Can You Manage Your Self-Directed IRA in Fidelity?

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Are you ready to steer your Self-Directed IRA toward greater control and potential growth with Fidelity? As a leading brokerage, Fidelity provides Traditional and Roth IRA options.

It empowers you to build a diversified portfolio through stocks, ETFs, and innovative tools like the Fidelity Go robo advisor and Fidelity Crypto for cryptocurrency investments. Discover Fidelity's policies on self-directed management, key limitations, and tailored alternatives to optimize your retirement strategy.

Key Takeaways:

• Fidelity offers Traditional and Roth IRAs with broad investment options like stocks and mutual funds. But it does not fully support self-directed IRAs for alternative assets such as real estate or precious metals.
• Managing a self-directed IRA requires a specialized custodian. Fidelity's policies prohibit non-traditional investments, limiting flexibility within their platform.
• If full self-directed control is needed, explore alternatives like dedicated IRA custodians. Fidelity remains ideal for standard IRA management.

What is a Self-Directed IRA?

A Self-Directed Individual Retirement Account (SDIRA) is defined by the Internal Revenue Service (IRS) as an individual retirement account that permits the account holder to direct investments into non-traditional assets. For 2023, the contribution limits are established at $6,500 for individuals under the age of 50 and $7,500 for those aged 50 and older.

Key features of an SDIRA include the following:

• Custodian Role: A third-party custodian, such as IRA Financial Group or IRAR, manages transactions and ensures compliance with IRS regulations.
• Permissible Assets: Account holders may diversify into alternative investments, including direct real estate purchases or precious metals that meet specific purity requirements (e.g., 99.5% for gold). Precious metals like gold can serve as a hedge against inflation in retirement planning. Discover top gold IRAs to hedge against inflation in retirement with practical examples and comparisons.
• Prohibited Transactions: Avoid self-dealing, which means using IRA assets for personal benefit, and other restricted activities under Internal Revenue Code (IRC) Section 4975, IRS rules to prevent misuse. This helps avoid penalties.

Want to invest $50,000 in private equity? Set up an SDIRA, transfer funds through the custodian, and direct the purchase of shares in a carefully checked fund.

A 2022 study by the Investment Company Institute shows SDIRAs make up about 5% of total IRA assets. This highlights their growing role in alternative investments.

Benefits and Risks

Self-Directed Individual Retirement Accounts (SDIRAs) provide substantial advantages, including enhanced portfolio diversification. According to a 2023 Fidelity study, alternative investments can increase annual returns by 2-4%.

However, these accounts also entail risks, such as illiquidity associated with real estate holdings.

Tax-deferred growth is a key benefit. A Roth SDIRA lets you withdraw money tax-free after age 59. This boosts compound interest over time.

SDIRAs let you customize your investments to match your goals. For example, you could put 20% into precious metals if you like higher risk.

Valuing assets can be tricky. Annual appraisals often cost more than $500.

The IRS charges up to 15% penalties for prohibited transactions. This includes personal use of account assets.

Think about returns. A $100,000 SDIRA in real estate at 8% yearly beats stocks at 6% over 10 years.

This adds $20,000 more in net returns, per National Association of Real Estate Investment Trusts (NAREIT) data.

Talk to a qualified custodian. They will help you follow all the rules and avoid issues.

Fidelity Investments Overview

Fidelity Investments managed over $11.6 trillion in assets as of 2023. Through Fidelity Brokerage Services LLC and custody by National Financial Services LLC, it offers top wealth management, including the Fidelity Go robo-advisor at just 0.35% fee.

Established in 1946 by Edward C. Johnson II, Fidelity has grown to serve more than 12 million client accounts globally. According to its 2023 Annual Report, the firm oversees $4.9 trillion in discretionary assets under management.

Among its core offerings, Fidelity provides commission-free trading for U.S. stocks, exchange-traded funds (ETFs), and options through its brokerage platform, enabling investors to execute transactions without incurring fees.

For personalized guidance, Strategic Advisers LLC delivers a hybrid robo-advisory service that integrates automated portfolio management with financial coaching from human financial consultants.

In the realm of retirement planning, Fidelity equips clients with practical tools, such as retirement calculators and goal-tracking dashboards, to project savings requirements and align strategies with financial goals for enduring financial stability. This extends to specialized options like precious metals IRAs, as detailed in our Fidelity Gold & Precious Metals IRA Review.

Fidelity's Standard IRA Offerings

Fidelity makes saving for retirement easy with tax-smart IRA accounts. Choose from Traditional, Roth, Rollover, or SEP IRAs - all with no fees and quick online setup. Those interested in diversifying with precious metals might appreciate our Fidelity Gold & Precious Metals IRA Review.

Traditional and Roth IRAs

Fidelity's Traditional IRA lets you contribute up to $6,500 pre-tax in 2023 if your Modified Adjusted Gross Income (MAGI, which is your income after certain deductions) is below $78,000 as a single filer.

The Roth IRA offers tax-free growth on qualified withdrawals after age 59. This makes it a great choice if you expect higher taxes later in life.

To effectively compare these IRA options, please review the following key differences:

Establishing an account is a straightforward process:

1. Submit the online application through Fidelity.com (approximately 5 minutes).
2. Fund the account via electronic bank transfer or rollover from an existing retirement account.

A 2022 Vanguard study shows Roth conversions can boost after-tax wealth by 15% for mid-income earners. Start planning your retirement today to make the most of these options!

Available Investment Options

Fidelity IRAs give you over 10,000 mutual funds with no fees. You can trade U.S. stocks, ETFs, and bonds for free too. Plus, eligible accounts let you trade crypto through Fidelity Crypto.

Check out this table to compare key investment options in Fidelity IRAs and pick what fits your goals.

