Last Updated on February 7, 2020
This is a question we used to hear all the time when we first started business a decade ago. Self-Directed IRAs are much more mainstream in today’s society. However, there is still limited access to both the plans themselves and information about them. Here, we’ll briefly explore the benefits of Self-Directed IRAs and why your CPA or financial advisor might not mention them to you.
What is a Self-Directed IRA?
A Self-Directed IRA is a standard IRA that allows for both traditional, as well as alternative investments. Ask your financial advisor if they know what it is first! You can invest in the markets, mutual funds and bonds. In addition, you can also invest in real estate, cryptocurrencies, private businesses and hard money loans. IRAs are an important tool to save for retirement. Anyone can set one up and contribute to it so long as you have earned income for the year. Note: spouses who don’t work can also contribute if his/her spouse has earned income for the year.
Traditional IRAs offer an upfront tax-deduction since contributions are made pre-tax. This allows you to lower your tax bill on the year, and defer those taxes until you start withdrawing during retirement. On the other hand, Roth IRAs do not offer a tax break. Instead, your contributions are made post-tax, meaning you fund the account with money that’s already been taxed. However, the benefit is that all qualified withdrawals are tax-free during retirement.
The IRS sets limits to how much you can contribute each year. For 2019, the limit is set at $6,000 if you are under age 50 and $7,000 if aged 50 or older. Generally, most people initially fund their Self-Directed IRA with a transfer or rollover of other retirement funds. There is no limit to how much you can roll over and it’s tax-free. This allows you to have a sizable account as soon as you open it.
Why Doesn’t My Financial Advisor Talk About It?
The one thing you need to know about financial advisors, CPAs, attorneys, etc. is that they’re usually looking out for themselves. Their first duty should be you, their client, but that’s not always the case. They generally look at their bottom line first, and what will make them the most money. Here at IRA Financial, we don’t advise you on investment decisions. You can invest in anything you want, so long as it’s an IRS-approved investment. We’re here to help maintain the plan and make sure it stays within IRS guidelines. Therefore, you have all the power when it comes to investment decisions.
If you open up an IRA at your local bank or online provider, you’ll be stuck with only traditional investments. These institutions make money by only offering you options that they are familiar with. Since they don’t make money if you invest in real estate, for example, you won’t be allowed to invest in it.
Many institutions do offer Self-Directed IRAs nowadays. While a financial advisor may steer you to one of the more popular IRA custodians, you won’t have total freedom. Again, your investment options will be limited AND you usually need custodial consent to make an investment. So while they might allow for real estate investments, you will need permission first to take action.
The IRA Financial Difference
When opening a Self-Directed IRA with IRA Financial, you have checkbook control of your funds. This means, you have the freedom to invest in whatever you want, whenever you want. Using real estate as an example – if you find a property you want to invest in, you don’t need our consent to invest your money. Your Self-Directed IRA is linked to a bank account that you can use to invest whenever you see fit.
However, since we don’t offer investment advice, it’s recommended that you do work with a financial advisor. Remember, that he or she works for you. It’s best to work with one that has experience with alternative investing. Together, you can come up with a plan that fits your own personal investment strategy. If your current advisor or CPA doesn’t talk to you about Self-Directed IRAs and alternative assets, it’s time to find a new one.
Get in Touch (with a Financial Advisor and with Us!)
If alternative investing appeals to you, first, find a financial advisor that aligns with your needs. Then, give IRA Financial a call @ 800.472.0646 to see if we fit your needs as well. Together, we can help you on the path to retirement success.