Managing your IRA retirement plans correctly is essential if your IRA is one of the major building blocks for your future. Here are a few different ways to manage these plans.
1. Broker-Managed Portfolio
One of the most popular ways to handle an IRA is to let your financial broker do it for you. With this method, you do business with a financial planner who specializes in retirement assistance. The broker acts as your custodian for the IRA, managing all of the transactions for you. The level of your involvement can vary depending on the broker. For example, he or she may consult you before every trade or purchase or may just do it all for you. You can tell your broker what you would like to accomplish, and he or she can help you get there. With this method, you are leveraging the experience of a financial professional in order to meet your retirement goals. For those without much experience in the financial markets, a broker's expertise and experience could be very valuable.
2. Self-Directed IRA
Another option is to use a self-directed IRA. With this, you make all of the individual investment decisions yourself. This strategy is great for those with some experience in investing and for people who want to be in full control over their retirement funds. With a self-directed IRA, you do your own research about investments. You then place the order for the asset and decide if and when to sell it. You are in charge of your own diversification and the investment mix.
3. Checkbook IRA
Another way to manage an IRA is by setting it up to be a checkbook IRA. The checkbook IRA is designed to give you increased flexibility when it comes to what you can invest in. With traditional types of IRAs, you are somewhat limited legally in what you can invest in. You are usually allowed to invest in stocks, bonds, mutual funds and CDs. However, in addition to restrictions put in place by the federal government, many financial institutions do not permit their IRAs to be used for investments in such things as real estate or the foreign exchange (FOREX) market.
With a checkbook IRA, you set up an LLC (Limited Liability Company) and then invest in the LLC with funds from your IRA. These funds can now be used for nearly any purpose, and all you have to do is write a check from your LLC. Then all of the profits can be passed back into the IRA without any problems. This can be a great way to invest in things that you feel comfortable with instead of only what the broker has to offer. You could potentially invest in partnerships, franchises, real estate and a host of other things.