Why Family Offices Should Consider Investing Through Self-Directed IRAs

Published on May 20, 2024

High-net-worth families can build multi-generational wealth through the alternative assets allowed through self-direction

One of the prime activities of family offices—the private wealth management firms that work with high-net-worth individuals or families—is to help clients preserve and generate wealth for current and future generations. This may include financial planning and advice, asset management, estate planning, and lifestyle management for the wealthy.

As part of their financial services, high-net-worth family offices can incorporate self-directed IRAs as part of their clients’ investment strategy.

Benefits of Self-directed IRAs for family offices

As with any IRA, all self-directed IRAs may be Traditional or Roth and are tax-advantaged accounts. That’s where the similarities end.

• Self-directed IRAs allow for investments in a broad array of alternative assets – if the family office’s financial advisors or the actual family members have an understanding and familiarity with certain alternative assets, they can include these in the self-directed retirement plan.
  • Examples of these nontraditional investments are real estate, private equity funding, venture capital, precious metals, commodities, royalties, private placements, and more.

• Compared to stocks, bonds, and mutual funds, the alternative assets these plans allow are typically less liquid, with long-term investment horizons. They also have the potential for higher returns over time.

• These plans provide portfolio flexibility and resilience– portfolios are greatly diversified, with investments that are not correlated with the stock market, which reduces risk during downturns and provides a hedge against market volatility.

• Self-directed IRAs enable more direct control over investments, with tailored investment strategies that align with family goals and risk tolerance. They also enable investors to take advantage of exclusive or more creative investment opportunities.

Considerations regarding self-direction for family offices

As the name connotes, “self-direction” means that investors make all their own investment decisions. Whether family members or trusted advisors are the ones calling the investment shots, bear in mind that this strategy requires more due diligence by the account owner when it comes to selecting investments. This includes knowledge about particular asset classes.

Members must be careful about self-dealing and prohibited transactions, which will disqualify the IRA’s tax-advantaged status.

Family offices—like any investor—are advised to select a custodian with experience handling self-directed IRAs and the alternative asset classes they allow. When researching custodians, don’t be afraid to ask questions about the services offered, assets under management, or expertise with certain assets.

Working with Next Generation

As a custodian of alternative assets within our clients’ self-directed retirement plans—and a sister firm that specializes in comprehensive account management—Next Generation Trust Services provides expert custodial services and client education about the many options and benefits of these plans.

We have 20 years of experience working in the self-directed IRA space and with the many alternative assets our clients invest in. Our team executes all transactions upon clients’ instructions and our transaction vetting system is in place to flag any potential issues that may violate IRS regulations. We file all mandatory paperwork associated with the accounts and prepare the required reports for tax purposes.

Our convenient starter kits are always available online with step-by-step instructions on how to open and fund a self-directed IRA. We invite you to learn more in a complimentary educational session, or you may contact us at NewAccounts@NextGenerationTrust.com or 888.857.8058 with your questions.