Individual Retirement Accounts, or IRAs, are an important part of a diversified portfolio for retirement. A self directed IRA is an IRA which gives the owner the ability to make investment choices in their retirement account. The IRA still requires a trustee or custodian, but the owner makes all the allocation decisions. The owner may choose from stocks, bonds, mutual funds or real estate as potential investment options.
Traditional IRAs are locked in a smaller group of asset classes that consists of stocks, bonds and mutual funds. With the volatile market performance of late, many people are uncomfortable following those standard means of investing and want more choices for investing. The fact that a self directed IRA gives the investor control over what areas their money is invested is appealing to some. The investor can choose residential real estate, business loans, plane leases, commercial real estate and other investments.
Self directed IRA real estate must be handled by someone who is familiar with the requirements of having real estate in their portfolio. It’s actually a good idea to have a real estate license, so that the investor is very familiar with the requirements for owning property. Many states demand that a buyer of certain property types be licensed before they buy property. A good example of the real estate responsibilities is the fact that only 2% of those with self directed IRAs choose real estate as a part of their portfolio.
The self directed Roth IRA is just like a Roth IRA with the characteristics of a self directed IRA. Investments can be real estate, business loans, commercial leases and plane leases, etc. The IRA owner selects the investments, but the money invested is after-tax dollars. When you are ready to withdraw money for your retirement, a Roth IRA will allow you to invest money indefinitely. Unlike a traditional IRA, there are no mandatory withdrawals at age 70 1/2. As a person who expects to live a long life, you may also wish to accumulate funds as long as you can. The self directed Roth IRA gives you that option.
There are more and more ways to prepare for retirement. The solo 401K is another way that’s now available for a self-employed business owner to prepare for retirement. The maximum that can be contributed is $49,000 per year plus an additional $5000 if you are over 50. The added benefit is being able to borrow against the savings if needed. The loans are tax-free and contributions grow tax deferred.
No matter which choices you select for reaching your retirement goals, having so many choices makes it easier to choose a retirement plan. Self directed Individual Retirement Accounts provide the investor with an opportunity direct their own investments. This could give many investors a renewed interest in their own accounts and spark an interest that is more than superficial in the growth of our nation’s personal wealth.