There is a vast difference between an IRA and a Self-Directed IRA. American IRA announces these differences in an effort to bring the good news to those who are unaware of the options available for their retirement fund.
Both IRAs and Self-Directed IRAs come in a variety of account types including: Health Savings Account, Coverdell Education Account, Traditional IRA, Roth IRA, SEP, SIMPLE, and Solo 401K. This is where the similarities end when looking at an IRA vs. a Self-Directed IRA.
Self-Directed means the account owner decides how they want to direct their funds. This gives them a great opportunity to invest in their area of expertise which ultimately nets higher returns.
Investment options with an IRA are limited generally to Stocks, Bonds, and Mutual Funds. Self-Directed IRAs offer the same ability to invest in Stocks, Bonds, and Mutual funds plus the added ability to invest in a variety of assets such as real estate, private lending, limited liability companies, precious metals and much more!
There are very few limits in regards to investment types within a Self-Directed IRA still it is critical that anyone who has or is looking to open a Self-Directed IRA is aware of these Prohibited Transactions. The IRS defines prohibited transactions as:
- Doing business with a disqualified person
- Engaging in self dealing
- Purchasing disqualified assets
There are a number of people, including many professionals who hesitate because they are not sure if a Self-Directed IRA is allowed. Further they are confused about the types of investments allowed within those funds. To clarify this confusion, American IRA has created a prohibited transactions page on their website.
Jim Hitt, CEO of American IRA says, “It is really a matter of preference when deciding which account type individuals want. Some people are more comfortable with regular IRAs in which they have limited options. Others are looking for accounts with fewer limits and a variety of investment options; those are the individuals who are happier with the Self-Directed accounts.”
Some people have the misconception that they are too young to worry about retirement accounts. It is never too early to start thinking about retirement accounts and a Self-directed IRA can be used for investments now. That’s correct, investments can be made now and the proceeds of those investments flow back into the account. It is never too early to get started!