By John P. Napolitano

 Say the words Individual Retirement Account and most people automatically think in terms of an IRA where investments are made in the stock market or mutual funds. But if you’re on the lookout for a more creative approach to building retirement funds, the self-directed IRA may be one to consider.

Before we go any further, a few words of caution. While most types of IRAs can be converted into self-directed IRAs, the process of setting up one can be cumbersome. Believe me — you’ll want the assistance of a professional adviser to help with the paperwork and thoroughly explain this investment mechanism’s guidelines. Once done, however, you may find that a self-directed IRA provides opportunities for investment that you thought were forbidden in IRAs.

Considered nontraditional retirement accounts, self-directed IRAs are used by investors for a number of investments, with real estate at the top of the list.

By creating a self-directed IRA you can choose whatever you want to invest your money into — from single-family residences to condominiums, apartment complexes or undeveloped land.

There are several advantages to calling the shots, and since you control and handle all transactions, the custodian of your account is paid an annual fixed flat fee, not a per transaction fee.

On the flip side of the coin, the negative consequences could be great if your self-directed IRA is not structured correctly. It’s wise to choose an adviser and a custodian who is knowledgeable in real estate investment and related tax laws. Should you decide to buy into apartment/condominium units or raw property, or become involved in other complex real estate investments, you’ll want the counsel of a savvy adviser with a strong background in real estate transactions.

Also, investing your self-directed IRA into real estate just bought you another job. While historically real estate has built significant wealth for many, it is a job that needs management and attention. That’s far different from buying a mutual fund and letting the manager of the fund do the heavy lifting.

You must avoid any self dealing with your self-directed IRA. That means that you can not buy a residence from yourself or a spouse to put in the IRA. Also, you can not buy a vacation house in your IRA.

You can invest in more than real estate in a self-directed IRA. It is possible to invest in a small, privately-held business with these funds also. This could be a great way to get involved in the ground floor or to capitalize a family business that is looking to grow.

By thinking “out of the box” with a self-directed IRA, your foundation of wealth for those fast-approaching retirement years could become something a bit more to your liking.

John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass.

Source: The Patriot Ledger; Quincy, Mass. Provided by ProQuest Information and Learning. Powered by Yellowbrix.

To learn more about starting your own self directed ira account, go to