investing from within an IRA. Few people realize this, but your IRA money is not locked away in a vault; rather, you should look at it as a living trust of sorts, with plenty of options for you to grow it if you just take the initiative and learn the rules.

We seem to be having a period of lagging growth and increasing inflation, and the CD's that we think are so dependable, may not profit us as much as we were expecting them to. To take a slight risk by investing from within your IRA. the chances are good that you can come out ahead.

In order to direct your own IRA investments, you need to talk to your bank or the financial organization that is currently holding your IRA. Investing from within an IRA is not at all like allowing someone else to manage it for you, and you may find that just learning the rules will take you some time. If your bank does not offer the option of administering your IRA without offering investment advice (that's part of the rules), look for a third-party custodial firm to administer your IRA.

Cost-compare fees carefully. Some banks and firms will administer your IRA for a nominal charge; others will charge $2000 a year or more in base costs and transaction fees. Make sure you're clear on how fees work before choosing an administrator.

Think carefully about diversifying and how you'd do it with your IRA. Just as with any gamble, you don't want to bet everything you have on new investments. Instead, take a specific percentage of your IRA holdings to invest in riskier holdings like stocks or even venture capital. You can invest another small percentage in real estate, using Section 408 rules in the Internal Revenue Code. Investigate all the possibilities, and keep an open mind.

Once everything is set up, don't make a move for the first year until you've checked with your IRA manager. Even though you may be educating yourself on the rules, they are esoteric and complex. A single error can cost you thousands in taxes and penalties, much more than a good investment will bring you.

Don't take many chances on investing from within an IRA if you're within ten years of retirement. This is about the buffer you need to give your money a chance to recover if things go terribly wrong and you lose more than you are comfortable with. IRAs this old should be left to grow more slowly. Besides, they've been growing slowly for long enough that they have nearly reached maturity already, limiting your returns and minimizing the impact from the slowing economy.

It can be both fun and lucrative to make money by investing from within an IRA, provided you understand the rules and risks. If you're ready for a more aggressive approach or you want to change the direction of your IRA investments, talk to the institution holding your account today. It's your money, and it should go where you want it to.
About the Author
William Brightworth is a consultant who writes about Ira investing in Real Estate. Follow this link to learn more about Ira real estate investing.
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