Always check the prospectus for any investment.

Fidelity suggests a 60/40 split: 60% in stocks for growth and 40% in bonds for safety. They adjust this based on your age and how much risk you can handle.

• Put 60% in ETFs or mutual funds for growth.
• Allocate 40% to bonds or CDs for stability.
• Keep crypto to just 5% due to its high risk.
• Rebalance your portfolio once a year to stay on track.

Requirements for SDIRA Custodians

IRS rules require custodians for Self-Directed IRAs (SDIRAs) to be approved banks or trust companies. This setup prevents issues like using IRA assets for personal needs.

Custodians must follow six key duties to stay compliant. These steps protect your retirement savings.

1. Secure IRS approval through Form 5305 for prototype plans.
2. Keep detailed records. This includes sending annual statements that follow Department of Labor rules for sharing info with account holders.
3. Process transactions without offering investment advice, except in hybrid structures such as Directed IRAs.
4. Isolate IRA assets to avoid any commingling with other funds.
5. Perform annual valuations of accounts to support precise reporting.
6. Obtain appropriate bonding and insurance coverage to mitigate potential losses.

Common mistakes like skipping audits can disqualify your account. Penalties hit hard, with a 100% tax on the deal plus a 10% hit on the asset value. To move your 401k to gold without a penalty, proper custodian compliance is essential for seamless diversification into alternative assets.

A 2021 Government Accountability Office report highlighted big oversight gaps in custodians. uFinancial Group stands out by handling over $1 billion in assets the right way.

Do They Support Self-Directed IRAs?

Fidelity skips fully self-directed IRAs like Roth, Traditional, Rollover, or SEP that allow things like real estate. They focus on traditional stocks and bonds via their brokerage platform.

Official Policies and Limitations

Fidelity's IRA agreement limits investments to securities held by National Financial Services LLC. This rules out direct buys in real estate or private equity.

To comply with these regulations, adhere to the following procedures for establishing an account and enabling self-directed trading:

1. Open an IRA online at Fidelity.com. Enter your Social Security Number and take a quick risk quiz; it takes about 15 minutes.
2. Turn on self-directed trading for stocks and ETFs. Use the free Active Trader Pro app for charts and fast orders.

You can't store precious metals in Fidelity IRAs, per IRS Section 408 rules. They also ban collectibles like art and crypto via Fidelity Crypto. One client paid $1,000 for trying a banned trade.

For comprehensive information on advisory restrictions and compliance measures, consult Strategic Advisers LLC and Fidelity's 2023 Form ADV.

Prohibited Assets

Fidelity IRAs are prohibited from holding certain assets, such as life insurance policies, collectibles (e.g., art, stamps), and tangible real estate, pursuant to IRS Section 408(a). Violations of these restrictions may result in the disqualification of the account.

To mitigate the risk of penalties, it is advisable to avoid the following five prohibited asset categories in self-directed IRAs (SDIRAs) and instead select compliant alternatives:

1. Life insurance policies (e.g., whole life annuities): Consider term life insurance outside of IRAs or index funds for retirement growth objectives.
2. Collectibles (e.g., art, stamps, wine): Opt for cultural exchange-traded funds (ETFs), such as the MUSE ETF available through Fidelity.
3. S-corporation stock (e.g., non-public shares): Select C-corporation stocks or broad market ETFs, such as the SPY ETF.
4. Personal real estate (e.g., rental properties): Invest in real estate investment trusts (REITs) via Fidelity ETFs, such as the FREL ETF.
5. Precious metals not in coin form (e.g., gold bars): Acquire exposure through the GLD ETF.

Always check the prospectus before trading to stay compliant. The 2022 IRS Audit Guide shows 20% of SDIRA checks find banned deals, often leading to $10,000+ fines for self-dealing.

Managing Investments

Track your Fidelity IRA investments with easy tools. Use the app to monitor growth and adjust as needed.

Effective management of a Fidelity Individual Retirement Account (IRA) requires quarterly portfolio rebalancing. Use tools like Fidelity's Full View dashboard or the hybrid robo advisor Fidelity Go to keep your asset mix matching your risk level.

For example, try a 50% split to stocks for moderate risk. Put the rest into mutual funds, bonds, and CDs.

To implement this approach, adhere to the following steps:

1. Evaluate investment objectives using the Fidelity Planning & Guidance tool, which requires only 10 minutes to input key details such as age, income, and financial goals.
2. Pick funds like Fidelity Freedom Funds, Asset Manager, or target-date funds. They shift automatically from 90% stocks and 10% bonds to a safer mix as you near retirement.
3. Rebalance every quarter using the free mobile app. Enjoy commission-free trades with zero transaction fees.

Spread your investments across more than 20 holdings to cut down on risk. Stay away from trying to time the market.

Fidelity's 2023 study on investor behavior shows that timing the market lowers your returns by 1.5%.

Picture this: a rebalanced portfolio delivered 8% yearly returns over five years. Unbalanced ones only hit 6%.

Alternatives if This Company Doesn't Fit

If Fidelity's limits on alternative investments don't match your goals, look at specialized custodians like Equity Trust Company.

They handle Self-Directed IRAs (SDIRAs), which allow real estate and precious metals (our Vanguard Gold & Precious Metals IRA Review explores options at major brokers), plus standard IRAs. In 2023, you can add up to $7,500 if your modified adjusted gross income (MAGI) qualifies.

To assist in the selection process, the following table provides a comparison of leading SDIRA providers:

A 2022 Entrust Group survey points out the perks of alternative investments.

One client switched from Fidelity to Equity Trust and invested $100,000 in rental property. They earned 7% return, topping 5% from ETFs, and kept diversification IRS-approved.