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What is a Self-Directed IRA? Are You Ready For One?

What is a Self-Directed IRA? Are You Ready For One?

What is a Self-Directed IRA? Are You Ready For One?

Are You Ready For a Self-Directed IRA

Building a secure retirement fund can be a trying task, especially when most of your options involve the same steps. Traditional investments are a great place to start saving for your golden years; however, there is another option that can help you grow your fund using a more diverse portfolio of your own choosing.

Self-directed IRAs are a great option for anyone looking to take charge of their own investments. SDIRAs require research and bit of finesse, but with the right tools and the knowledge, you can use it to build up a solid nest egg. So, what exactly is an SDIRA and are you ready for one?

What is a Self-Directed IRA?

A self-directed individual retirement plan is like other IRAs with a few exceptions. SDIRA account holders oversee their investment choices, and unlike the traditional form of IRAs, there are many more types of investments to choose from.

Beyond the traditional stocks, bonds, mutual funds and CDs, self-directed IRA owners can take advantage of a larger asset market to create a truly diverse portfolio. Having more to choose from can increase your profit for a more comfortable retirement.

How is an SDIRA Different?

Self-directed IRAs have the advantage of a wide pool of alternative assets. Additionally, account holders can use their tax-advantaged retirement money to grow these assets for ultimate profit.

You are put in control of your IRA; you decide what to invest in, how much, and for how long. This option lets you take charge of your investments and your future. Of course, with that type of investment power, there are rules and regulations to follow.

What is a Self-Directed IRA? Are You Ready For One?

Tax Advantaged IRA Investments

IRA investment gives account holders enticing tax advantages. Depending on which IRA you choose, your contributions can grow tax-deferred or tax-free over time. If you know how much you have to invest, either path could be beneficial. Traditional IRAs allow your contributions to grow tax-deferred. This allows the full amount of your funds to grow until you withdraw upon retirement. The downside to traditional IRAs comes after retirement; all withdrawals are subject to a tax.

Roth IRA contributions are pre-taxed, so when you make your withdrawals later in life, you can do so tax-free. Additionally, with Roth IRAs there is no “minimum” contribution, making this the ideal IRA for those who don’t have starting funds. Whichever IRA you decide to go with, having a self-directed account could help your funds grow exponentially.

Alternative Investments: Assets Outside the Box

Aside from designing your own investment plan, SDIRAs allow different types of investments than your traditional retirement fund. Aside from the usual stocks, bonds, and mutual funds, account holders can take advantage of alternative assets and design a truly diverse portfolio. SDIRA investors can look to invest in real estate, precious metals, tax liens, private loans, and many other investment avenues.

With so many options, you can explore different alternatives and build your retirement savings with more than just the traditional offerings. However, be aware of prohibited investments. While there is a big pool of alternative assets, the IRS does have a few that are not eligible: life insurance, collectibles, and tangible assets. To be certain, consult a financial advisor before making your investments.

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Building a Diverse Portfolio

The advantage to having a variety of assets is the option to have a diverse portfolio. So many alternative investments can have different risk and rewards. Invest in what you are familiar with. Be sure to spread out your funds to more than one option, but don’t spread yourself too thin. Having your money in too many places can stunt your account growth.

Likewise, investing all your hard-earned money into one asset can be detrimental should the investment end up crashing. Having multiple options creates a more secure investment overall. A good balance is having a blend of long-term and short-term assets that can keep your portfolio alive and growing. Be sure to select your assets wisely.

Avoiding the Pitfalls

Self-directed retirement accounts are a great option for those who want to take charge of their future, but they are not without some pitfalls. If you aren’t careful to follow the rules and regulations, you could end up with a disqualified account. The best course of action is to perform your due diligence before setting up your SDIRA.

Avoid investing in prohibited assets like life insurance. Additionally, be aware of prohibited transactions; self-dealing, using personal funds on an IRA investment, using property before you reach retirement age, and other actions that can result in penalties.

Also, engaging in investment activities with disqualified individuals, such as a spouse, child, or grandparent, can lead to account disqualification. Before investing, seek out financial advisement to sidestep any potential mishaps by contacting us today.

Are you Ready to Invest in a Self-Directed IRA?

Self-directed IRAs put you in the driver’s seat as you head down the retirement road. While there are many advantages to opening an SDIRA, be sure you perform your due diligence to see if making this investment is the right choice for you.

As always, with any investment or for advice about retirement savings, consult your financial advisor. If you are ready, take the step and open your self-directed IRA today.

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