Last Updated on February 5, 2020
What is the importance of an IRA? Establishing an IRA is important to prepare for retirement and take advantage of tax savings while you’re working. But why is it important to know about the types of self-directed IRAs, and how the self-directed IRA can take care you during retirement?
Most of us participate in our first retirement account through an employer’s 401(k) program, but there are other reasons for contributing to a self-directed IRA or a self-directed Roth IRA.
Types of Self-Directed IRAs
Learning the different types of self-directed IRAs will help you choose which is best for your future and investment goals.
The Self-Directed IRA
The first type is a self-directed IRA. This retirement plan is especially suitable for individuals who desire to make investments so their savings increase. It provides continuous profit as you can use it on stocks or funds and other businesses that you deem lucrative. In addition, you can use a self-directed IRA for buying properties, precious metals, tax liens and cryptocurrencies if you understand these markets.
The Self-Directed Roth IRA
Another type of IRA to consider is a self-directed Roth IRA. In this plan, you are given the opportunity to expand your savings without incurring taxes on the investments. Additionally, you have the freedom to choose any investment you like:
- Traditional investments (mutual funds, bonds, stocks, certificates of deposits, so on)
- Alternative investments (real estate, precious metals, tax liens, cryptocurrencies, so on)
A self-directed Roth IRA allows easy process for withdrawing money any time you choose, without minimum requirements. If the savings are for the benefit of a loved one, Roth IRA plans suit inheritance purposes and can be set up using multiple accounts.
Self-Directed IRA Real Estate
With self-directed IRA real estate, you have more freedom to invest in properties from the retirement plan. The advantage with buying a house or lot with this IRA type is that it avoids high tax expenses, which would be charged on a normal real estate purchase. The property may then be used to become a lender or as an investor for another company. This gives the savings a potential to grow even after retirement. A self-directed IRA real estate is most recommended for those who have great knowledge and experience in the real estate market or perhaps those who came from a company involved in the real estate industry.
Advantages of an IRA
Selecting a traditional IRA gives immediate tax breaks for the funds contributed. The annual maximum contributions provide a perfect opportunity to take advantage of tax deductions, and reduce your tax liabilities for the following year. A self-directed Roth IRA offers advantages as you enter retirement, as the contribution is already taxed, so your withdrawals are tax free.
A financial planner can assist you in using the types of self-directed IRAs, which offer benefits and yield higher monthly distributions. Compare the yield between banks and traditional savings accounts; using an IRA option produces higher amounts and you are able to actively participate in the selections of investments.
Setting up a self-directed IRA gives you the ability to buy and sell individual stocks without having to pay capital gains on the taxes. This is where a financial planner comes in handy, especially when you are unsure about an investment.
What about the value of tax-deferred investments? Imagine having your investments working for you. You have worked and planned well for retirement, now it is time for your money to work for you, while you enjoy the golden years.
A 401(k) may seem like a better option than a self-directed IRA because it comes from your employer. However, self-directed IRA plans allow for more freedom to invest in assets you trust. In addition, self-directed IRAs provide more security when changing jobs or if you lose your job.
Get in Touch
Are you interested in taking advantage of the types of self-directed IRAs but don’t know where to start? Contact IRA Financial Group directly at 800-472-0646. You can also fill out the form to speak with one of our retirement specialists.