The importance of an IRA is great to avoid worrying about your future security – especially during or after retirement. Two excellent options to consider for retirement is an individual retirement plan and the Solo 401(k). To avoid confusion, the main difference between to two is that, an employer sponsors the individual retirement plan, but not the Solo 401(k).
However, the two plans have some similarities. Both incur taxes for withdrawals after the individual reaches the age of 59. Both provide advantages as well as disadvantages. The IRA (individual retirement account) is more often chosen as it gives a flexibility of options with its various types.
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 see fit as a lucrative deal. In addition, it may also be used for buying properties, which is why you can find special types called self-directed IRA real estate.
A real estate self directed IRA provides the choice of buying properties on behalf of the retirement plan, thus saving money from otherwise high tax expenses on ordinary purchases. This is another effective way to save for the future in preference to traditional retirement plans, because participants can obtain capital and invest in notes for a company. The self-directed IRA real estate is generally recommended for those who have a background in real estate, or have retired from a real estate company.
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)
As compared to others, a self directed Roth IRA allows easy process for withdrawing the money any time the participant chooses, without minimum requirements, similar to a solo 401(k). 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.
Although a 401(k) seems like a better option because it comes from your employer, self-directed IRA plans allow for more freedom to choose according to the judgment of the individual. In addition, this type of plan provides more security when changing jobs or if one has lost a job. For obvious reasons, it also provides a secure future for individuals who are self-employed. This is definitely a worthwhile investment to ensure a bright future for you and your family despite retirement. Explore other types of IRAs that have been developed for specific purposes.
The Importance of an IRA
The individual retirement account is important because it allows you to prepare for retirement and take advantage of tax savings while you are working. 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 Roth IRA or a self directed IRA.
What are your projected income sources for retirement? We all know what’s happening with social security. Many have personal savings accounts and some may have a retirement pension. Have you added the monthly distribution totals? Is there enough to be comfortable during retirement? Contributing to a self directed IRA will ensure that retirement actually becomes a reality for you.
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 a self directed IRA or a solo 401(k), which both 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. With today’s technology, the investment options can include stocks, mutual funds, real estate, index funds, bonds and international investments.
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.
Get in Touch
Are you interested in taking advantage of the self-directed IRA or Solo 401(k) benefits? Contact IRA Financial directly at 800-472-0646. You can also fill out the form to speak with one of our retirement specialists.