Self directed Individual Retirement Accounts (IRAs) are tax-deferred investments, allowing account holders more options for their investment dollars. According to Bank Rate, self-directed IRA holders can invest in a variety of options, including real estate, private stocks and joint ventures. Although this investment strategy provides promising rewards, it's also high risk. Investors will also need to be diligent about working with a tax adviser to ensure Internal Revenue Service (IRS) tax codes are followed closely. A few tips for self directing an IRA can help.

Creating Self-Directed IRA

Creating a self-directed IRA is easy, according to "Business Week." Contact your bank's trust department and request that your existing IRA be converted to a self-directed IRA. The bank will manage the books and disperse the earnings. Make sure to ask about fees. Managing a self-directed IRA can cost hundreds and even thousands of dollars. Work closely with your accountant and financial institution to make sure the account is in compliance with IRS code.

Hiring Account Custodian

Another option for opening a self-directed IRA is hiring an account custodian. These individuals are "keepers" of self-directed IRAs, according to Bank Rate. They have a lot of experience handling these investments. Choose a custodian who works based on fees instead of commission. When using an account custodian, you'll still need to work closely with an account to ensure investments meet IRS code requirements.

Self-Directed IRA Risk

According to Bank Rate, self-directed IRAs aren't for everyone.These investments come with a high level of risk. For example, people who are depending on IRA funds for investment very soon should consider other options. Also, people who don't have much to invest might not do well with this approach. Bank Rate explains that self-directed IRAs might be most appropriate for people with a high net worth--$1 million or more in assets. That's because these investments have the potential to worsen your tax situation. If you're unsure if this investment is right for your situation, consult a tax adviser.

Source:

Bank Rate: Self-Directed IRA a Good Bet?)

"Business Week:" Blaze your own IRA Trail; 2006