Self-directed Roth IRAs expand your investment options massively. However, to ensure that you gain maximum tax benefits and investment returns, you need to know about the types of investments you can and cannot make using your self-directed Roth IRA LLC. Self-directed Roth IRAs expand your investment options massively.
However, to ensure that you gain maximum tax benefits and investment returns, you need to know about the types of investments you can and cannot make using your self-directed Roth IRA LLC.
What are different Self Directed Roth IRA Investment Options?
Below are the Self Directed Roth IRA Investment Options where you can invest:
- Foreign currencies
- Domestic or Foreign real estate
- Residential or commercial real estate
- Stocks, bonds, mutual funds
- Raw land
- Foreclosure property
- Mortgage pools
- Private loans
- Tax liens
- Limited Liability Companies
- Limited Liability Partnerships
- Private businesses
- Private placements
- Precious metals and certain coins
Popular Self-Directed Roth IRA LLC Investments
- Stocks, Mutual Funds and Bonds
These are the most standard investment choices for your self-directed Roth IRA when it comes to investing tax-free. Your self-directed Roth IRA LLC puts you in complete control so you can open an account with any financial institution for trading in stocks. All the income and gains from this investment will flow through tax-free to your Roth IRA nest. There are infinite investment opportunities to explore through stocks, mutual funds and bonds.
- Real Estate
One of the most popular investment choices with a self-directed Roth IRA is real estate. The biggest advantage this investment strategy offers is that all your gains are tax-free and will not be subjected to tax in case of withdrawal or distribution. For instance, if you purchased a property for $50,000 and later sold it for $100,000, your gain of $50,000 would usually be tax-free. But, if you purchased the property with your personal or non-retirement funds, the gain would be subjected to federal income taxes and state income tax in most cases.
- Precious Metals & Coins
A major advantage of purchasing precious metals and/or coins using your self-directed Roth IRA LLC is that the values of these precious metals and/or coins usually keep up with or exceed the inflation rates better than other investments. Besides, you can hold these metals and/or coins in the name of the LLC at any local bank’s safe deposit box and eliminate depository fees also. Under the Technical and Miscellaneous Revenue Act of 1998, Roth IRA owners can invest their Roth IRA assets in certain gold, platinum, silver or palladium bullion as well as in certain platinum coins, provided that the coins are held in a financial organization.
- Private Businesses
You can also purchase an interest in a privately held business. But you need to ensure that the business is not established as an S Corporation. You can choose from businesses which are established as C Corporation, Limited Liability Company, partnership etc. It is also important that you remember the rules regarding the Unrelated Business Taxable Income under IRC 512, and the ‘Prohibited Transaction’ and ‘Disqualified Person’ rules under IRC 4975.
- Foreign Currencies
Most of the people believe that investing in foreign currency can offer liquidity benefits to the stock market and other significant opportunities for investment as well. The Internal Revenue Service (IRS) does not prevent the purchase of foreign currencies such as Iraqi Dinars through your self-directed Roth IRA. You can hold these foreign currency notes in the name of the LLC at any local bank in a safe deposit box. This will also save you the depository fees. The foreign currency gains thus generated would be tax-free!
What are the Investment Options not allowed with Self Directed Roth IRA?
Type of Investments you cannot make with Self-Directed Roth IRAs LLC for both types of Self-Directed IRA accounts i.e.Traditional and Roth, the Internal Revenue Service prohibits the account holders from holding certain investments. These include;
- S Corporations
- Life insurance
- Contracts and collectibles
- Collectibles comprise jewelry, baseball cards, artwork, memorabilia and other objects which are considered as collectibles and are bought and sold.
NP: It should be noted here that this affects the kind of gold that your self-directed Roth IRA can hold.
If you want to learn more about tax-free investment strategies for your Self-Directed Roth IRA LLC, get in touch with our experts at Self Directed Retirement Plans today.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.