What Financial Advisors Don’t Want you to Know about SDIRAs
The financial world has turned chaotic making it difficult to set up your retirement. With the stock and bond markets ever-changing and companies pulling back on their 401K plans, building up a secure fund can seem impossible.
While the most obvious options to invest your hard-earned money may point you toward Bank Trusts or financial advisors, there are other options that may be better suited for your livelihood. The logical next step would be to invest in a self-directed IRA account. Instead of putting your trust solely in investment advisors, why not take the reins and grow your wealth through alternative investments. No two individuals are the same, so why be forced into the same IRA account?
Of course, there are many steps involved, and you should perform your due diligence when considering a directed IRA investment. An SDIRA account can open the door to many alternative investment opportunities that can suit your personal lifestyle and solidify your nest egg. So, why look into a self-directed retirement account?
Opening an SDIRA puts you in charge of your retirement funds. Self-management allows you to choose which retirement account best suits your personal needs, whether you decide on a traditional IRA, a Roth IRA, an LLC, or a SIMPLE retirement plan. From there, you can choose which assets you want to invest in to best grow your nest egg. You decide how to set up your finances based on your personal knowledge and research. While you do need an IRS approved SDIRA custodian to monitor your account, anything you decide to do with your plan is in your hands.
Exploring Alternative Assets
Are you interested in real estate investment? Have you looked into the precious metals market or discovered cryptocurrency? With an SDIRA there is a world of new investment options open to you. Unlike the typical IRA investments of stocks, bonds, or treasury, a self-directed fund allows you to branch out and choose assets that could broaden your financial portfolio and set up a solid nest egg.
SDIRAs allow fewer restrictions on investments, which in turn can allow you to experience better long-term growth for your account. You can be a private lender to help someone grow their business, become a rental property landlord, or buy up trust deeds to provide your account with steady income. Though there are certain assets you cannot invest in, such as most collectibles or life insurance, the IRS makes it clear what cannot be used. Having a broader portfolio can not only benefit your overall maximum fund growth, but it can provide you with added security.
Tax-Deferred or Tax-Free Growth
When opening an SDIRA, one of the best benefits is the tax break. Whether you decide on a tax-deferred traditional IRA or a tax-free Roth IRA, your account stands to benefit. Using a traditional directed IRA, you can get an immediate tax break when making a contribution to your retirement account. The funds will then grow, tax-deferred, until you reach retirement age and withdrawals will be taxed normally. Roth IRAs do not have the immediate tax break, however; when you withdraw funds during your retirement, you can do so tax-free. In either scenario, the tax benefits can lead to more long-term growth and account security.
Avoiding the Pitfalls
With any investment, there are bound to be pitfalls to avoid, especially when you are taking on the responsibility. More freedom can also mean greater risk in breaching IRS regulations. However, when the rules are followed, account holders can benefit by having a diverse portfolio and personal control of their assets. There are a few constraints when it comes to alternative assets that the IRS strictly forbids.
You cannot lend money to yourself or any “disqualified individuals.” Nor can these individuals benefit directly from any assets purchased with your SDIRA. This includes, but is not limited to your spouse, children, and parents. In addition, account holders have to remain separate from their assets. They cannot immediately benefit from any IRA investments; for instance, you could not purchase a home you plan to live in, before retirement, using your SDIRA wealth. Knowing how to avoid the red-tape is the key to taking control of your future.
Selecting a Custodian
Even though they have full control of your retirement funds, SDIRA account holders are required to have a qualified SDIRA trustee or custodian handle their account. Though one is required, you can decide which firm would best suit your retirement vision. While most SDIRA custodians do not advise on the type of asset you should choose, they are knowledgeable about particular assets and the rules associated with them. Perform your due diligence when selecting the right custodian in order to get the most out of your investments.
Taking Retirement Into Your Own Hands
Opening a self-directed IRA puts you in control of your future. Your future does not have to be limited by the traditional offerings. Take advantage of the alternative opportunities and use your knowledge to set up a comfortable nest egg for you and your family. In a time of financial instability, it’s up to you to explore your options!