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Self-Directed IRA Investment Options: What Factors to Consider

self directed ira investment options

Self-Directed IRA Investment Options (What Factors to Consider)

Self-Directed IRA Investment Options

As we head toward our golden years, the last thing anyone wants to worry about is whether they have enough money for a comfortable retirement. Preparing your nest egg shouldn’t be an afterthought but getting started can be a challenge.

With so many options open to us, and with company 401Ks and government programs becoming less reliable, it may be time for you to take your retirement into your own hands. If you are interested in being in control of your investments, a self-directed IRA may be the best choice.

With a variety of alternative assets, different ways to invest, and personal control over your portfolio, opening an SDIRA could be your best chance for a comfortable retirement. If self-directed investment sounds appealing to you, take the following factors under consideration.

self directed ira investment options

Different IRA Options

When considering a self-directed IRA, there are two main options: traditional IRAs, or Roth IRAs. Depending on the type of growth and your financial standing, either of these choices can be a good investment decision. Traditional IRAs are the most common investment option. Account holders can make annual contributions with tax-deferred growth.

The benefit to traditional IRAs is the upfront tax break. Investors will not have to pay taxes on their IRA contributions until they withdraw funds after retirement age. This path allows your retirement to build over time, tax-deferred, for more overall growth.

The only drawback of traditional IRAs is that all withdrawals are subject to taxation, however; as contributors hit retirement age, they are more likely to be in a lower tax bracket.

Roth IRAs allow investors to make contributions, but without the immediate tax break. The benefit of this account is that all withdrawals after retirement are tax-free. Roth IRAs are an excellent option for those just beginning to invest in retirement; there is no minimum requirement to how much you need to contribute. Regardless of your investment choice, it’s possible to convert your IRA should your financial situation change.

Control of Your Investments

As an SDIRA owner, you are in control of your investments. You decide what to invest in, how much, and for however long you choose. With a self-directed account, you can create your own diversified portfolio for maximum long-term growth. The exciting part of owning an SDIRA is that you ultimately decide how your account will grow. By performing your due diligence, investing in what you know, and keeping an eye on your contributions, your investments will grow into a comfortable nest egg. With directed investment, there are many more avenues available to you.

Alternative Options

Apart from the more traditional options of stocks, bonds, and mutual funds, self-directed IRAs allow account holders to invest in a plethora of alternative assets. An extended pool of investment options leads to new potential for overall retirement fund growth.

Depending on your research, you can invest in real estate, precious metals, businesses, tax liens, cryptocurrency, trust deeds, private lending or many other options. While the IRS isn’t direct about what you can invest in, there is a definitive list regarding what you cannot: life insurance, coins, collectibles, and tangible goods. The key to good investment is selecting the assets that work best for you.

Self Directed IRA Free Guide

Playing to Your Strengths

One of the appeals of investing with a self-directed IRA is the opportunity to build your own investment portfolio. As the account owner, you can select the options for diversified growth over the life of your retirement account. Of course, that growth is reflective of the types of investments you select. The best strategy is to have a fine blend of short-term and long-term growth options. Balance a real estate investment with some stock market options or try a private loan and a business investment.

Select options based on your expertise. Choose a mix of slow-growing options partnered with some short-term investments. Balance the new and old assets in your portfolio and be sure that you are constantly evolving.

If you are looking for even more control, consider opening an LLC. Investing your IRA into a limited liability company can grant you “checkbook control” for quick investments. Regardless of your selections, be mindful that you are responsible for your account. Perform your due diligence if you want to avoid any penalties.

Avoiding the Cons

While an excellent investment option, self-directed accounts do have some drawbacks. Account holders should be wary of hidden and additional fees that come with self-directed investing. In addition to handling many investment decisions, you may encounter fees from financial advisors, administrative services, custodians, and attorneys.

Also, should you choose to invest using borrowed money, you are also subjected to penalties. It’s best to avoid investing beyond your means. While your account needs to be handled by a certified IRA custodian, opening an LLC can help you avoid multiple transactions by allowing you to make purchases on your own. However, an LLC requires you to closely monitor your actions, as any misstep can result in account disqualification.

Another con with directed investment occurs with a stagnant portfolio. If you don’t build a versatile portfolio or spread your funds too thin, you can hurt the overall growth of your account. Putting too much down on a risky investment can clear out your account, while investing in too many slow-growing options can leave you with almost nothing. Additionally, violating any IRS terms can result in penalties or the disqualification of your account completely. Any prohibited transactions can prove detrimental.

Avoid any self-dealing or transactions involving disqualified individuals. Account holders cannot have dealings with anyone who can stand to benefit from their IRA including the following: parents, grandparents, spouses, children and their spouses, grandchildren and their spouses, or personal financial advisors. It would also be wise for SDIRA owners to keep their personal funds separate from their retirement account. Use of personal funds to upkeep or purchase assets is considered a prohibited transaction. Account holders cannot use or benefit from their IRA fund until they reach retirement age. Before making any plans, it’s imperative to seek investment advice to ensure a secure retirement plan.

Performing Due Diligence

If you are considering taking charge of your own retirement, a self-directed IRA is the best solution for you. With the right research, knowledge, and fund allocation, you can build a strong portfolio for a secure nest egg. Be sure to perform your due diligence and seek out investment advice to create the best scenario for your future. Achieve your retirement goals on your own terms and explore SDIRA investment by contacting us today.

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