There are 11 types of IRA’s; that’s right Eleven! But do you know about the Self-Directed IRA and what the benefits are?

Most investors mistakenly believe they have a “self-directed IRA” when in fact they have one that limits their choices to a few investment types. Within your plan, you can choose stocks, mutual funds or bonds. And while you may have hundreds and even thousands of choices of where to put your money inside that account, chances are you won’t be able to invest in nontraditional retirement assets — especially if your IRA or 401(k) rollover is with a traditional brokerage house.

So just what is a true self-directed IRA? It’s an account allows you to invest in many other options within your IRA, including:

Such investments receive the same tax treatment as more traditional IRA assets. Any tax due is deferred until withdrawal, typically at age 70½, when your are required to start drawing down your savings, or possibly sooner.

This is an account for hands-on active investors with unique knowledge of some of the asset classes in the approved list, not for a “set it and forget it” investor.

By using this type of account it is possible to make some sizable returns from a relatively small amount of money. Here’s an example:

You have an opportunity to buy a rundown house from an estate that would like a quick sale. You determine the house is worth $200,000 — after you have spent $40,000 in upgrades. You contract to purchase the property for $120,000. But lacking the $160,000 to proceed with the sale, you enlist a partner who agrees to provide the full amount, provided you handle all the details, including closing, rehabbing and reselling the home.