How Does a Self Directed IRA Work?

Aug 14, 2019

Investors are taking back control of their portfolios and they are using Self Directed Individual Retirement Accounts (SDIRA) to make it happen.

While the benefits of an SDIRA are well documented, many still have questions about how they work. IRA Club is pleased to present a seven-step guide explaining the process of how a SDIRA works to support our existing clients. Furthermore, to those who may be interested in exploring this increasingly popular method of investing.

Identify a Trustworthy SDIRA Trust Company

There are a handful of Self Directed IRA custodians. However, identifying a trustworthy company is the most critical step in ensuring that you make the best use of the resources within your investment portfolio; one with a track record of excellent service that can guide you through the entire process. Make sure that all of your questions are answered before making a commitment.

Fund Your Self Directed IRA Account

If you think funding your account is complicated, think again.  Funding an SDIRA can come from a few sources that each have their own approach. The most common way to fund a Self Directed IRA is with an IRA transfer. Another common method is to transfer or rollover funds from a previous employer plan such as a 401(k), 403(b), 457 or TSP. A trustee to trustee transfer or rollover is NOT a taxable event. Therefore, there is no fee or penalty. Lastly, you can make a personal contribution to your IRA. However, be sure you are following the annual contribution limits. Most noteworthy, it’s okay to have a combination of the above, as many of our clients do. IRA Club will help with the process to ensure funding is done quickly and efficiently.

Identify an Optimal IRA Investment

Once your account is funded, you are one step closer to actually making an investment. Fortunately, investors don’t need to look far for some exceptional investment ideas. From real estate, mobile home investing, life settlements, and wind turbines the options are endless. Always remember that it’s best to invest in what you truly know.

Complete the Required Paperwork 

No one likes paperwork, but making sure you have the right forms filled out and completed correctly is critical to success. IRA Club makes it easy to complete the required paperwork and provides helpful information on how to do so. Taking the time to complete this important step in investing with an SDIRA will ensure you are one step closer to long-term profits. 

Fund the Purchase of Your IRA Investment

You’ve already funded your SDIRA, but there’s actually another step requiring a detailed process: funding the actual purchase of the investment. After the IRA Club reviews your investment forms, the funds are then directed from your IRA to purchase the investment. Clients of the IRA Club can rest-assured that we keep all the important documentation related to the investment (title, deed, etc.).

Maintain and Monitor Your Investment

Owners of an SDIRA should continue to be active investors; monitoring their accounts and making any modifications required to ensure the highest possible return. For example, both payments and profits must be made from the Self Directed IRA and then transferred back to the account. Furthermore, being a good steward of your SDIRA is an important step in maximizing profits and remaining in legal compliance. 

Profit and Sales From Your Investment in an SDIRA 

It may be the time to sell once the investment has matured. Profits from the sale return to the IRA tax-deferred or tax-free and are then available for future investments or a distribution

If you’re confident you understand how an SDIRA works, now is the time to get started. A Self Directed IRA provides immense control over your financial future, but make sure you have the resources and support to invest wisely. Contact IRA Club to learn more about investing with an SDIRA now.

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For information about the Self Directed IRA or Solo 401k, call IRA Club at 312-795-0988

IRA Club offers no investments, products, or planning services. Therefore, please consult your attorney, tax professional, financial planner, and any other qualified person before making any investments.