According to statistics published by the Investment Company Institute on March 22, 2017, assets in IRAs totaled $7.9 trillion at the end of the fourth quarter of 2016, an increase of 1.1 percent from the end of the third quarter of 2016. However, since 2008, the volume of funds invested in IRAs has doubled.

While approximately 5% of the $7.9 trillion invested in IRAs are in self-directed IRAs, there has been a 21 percent year –over –year increase in self-directed IRAs with approximately 75 percent of all self-directed IRAs having invested in real estate.

Most traditional IRA trustees (bank, brokerage houses and mutual funds) will not act as trustees for real estate or other unorthodox investments. This means the IRA owner must locate an independent trustee that offers such a service (for example to hold title to the real estate).

Self-directed IRAs have been around for years, but they’ve been gaining popularity recently among do-it-yourself investors looking to expand beyond stocks, bonds and mutual funds. There is growing dissatisfaction among 401(k) owners with their investment options, portfolio- performance and high fees. This is exactly why so many people decide to move their money from 401(k) to an IRA rollover as soon as they leave their job.

Rollovers from 401(k) plans are the most common way to fund a self-directed IRA. However, funds in a traditional IRA can easily be transferred to a self-directed IRA. This transaction is sometimes referred to as a custodian-to-custodian transfer. IRA holders can perform as many of these transfers as they would like. Such transfers are not a reportable event to the IRS. Typically, you will need to liquidate publicly- traded securities in your traditional IRA prior to the transfer.

Proponents of self-directed IRAs believe they benefit society because they help lubricate entrepreneurial activity and provide more options for investors. Although corporate lobbyists might think otherwise, most experts say there’s no good reason why tax law should push retirement savings only into things like publicly traded stocks or mutual funds.

The recent growth in self-directed retirement accounts mirrors the broadening popularity of alternative investments of all kinds. Institutional investors have been using alternatives for years, of course, often putting up to a quarter of their assets in private equity, hedge funds, real estate and private partnerships. To a degree, the trend has been fueled by disappointment with Wall Street’s usual offerings.

Once you have made the decision to go the self-directed route, choosing a competent custodial institution is of utmost importance. There are many custodians from large to small and they all operate differently including the fees they charge. A good reference source is “Trust Advisor”, America’s Leading Wealth Management e- newsletter. They recently polled their readers on their favorite IRA custodians and only ten firms earned enough votes to make an impact on the results. Their 17 page report in PDF format entitled America’s Best IRA Custodians is well worth reading not only for the ranking of the custodians but also the inner-workings of self-directed IRAs.  Another “Trust Advisor” report worth reading is entitled “2016 America’s Most Advisor-Friendly Trust Companies”