Category: Self Directed IRA Custodians

Is a Self Directed IRA a Good Option?

Friday I had a reader ask me if she had any options to use your 401-k for a business she was starting. She said she had asked many financial advisors and they all said the same thing: Don’t tap into your 401-k; it’s strictly for retirement and no, she had no options to leverage her 401-k for her start-up….Really?

Let’s look back at an article in the Wall Street Journal which appeared March 29, 2012. The article was written by Mark Maremont, titled Bain Gave Staff Way to Swell IRAs by Investing in Deals.  Maremont tells us about Phillipe Wells:

  • Just after Philippe Wells took a job in 1998 at Bain Capital, then run by Mitt Romney, he recalls hearing an unusual boast from a partner. The man’s individual retirement account had jumped tenfold in five years.
  • Mr. Wells soon learned how this was possible. Bain, like many other private-equity firms, allowed employees to co-invest in its takeover deals. This posed a risk they could lose their whole investment, as they sometimes did. But because of the firm’s success during the Romney era, employees ended up able to share in returns for Bain investors that averaged 50% to 80% annually.
  • Bain’s co-investment arrangements, not previously reported in detail, offer a possible explanation of the large size of Mr. Romney’s IRA: between $20.7 million and $101.6 million, according to his finance disclosures. It is unusual for such an account, a vehicle devised to help workers save for retirement and one to which contributions are limited, to grow so large.
  • Documents analyzed by the Journal show that Mr. Romney co-invested in Bain deals via his IRA, although they don’t show whether he used the special share class to direct more of his gains into the tax-deferred account.

How is this possible for regular employees to have such unique investing opportunities and have such huge IRA accounts? It depends on several factors but one of the main factors is the custodian for you IRA account. There are custodians that will allow you to have several differnet investment vehicles in your IRA including gold, coins, notes and real estate, to name a few.

I would remind you that you will pay higher fees, there is still investment risk and you could loose every dime you invest-however, it may also allow you to pursue your dream of self employment. I will keep you posted on the details of the woman who contacted me asking about any options for using her 401-k.

In the meantime I am going to give you a list of custodians who allow alternative investments in tax deferred accounts. Remember, do your due diligence before using any of these firms! If you would like to do additional research on custodians who offer these opportunities; I used the following Google search: custodians for IRA self directed – Here are some firms for you to consider:

Pensco Trust Company

Equity Trust Company

Guidant Financial

IRA Central

JMAC Funding- The Hard Money Pros

I love their name and they actually have a list of Self Directed IRA Custodians, with some ratings.

Hopefully, the above list will give you a starting point for your research and as Jim Cramer always says: Do your homework before investing!!!

Have you ever used a self directed IRA custodian? Would you ever consider using your IRA money for alternative investments such as Bain Capital employees?