Once ERISA was passed, the securities markets were responsible for bringing the IRA and 401(k) to the mass market. The banks and brokerage houses created a misconception that buying stocks, bonds and mutual funds was all that was allowed through retirement products such as an IRA. This is 100% false! Banks and brokerage houses have a vested interest in having you invest in stocks, bonds and mutual funds - not real estate, businesses and other non-traditional investments. Do not let the interests, or lack of knowledge of your financial advisor limit your ability to maximize the investment potential of your retirement accounts. There are many great brokers who understand that true diversification happens when your funds are invested in a variety of different markets. Guidant would be more than happy to introduce you to a professional who will be able to help truly diversify your IRA.

What funds can be used? Traditional IRA Roth IRA SEP IRA Keogh

401(k) 403(b) And many more!

It must be noted that most employer sponsored plans such as a 401(k) will not let you roll your account into a new vehicle while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.

How Many People Have them?

This is a difficult number to determine. However, the self-directed industry is growing at a rapid pace and is expected to see upwards of $2 trillion enter the market during the next two years. Some of the latest numbers show more than 45 million IRA holders in the U.S. and less than 4% of those funds are held in non-traditional assets. This number is expected to increase significantly during the next five years as more and more individuals and their financial advisors attain a greater awareness of self-directed IRAs.

Are there any limits to what I can invest in?

Yes. As discussed previously, you cannot invest in Collectibles or Life Insurance Contracts. In addition, there are certain transactions in which you cannot participate when using IRA funds. These are referred to as "prohibited transactions". Prohibited transactions are defined in IRC § 4975(c) (1) and IRS Publication 590. They were established to maintain that everything the IRA engages in is for the exclusive benefit of the retirement plan. Professionals often refer to these as "self-dealing" transactions. Self-dealing occurs when an IRA owner uses their individual retirement funds for their personal benefit rather than to benefit the IRA. As an IRA owner, if you violate these rules, your entire IRA could lose its tax-deferred or tax-free status. It is very important that you work with a competent Retirement Account Facilitator to help avoid violating these rules.

Specifically what is illegal?

IRC § 4975(c) (1), identifies prohibited transactions to include any direct or indirect:

• Selling, exchanging, or leasing any property between a plan and a disqualified person. For example, your IRA cannot buy property you currently own from you.
• Lending money or other extension of credit between a plan and a disqualified person. For example, you cannot personally guarantee a loan for a real estate purchase by your IRA.
• Furnishing goods, services, or facilities between a plan and a disqualified person. For example, you cannot use personal furniture to furnish your IRAs rental property.
• Transferring or using, by or for the benefit of, a disqualified person the income or assets of a plan. For example, your IRA cannot buy a vacation property you or your family intend to use.
• Dealing with income or assets of a plan by a disqualified person who is a fiduciary acting in his own interest or for his own account. For example, you should not loan money to your CPA.
• Receiving any consideration for his or her personal account by a disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan. For example, you cannot pay yourself income from profits generated from your IRAs rental property.

If you participate in a transaction which does not fit SPECIFICALLY within these guidelines, the Department of Labor or the IRS will analyze the specific facts and circumstances in order to decide whether you have engaged in a prohibited transaction. A Retirement Account Facilitator can help educate you regarding how these may apply to investments you are considering.

Who are Disqualified Parties?

Many of the prohibited transactions are the result of a very simple equation:

• Plan (or plan asset) + Disqualified person = Prohibited Transaction

A plan is defined to include tax-qualified plans, IRAs and other tax favored arrangements. For the complete definition you can reference IRC § 4975(e) (1). A disqualified person (IRC §4975(e) (2)) is defined as:

• The IRA owner
• The IRA owner's spouse
• Ancestors (parents, grandparents)
• Lineal Descendents (daughters, sons, grandchildren)
• Spouses of Lineal Descendents (son or daughter-in-law)
• Investment advisors
• Fiduciaries – those providing services to the plan
• Any business entity i.e., LLC, Corp, Trust or Partnership in which any of the disqualified persons mentioned above has a 50% or greater interest.

Why do the rules seem Complex?

These rules exist to ensure that your IRA does not engage in any investment activity other than for the exclusive benefit of the IRA. There are many types of investments which violate this law. For example, buying a house and then letting your mother rent it would potentially create a conflict of interest. If your mother, who was making rent payments, all of a sudden could not - you would be conflicted from evicting her and finding a more reliable tenant. You would then have a conflict of interest between your relationship with your mother and what is in the best interest of your IRA. These rules were put in place to help avoid these sorts of scenarios. See IRC § 408.

If you take a look at the expected return on investment (aka ROI) for the time from 1950 to 2000, you'll find that it is almost the same. Some stocks have indeed outperformed real estate, but real estate outperformed the NYSE in the same period. Historically both are a good investment, however this fact does not mean that it will always be the same. In both fields, there is still the possibility of loosing or earning huge amounts of money.

One compelling argument for investing into real estate is the limitation of space. There is no limited number of companies in the world. It can grow and grow as much as there are people creating companies. This fact means that existent stocks get devaluated. Real estate in nice location like New York or Miami will always have some sort of value. People travel more day by day and they will still going to visit such places. So, if you already hear the phrase that real estate is about location, location, location; remember it when you invest. Buy there where everyone would go, whether as a tourist or inhabitant. Real estate will probably be for a long time an investment field that provides tranquility and solid value over time. Stock markets are more for people wishing to take a risk.

Learn more about what an IRA is by visiting wikipedia.