A Self-Directed Individual Retirement Account (SD-IRA) is identical to a traditional individual retirement account (IRA) except for the additional investment flexibility provided to the IRA owner. This additional flexibility allows the IRA owner to invest in assets beyond the typical stocks, bonds, and mutual funds.
In many ways, a SD-IRA is setup and funded the same way as a traditional IRA. The same restrictions for annual contributions also apply. For example, the 2017 Traditional IRA Contribution limit is $5,500 and $6,500 if you are 50 years old or older.
In practice, most SD-IRA’s are funded from existing IRA accounts that do not offer the self-directed feature, or a number of traditional IRA accounts are rolled into one SD-IRA.
For LMDG, typically this is the case in which someone’s intent is to setup a SD-IRA to provide themselves the ability to invest with us.
Example 1: Trent has $500,000 in a traditional IRA account with a national brokerage firm who does not offer SD-IRA’s and Trent wants to invest $100,000 with LMDG.
Solution: Trent can open a SD-IRA and fund the account with $100,000 from his existing IRA and invest with LMDG. Trent now has a traditional IRA with $400,000 and a SD-IRA with $100,000.
Example 2: John has three different 401k’s from former employers that have a combined total of $75,000. The returns haven’t been great, and John is tired of managing three different small accounts. He would like to invest the total $75,000 with LMDG and earn 9% annually.
Solution: John has the option to open a SD-IRA and fund one account using his three outstanding old 401k accounts totaling $75,000. Once the SD-IRA is setup and funded, John can invest with LMDG and he’s consolidated three retirement accounts into one.