In the world where the economy is constantly changing, traditional retirement investments are still an option, but a self-directed IRA traditional can give a boost to achieving your financial goals.

However, as with all financial decisions, you need to perform due diligence to figure out if a self-directed IRA is the best retirement plan for you. Knowing these pros and cons of investing in a self-directed IRA plan can help in making an informed decision.

Pros of Investing in a Self-Directed IRA (SDIRA)

1. You have wider options for investing in assets.

A traditional IRA restricts your investment options to certificates of deposit, stocks, mutual or exchange-traded funds (ETFs), and bonds. Since the global economy is ever-changing, the value of these assets has become less predictable. A self-directed IRA gives you a much wider array of assets to invest. You can use the fund to invest in the following:

• Real estate
• Land
• Tax lien certificates
• Mineral rights, oil, and gas
• Cryptocurrency
• Silver, Gold and other precious metals
• LLC membership interest
• Water rights
• Promissory notes
• Livestock

With a variety of options, you can build a balanced portfolio that can include both passive and fast-growing assets.

2. You are in control of your investment.

With a self-directed account, you are in control; you get to decide where you want to invest, how much, and how far you want your investments to spread out. That said, you cannot do it alone. You need to hire a custodian. All you have to do is instruct your custodian on how you want to use your funds.

3. Your assets are protected.

Like traditional IRAs, self-directed retirement accounts are protected from federal and state bankruptcy. That means if you file for bankruptcy, your creditors cannot claim your retirement accounts. Thus, ensuring that your nest egg grows uninterrupted.

4. Your account can pass down to the next generation.

As per your instruction, your self-directed IRA can be passed on to your spouse, children, or grandchildren with significant tax advantages.

Cons of Investing in a Self-Directed IRA

1. You need to beware of prohibited transactions.
With so much freedom, it’s highly likely that you may break a or two. In such cases, you may be penalized, or get your account disqualified. Make sure you understand and follow the rules that are specific for the assets you hold in the account.

2. You need to perform due diligence.

You may have a custodian for your self-directed IRA, but they can’t offer you any financial advice. You are on your own. Either you make sure you do your homework well or hire a financial advisor to help you out.

3. You are subjected to exorbitant fees.

Investing in a self-directed IRA means having to go through a complicated fee structure. There are various kinds of fees, such as annual fees, one-time establishment fee, bill payment fees, etc. applied to your retirement account. The total fee cost can be so high that it could cut into your earnings.

4. Your exit plan is not easy.

With a traditional retirement plan, it is easy to exit from your investments, such as stocks and mutual funds. But, with a self-directed IRA, it’s not so easy as your funds may be invested in real estate, and it’s not easy to find the right buyer at the right time.

5. You can be a victim of fraud.

Your custodian may not offer you financial advice, but they can make certain investments. If these investments are made without evaluating the quality or legitimacy, you may end up making your self-direct IRA susceptible to fraud.

Investing in Your Future

As you move towards your retirement goals in this ever-changing global economy, be sure to explore all options, old and new, to find the right option that can help build a secure nest egg for you.

Author's Bio: 

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at