Invest like Mitt Romney? Use a Self-directed IRA, Even if You’re Not a One Percenter
How can you invest like multimillionaire Mitt Romney? Through something called a self-directed IRA. The former presidential candidate held from $20 million to $100 million in one.
Self-directed individual retirement accounts let you invest in real estate, precious metals, even Eagles tickets.
What is a self-directed IRA? Simply, you decide what, beyond Wall Street’s offerings, to invest in your retirement account.
It’s a niche vehicle, with complex rules (see IRS Publication 590). Most banks and brokerages won’t offer self-directed IRAs because the Street makes little money from them.
You can buy and sell almost anything: private placements, oil and gas leases, tax liens, and deeds – everything except life insurance and collectibles such as jewelry, rugs, and antiques.
Outfits such as Blue Bell-based Camaplan, founded by Carl Fischer and Maggie Polisano, administer self-directed IRAs.
Camaplan places the accounts in custody with Bryn Mawr Trust. Its 3,500 clients own notes, real estate (single-family homes, condos, industrial warehouses, office, retail), private placements (trusts and hedge funds), and precious metals (gold, silver, platinum, palladium).
Local real estate developer Sheila Dragon uses IRA lender money to fund her projects. “It’s a great way to diversify. I offer my investors 10 to 15 percent returns annually,” she says. “But you have to be careful, because you’re handling someone’s retirement money.”
Some IRAs own the bizarre or the interesting, Fischer says: llamas, which they shear to sell wool; houses that Marcellus Shale oil frackers rent.
There are drawbacks. Tax-advantaged accounts have contribution limits, as do all IRAs, 401(k)s, and educational savings accounts, Fischer says. “Self-direction just allows you more choices” beyond stocks and bonds, he adds.
It’s key to avoid self-dealing, which prohibits using tax-advantaged assets for personal use. For example, if you buy a Jersey Shore vacation property inside an IRA, you can’t rent it out to family.
Fraudsters may exploit self-directed IRAs, because they permit investors to hold unregistered securities and the accounts’ custodians or trustees likely have not investigated the securities or the background of the promoters.
In 2011, the Securities and Exchange Commission’s Office of Investor Education and Advocacy and the North American Securities Administrators Association issued an Investor Alert to warn about self-directed IRAs. Visit the SEC website (investor.gov) for details.