The owner of a traditional IRA account enjoys the returns of the investments that their contributions facilitate. In the same way, self-directed IRAs allow the owner to enjoy those benefits as well. However, self directed ira custodians are required because, pursuant to IRS regulations, the owner of the IRA is not permitted to physically possess the items that they purchase via a self directed IRA. These items, the possession of them, the title, the deed, such as is the case with real estate, is held by the IRA itself and managed by the custodian.
For example, the owner of a self-directed IRA may want to invest their funds into precious metals. The owner will direct the custodian to purchase various types of silver and gold coins, as well as bullion, if finances allow. The custodian will purchase the gold, however, the gold must be held by a third party storage provider. The owner of the IRA can't possess any of the precious metals. They can enjoy the financial benefits that come from owning this type of precious metal, much like they can enjoy the cash returns when using a self-directed IRA to purchase a piece of rental property. However, until the IRA has reached maturity, none of that property can be legally possessed or owned by the IRA account holder.
Because so much responsibility is given to self directed ira custodian, it's important that whoever is acting as the custodian, whether it's a bank or a self-directed IRA provider, is licensed by the IRS to act as a self-directed IRA custodian. If there is no proper licensing, it's usually best to avoid purchasing a self-directed IRA through that particular service.
There's no question that a self directed ira account can be tremendously beneficial if a person is looking to invest in things that aren't typical of a standard IRA. This opens the door for even better returns on investment, while still offering the IRA account holder the same tax sheltering benefits of standard IRAs. It may not be something that a person will want to go into lightly, but if you're looking for more diversified returns, a self-directed IRA may be exactly what you need.