Opening a Self-Directed IRA
Planning for your retirement can be a hassle, especially if you are relying on someone else to build your nest egg. The perfect option for those who want to take a more hands-on approach to investing is opening a self-directed IRA.
Opening an SDIRA puts you in charge of your savings and investment decisions. If the idea of building your own retirement plan and preparing for your future is appealing, here are the top 7 things you need to know about opening a self-directed IRA.
#1 – Have a Game Plan
With any financial investment, the first step is to come up with a plan of action. Perform your due diligence and research self-directed IRAS and what you need to do to secure your retirement. Plan based on your personal expertise and, if possible, consult the help of a financial professional.
Write down how much you want to invest, how you want to use your funds, and the timeline in which to achieve your goal.
Consider which assets you want to invest in and how much you are willing and able to put into your savings account. Additionally, be sure to look at any IRS rules and regulations to set up your retirement plan correctly. As you explore your options, consider the following.
#2 – Account Growth and Tax Advantaged Savings
A perk to owning a self-directed IRA is the tax advantaged savings. As you select your plan, keep in mind how much you must put into your savings and how you want it to grow. A traditional IRA has a minimum required contribution yearly, but your fund grows tax-deferred for better long-term growth.
Your funds are only taxed upon withdrawal based on your income at the time. The problem may lie in making your contributions. If you don’t have the funds to make the minimum contributions for a traditional IRA, consider a Roth IRA.
Roth IRAs do not require a minimum contribution. While you miss out on the up-front tax break, all withdrawals on a Roth IRA are tax-free once you reach retirement age. Depending on your financial situation, either could be beneficial.
#3 – Investing in Alternative Assets
Most financial institutions allow you to invest in three primary assets: traditional stocks, bonds, and mutual funds. Opening an SDIRA allows you to explore your options with a wide variety of alternative investment choices.
Depending on your personal interests, you can invest in real estate, small businesses, rental properties, precious metals, tax liens, personal loans and more. Having an SDIRA allows you to create a diverse portfolio for a secure retirement.
It should be noted while there are many different assets you can legally invest in, there are a few that the IRS considers off-limits including life insurance, tangible assets, and most collectibles. As you select your assets, consider what you know and start from there.
#4 – Select Your Custodian
As you select your assets, keep in mind that the IRS requires all SDIRA account holders to enlist the services of a certified IRA custodian to oversee the account. When choosing a custodian, find one that will work for you. To find the best custodian for your needs, evaluate your types of investments.
Choose a custodian with expert knowledge, a good BBB referral, and a fee that fits your wallet. Research your options carefully and find the best custodian for your personal needs.
#5 – Build Your Portfolio
After exploring alternative investments and selecting the right custodian, it is time to start building your portfolio. Diversity is the key to a well-rounded retirement plan. With a variety of investments, your account will have different growth options that will benefit your long-term goals.
Placing all your fund into one asset could prove to be detrimental should the investment fail and spreading your funds too thin could accumulate very few funds. A balance of long-term and short-term investments can have the best results. This strategy can also protect against any unfortunate investments. Be selective with your assets to make your IRA work for you.
#6 – Avoid Common Pitfalls
As you build your retirement fund with a self-directed IRA, keep in mind that as the account holder you are personally responsible for your account. Perform your due diligence to be certain that you are following the proper regulations. Avoid prohibited transactions like self-dealing to avoid account disqualification or penalties.
Additionally, do not engage in any transactions with disqualified individuals: spouses, children, grandchildren, etc. Doing so can compromise your savings. As the account holder, you oversee your investment strategy. Before making any investment choices, consult a financial professional to be sure all your decisions are by the book.
#7 – Commit to Account Control
Taking charge of your retirement means more than setting up your investments. As the investor, you must monitor your account and be on top of your portfolio. It’s imperative to make changes when needed, cut what isn’t working and move your funds to optimize growth.
Be vigilant; being hands-on means having complete control. Keep your account up to date and report all important information to your custodian. Building a secure retirement takes time, commitment, and a bit of finesse.
Preparing for Your Future
Opening a self-directed IRA means taking the wheel of your retirement plan. With a wide variety of assets, tax advantage options, and a well-thought out portfolio, you can truly benefit from your SDIRA. Perform your due diligence, consult a financial advisor, and select the best IRA custodian for the job. Don’t wait to start planning for your future. Began building your nest egg by contacting a self-directed IRA expert today!