Self-Directed Investing FAQs
The following frequently asked questions many investors have about self-directed IRAs and investing with self-directed accounts at Sterling Trust.
What’s the difference between a self-directed IRA and a traditional IRA?
A self-directed IRA is technically no different than any other IRA – or 401(k), for that matter. A self-directed IRA is unique because of the investment options available. Most IRAs only allow approved stocks, bonds, mutual funds and CDs. A truly self-directed IRA allows those types of investments along with real estate, notes, private placements, tax lien certificates and much more.
What are the advantages of opening a self-directed IRA?
In addition to the benefits of an IRA (tax-free earnings, tax deductions and estate planning), a self-directed IRA allows you to significantly diversify your portfolio with additional investment instruments permitted by the IRS, such as oil and gas investments, commercial real estate, foreign currencies and much more.
What other types of investments are allowable with a self-directed IRA?
Here are investments which are permitted at Sterling Trust and under the Internal Revenue Code:
• Residential real estate—including apartments, single family homes, and duplexes
• Commercial real estate
• Undeveloped or raw land
• Real estate notes (mortgages and deeds of trusts)
• Promissory notes
• Private limited partnerships, limited liability companies, and C corporations
• Tax lien certificates
• Foreign currencies
• Oil and gas investments
• Publicly traded stocks, bonds, mutual funds (see our Brokerage Information)
• Private stock offerings, private placements
• Judgments/structured settlements
• Gold bullion
• Automobile paper
• Factoring investments
• Equipment leasing
Are any investments off-limits in my self-directed IRA?
A prohibited transaction can jeopardize the tax-deferred status of your account, potentially resulting in the disqualification of your IRA and severe tax consequences. Examples of investments which are not permitted under the Internal Revenue Code:
• Works of art
• Rugs or antiques
• Stamps or coins
Here are useful links to IRS information to review and discuss with your financial professional.
Can I rollover a 401(k) account into a self-directed IRA?
Yes. In addition to the tremendous IRA benefits (tax-free earnings, tax deductions and estate planning), a self-directed IRA gives you the ability to significantly diversify your portfolio with additional investment instruments that are permitted by the IRS.
Should I have a financial advisor help me make self-directed investments?
With a self-directed IRA, you can make your own investment decisions, or you can enlist the help of a financial advisor. It’s recommended that you have any investment decision you make reviewed by a trusted member of your financial team, such as your accountant, financial planner or lawyer before investing.
Does Sterling Trust act as a financial advisor (i.e., give investment advice or endorse investments)?
Sterling Trust is a passive, self-directed IRA custodian of your account, preparing account statements for you and reports for the IRS. Our role is to carry out an IRA owner’s directions (much like a bank carries out payment instructions when an account owner writes a check). We do not review, research or analyze your investment choices and do not opine on investment decisions. You should consult a trusted financial professional such as your accountant, financial planner or lawyer before making an investment.
Are my investments insured against loss by a governmental agency?
Outside of FDIC-insured investment products, ALL investments carry risk including loss of principal. It’s very important to understand that, other than FDIC-insured products, NO investment is guaranteed by governmental agencies. (Be cautious of anyone who implies that an investment is guaranteed by a governmental agency.)
Are my investments insured against loss by Sterling Trust?
Outside of FDIC-insured investment products, ALL investments carry risk including loss of principal. It’s very important to understand that, other than FDIC-insured products, NO investment is guaranteed by governmental agencies nor are investments guaranteed by Sterling Trust. (Be cautious of anyone who implies that an investment is guaranteed by a governmental agency.)
Are there educational resources to help me be a more aware investor and protect myself against investment fraud?
There are many investor education resources available to help you become a more informed investor. Sterling Trust, in partnership with the Retirement Industry Trade Association, has compiled information from governmental and private agencies to help you become a more informed and aware investor. These resources include training videos, webinars, checklists and much more. We encourage everyone to utilize these resources by visiting www.trustetc.com/check-before-invest.
What if I need to get my money right away? How easy is it to cash out of a self-directed IRA?
That depends on the investment. The liquidity of your investments—how quickly you can sell an asset—is an important point to discuss as you review your investment options with a trusted financial professional. Stocks or bonds, for example, are easier to cash out than real estate. Once you make a “buy” or “sell” decision, Sterling Trust will help you complete your transaction.
What kind of reporting should I expect from Sterling Trust on my self-directed IRA?
Sterling Trust makes it easy for you to manage your self-directed IRA any hour of the day or night. You will have 24/7 secure online access to your account in addition to quarterly progress reports that Sterling Trust will provide. Additionally, Sterling Trust takes care of all required IRS documentation.
What are your ongoing fees? What services should I expect for those fees?
Sterling Trust offers an all-inclusive fee schedule, with no hidden fees or surprise charges. It’s very simple and easy to understand: There are no transaction fees when you buy and sell assets. (It is important to note, however, that you may incur online brokerage fees through our registered brokerage affiliate.) Sterling Trust charges a flat annual fee, based on the size of your investment portfolio.
If you have questions, you can always call us at 1-888-ETC-IRAS (382-4727), send us an e-mail, or click on the live chat box on our web site. We have experts who will answer your questions Monday through Friday, 9 a.m.-6 p.m. EST. Here is a link for more information about Sterling Trust’s all-inclusive fee schedule.
How is Sterling Trust regulated?
• The Internal Revenue Code sets high standards for being a qualified custodian of IRA accounts, which includes banks, trust companies and approved brokerage firms. Sterling Trust Company and its affiliates have operated as a qualified IRA custodian since 1983.
• Sterling Trust Company operates as a trust company under authority granted by the state of South Dakota and is also supervised by the Texas and the Ohio departments of banking as well.
• Sterling Trust meets the state trust company capital requirements and complies with all applicable state statutes and regulations.
• By law, our governing bodies are mandated to conduct regular audits of trust companies performed by state auditors.
• The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) regulate Sterling Trust’s brokerage affiliate, Mid-Ohio Securities.
• The Department of Labor (DOL) regulates qualified plans administered by Sterling Trust.