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Too Old or Young to Open a SDIRA? Think Again

Too Old or Young to Open a SDIRA? Think Again

Too Old or Young to Open a Self-Directed IRA? Think Again

You Can Open a Self-Directed IRA at ANY Age

Whether you are anxious to step away from the working world or have just reached a point where you are comfortable with your income, it’s never too late or too soon to start building up for your retirement. It doesn’t matter if you are just jumping into your first full-time job or you’ve been working for many years, anytime is a good time to consider how you will spend your golden years.

These days it’s harder to find a company that offers a 401K, and many are interested in taking charge of their own financial future. If you want to take control of your retirement, self-directed IRAs may be the best option for you. As you explore the option of an SDIRA, considering the following as you decide which retirement plan is right for you.

Starting a Personal Plan of Action

As you start to plan for your future, consider where you are starting. Do you have a plan in mind, or are you just researching your options? Be sure to look at the many retirement plan options and what suits your needs best. Consider how much of a contribution you could afford, what types of investments you would like to explore, and what your company may offer you. The best way to begin your financial planning is with thorough research. Perform your due diligence to find the best course of action to set up a fund for a comfortable retirement.

Too Old or Young to Open a SDIRA? Think Again

Selecting a Certified IRA Custodian

When choosing a self-directed retirement fund, the IRS states that you must have a certified IRA custodian handle your account. It’s important to note that regardless of your relationship, most directed IRA custodians are passive. Passive custodians are not held responsible for anything you fail to report or set up properly with your account. They also do not provide investment advice. As account holder, you are in charge of your assets, recording, and reporting.

Be sure that you select a custodian who you can develop a good relationship with. Consider their BBB scores, their customer service reviews, and their previous clients. As you research custodians, pay attention to what assets they specialize in and their certifications. A good IRA custodian should be well-educated and knowledgeable about SDIRAs. After carefully weighing your options, it’s time to dive into your retirement account.

Deciding on the Right SDIRA for You

After selecting a custodian, the next step is choosing which IRA option fits you best. Two possible options are a traditional IRA or a Roth IRA. Depending on your situation, either choice could be beneficial.

Traditional IRAs have tax-deductible contributions. All earnings grow tax-deferred, but are taxed upon withdrawal. While this account doesn’t have any income limits, it does require that you take distributions starting at age 70 ½.

Roth IRAs, on the other hand, are tax-free. Your contributions are not tax deductible, but you are not taxed on the income you withdraw after 59 ½. Unlike traditional IRAs, account holders must make below a certain adjusted gross income, but distributions are not required at any age. Depending on your financial standing, either of these accounts would be beneficial to grow your nest egg.

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Perform Your Due Diligence

Like with any investment, it’s important to thoroughly research all account requirements. No one wants an unexpected tax-penalty or a disqualified account. The IRS has several prohibited transactions that could cause problems for the uninformed.

One of the benefits of opening a self-directed account is the option to explore alternative assets. As you select your assets, be sure to research what you can and can’t invest in. While the IRS doesn’t have a clear definition of what is allowed, they have a very clear list of assets that are not qualified, such as collectibles and life insurance.

In addition to avoiding forbidden assets, there are certain prohibited transactions. Account holders cannot benefit from their investments until after they retire, nor can they make use of anything their IRA owns, such as real estate properties. Account holders can’t borrow money from their IRA, nor can they use any of their personal funds on anything owned by their IRA. The best approach to handling account funds is to keep your personal and retirement funds separate to avoid any entanglements.

Along with the previous prohibited transactions, account holders cannot have dealings with anyone that the IRS deems a “disqualified individual.” These individuals include any person who stands to benefit from your SDIRA, such as a spouse, parent, child, or fiduciary planner. Additionally, you cannot lend money to them, or allow them to use any property owned by your IRA. Be sure to carefully research IRS regulations before making any investment choices.

Make Careful Investment Choices

The final step in setting up a successful SDIRA is choosing your investments. Opening a self-directed IRA allows you to take advantage of alternative assets beyond the traditional stocks, bonds, and treasury. As you allocate your funds it’s important to keep in mind that diversity is essential. Build a versatile portfolio without spreading your funds too thin.

It’s important to have a good balance between passive and high-risk investments to ensure that your funds are secure and have long-term growth. Make your investment decisions based off your personal knowledge; which assets do you know best? Are you interested in real estate, or perhaps you want to explore the new cryptocurrency, Bitcoin? Whichever assets you select, keep your IRA custodian up-to-date with all asset allocation and values. Failure to do so could result in fraud and a disqualified account. Consider the legal advice of an attorney and a financial advisor before making your selections.

Building for Retirement

Setting up a retirement fund is not limited to age. It’s never too late or early to start saving for your future. With any investment strategy, perform you due diligence and explore what the financial world has to offer you. Your retirement awaits; start on the path today by contacting the trusted SDIRA experts at Horizon Trust.

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