What CPAs need to know about Self-Directed IRAs

Published on February 13, 2012

As a CPA, you play many roles as a trusted advisor to your clients. Businesses and individuals rely on their accountants in many ways to help them frame their financial futures. That might include the choices clients make about – and within – their retirement accounts.

Did you know there is whole spectrum of wealth-building opportunities for people who wish to completely direct their retirement portfolios themselves through a self-directed retirement account?

What is a Self-Directed IRA?
Self-directed retirement plans – whether traditional or Roth, SIMPLE or SEP – are accounts the individual investor controls himself. They are administered by financial services firms that specialize in the administration and support of self-directed retirement accounts. The account holder makes all the decisions about what types of investments to make within the IRA. This is where it gets really interesting for CPAs and their clients.

Self-directed accounts offer tax-deferred and tax-free investing, with a less restrictive level of investment alternatives than with regular IRAs, 401(k)s or SEPs – often, products and strategies clients know and understand best, and might even be investing in already outside of their retirement accounts. Savvy investors may choose to self-direct because of the potential to build a more secure future through a more diverse portfolio.

The IRA buys and sells the assets, and all transactions are tax-sheltered to the extent allowed by law. Gains and losses all occur within the retirement plan.

Why You Need to Know about These Plans
Although your clients would handle their investments themselves, they may come to you with questions you must be prepared to answer, such as which nontraditional investments are permitted by the IRS or the tax consequences of rolling over a 401(k) into a self-directed IRA. Because there are certain restrictions about what the IRS will allow, it is critical that you, as a CPA, become educated about this type of tax-deferred account to properly guide your clients towards building their retirement savings through these alternative investments. You may also want to control your own retirement fund through a self-directed IRA or SEP plan.

Who Administers a Self-Directed Plan?
Self-directed retirement accounts are administered by neutral third-party professionals like Next Generation Trust Services, LLC who hold the assets, provide full administrative assistance, and file and manage all mandatory paperwork pertaining to the transactions. Many also provide education on self-directed retirement accounts to help individuals and their advisors make the best choices for their financial goals through these tax-advantaged plans.

Let’s face it – the market over the past decade has been a real roller coaster ride. For those individuals who want to diversify and get more control of their retirement funds, self direction can be a great way to do that. As you work with your clients to plan their futures, why not be more proactive about it and discuss self direction with those investors for whom this strategy makes sense? It adds to your own strengths as their trusted advisor … and self direction could be a strong strategy for your own retirement plan.

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