In Florida, opportunity often comes wrapped in sunshine. A new real estate venture in Orlando, a small business along the Gulf Coast, or an investment property near the Space Coast. Many Floridians prefer to build wealth by investing in tangible assets they can see and understand, rather than traditional Wall Street portfolios.
That’s where self-directed IRAs come in. These specialized individual retirement accounts (IRAs) let you use your savings to invest in real estate, private companies, or other local opportunities you know best. Offering flexibility, control, and the potential for long-term growth right here at home.
Understanding how these accounts work can help you make informed decisions about your financial future in Florida’s dynamic investment landscape.
What Is a Self-Directed IRA?
A self-directed IRA is a type of individual retirement account that allows you to invest in a broader range of assets than a standard IRA. Traditional and Roth IRAs typically hold stocks, bonds, and mutual funds. A self-directed account lets you branch out into alternative investments such as:
- Real estate, rental properties, and mortgages,
- Private equity or private lending,
- Limited liability companies (LLCs) and partnerships,
- Precious metals like gold and silver, and
- Cryptocurrency or other emerging asset classes.
A qualified custodian manages these accounts, but you direct them. That means you, not the bank or broker, decide how to invest the funds. This freedom also means you must follow strict IRS rules to avoid penalties and account disqualification.
How Do Self-Directed IRAs Work?
Self-directed IRAs function much like any other IRA in terms of tax treatment. You can choose between a traditional IRA (tax-deferred contributions) or a Roth IRA (after-tax contributions with tax-free withdrawals). The key difference is the investment options available and the level of personal involvement required.
Here’s how the process generally works:
- You open a self-directed IRA with a custodian or trustee that handles these specialized accounts;
- You fund the account through contributions, transfers, or rollovers from another retirement account; and
- You select the investment, such as buying a rental property, and direct the custodian to execute the transaction.
All income and expenses tied to the investment must flow through the IRA, not your personal accounts. This separation preserves the account’s tax-advantaged status.
Risks of Self-Directed Accounts
The opportunity to invest in almost anything is appealing. However, that flexibility comes with greater risk. Unlike mutual funds or ETFs, many self-directed investments are not publicly traded and lack clear market valuations. That can make them harder to monitor or sell quickly.
Common risks include:
- Fraud and scams. Because self-directed accounts aren’t regulated like traditional investments, fraudulent promoters sometimes target them.
- Lack of liquidity. Real estate and private investments can take time to sell, tying up retirement funds longer than expected.
- Complex compliance rules. A simple mistake (like paying expenses from the wrong account) can disqualify the IRA.
Before investing, thoroughly research the opportunity. Consult professionals who understand both the tax and legal aspects of these accounts.
Advantages of Self-Directed IRAs
Despite their risks, participant-directed accounts offer several advantages for the right investor, including:
- Diversification. You can reduce market exposure by holding assets that behave differently from stocks and bonds.
- Control. You choose investments that align with your personal knowledge, values, or business goals.
- Tax benefits. Depending on the type of IRA, you may benefit from tax-deferred or tax-free growth on all earnings.
- Local investment potential. Many Florida investors use these accounts to invest in properties or small businesses located close to home.
For disciplined, informed investors, the flexibility of a self-directed IRA can unlock unique opportunities for long-term growth.
Who Can Benefit from a Self-Directed IRA?
Self-directed IRAs are not just for high-net-worth individuals. They can benefit anyone who wants greater diversification and control over their investments. You might consider this type of account if you:
- Have expertise in a particular investment area, such as real estate or small business ventures;
- Want to diversify beyond the stock market;
- Are comfortable managing and researching your own investments; or
- Have retirement funds tied up in a traditional IRA or 401(k) and want more flexibility.
These IRAs can also be a way for Florida business owners to invest in their own community or industry without violating retirement account rules.
What Are the IRS Rules and Restrictions?
While self-managed IRAs offer freedom, they also come with clear boundaries. The IRS prohibits certain types of transactions known as “prohibited transactions.” These rules aim to prevent you from using your retirement funds for personal gain outside of legitimate investment activity.
Examples of prohibited transactions include:
- Buying property for personal use, such as a vacation home,
- Borrowing money from your IRA or using it as collateral for a loan,
- Selling property you already own to your IRA, and
- Paying yourself or family members to manage IRA-owned assets.
Violating these rules can result in the IRS disqualifying the entire account. Disqualification can lead to assets becoming immediately taxable and potentially subject to penalties. Working with a business attorney familiar with IRAs can help you stay within legal limits.
Why Work with BrewerLong
Self-directed IRAs offer Florida investors a powerful way to take control of their retirement strategy. However, they also require careful planning and compliance. By understanding the rules and working with qualified professionals, you can use these accounts to grow your wealth.
At BrewerLong, we help Florida business owners and investors make informed financial decisions. Our attorneys understand the intersection of business, tax, and estate planning law. We apply that knowledge to help clients structure and protect their investments.
Founded in 2008, BrewerLong has built lasting relationships across Central Florida’s business community. We combine strategic insight with personal attention to help clients navigate complex tax and investment matters.
Our team can help you:
- Review the structure of your IRA and custodial agreement,
- Identify potential conflicts or prohibited transactions,
- Draft or review contracts for IRA-owned assets or business interests, and
- Coordinate with your tax advisor to maintain compliance.
Whether opening your first self-directed IRA or managing multiple investment entities, our team can help you take advantage of key opportunities.
Contact our office today to discover how BrewerLong can help you structure, manage, and protect your investments.
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