Self-directed IRAs taking investors in a new direction

Regular joggers say there’s nothing like a good run to clear your head and gain perspective. For Bill Humphrey, one such run produced the seeds of his next business venture.

Mr. Humphrey is the cofounder and CEO of New Direction IRA, a provider of self-directed IRAs and HSAs. He said New Direction IRA began one day while he was jogging with cofounder and president Catherine Wynne back in 2001.

At the time Ms. Wynne was a mechanical engineer who invested in real estate as a sideline. She rolled over her 401(k) into a new IRA account with a national provider, but learned her brokerage house account provider did not allow real estate investing within her IRA.

“Why couldn’t you do what made sense to you,” Mr. Humphrey thought at the time. “It’s your retirement and you should be able to invest in what you know.”

Bill Humphrey

Ms. Wynne and Mr. Humphrey started New Direction IRA in 2003 and quickly discovered a strong public appetite for self-directed IRAs. Fast forward 14 years and the company employs more than 70 people and has more than $1.7 billion in IRA assets under administration. Along the way they have worked to educate the investing public about the benefits of self-directed IRA investing.

One such benefit is the investor can allot their funds to an area they know something about, whether that be real estate, precious metals, or technology. Most investments that make money outside of an IRA can be used to make some in it too. The IRS needs to see the asset acquisition must be a real economic transaction intended to make money for the IRA.

That also allows people to invest according to their beliefs, whether that be in the growing locavesting movement or ethical investing.

Education has been the key to New Direction IRA’s growth, Mr. Humphrey said.

“We started with CPAs, they had never seen it. Then we extended to real estate investors and agents and they had never heard of it either.”

Mr. Humphrey also attends industry conferences, where he finds many have never heard of the possibility but have an innate understanding.

Regulators aren’t as concerned with the assets as they are concerned with ensuring investors are following the rules, Mr. Humphrey said. The IRS is focusing on the value of the IRA, which clients provide to New Direction IRA who then forwards it on to the IRS.

When it comes to advice, New Direction IRA shows a client the possibilities, explains the rules and lets them make their own choices. Just like any investment, the investor needs to conduct their own due diligence. Having the opportunity to invest in something you know is a good start.

New Direction IRA has benefited from the growth of the fintech industry, Mr. Humphrey said. At the beginning everything was sent by fax and paper copies were the norm. Now the account is online as much as possible.

“New Direction IRA are among the most technologically advanced companies making the client’s life and transaction much easier,” Mr. Humphrey said.