By and large, the ranks of Self-Directed IRA owners are a savvy, experienced and successful lot. They have generally had some success in business, real estate, finance or in their chosen professions outside their retirement investing and have chosen to leverage their above average investment acumen in their retirement accounts.
But we occasionally see some mistakes or sub-optimal decision-making, as well – both hearing war stories from our clients or in the process of sharing information with our financial services industry colleagues. Here are some of the mistakes that Self-Directed IRA investors make:
- The Self-Directed IRA, together with other tax-advantaged retirement accounts such as 401(k)s, self-directed solo 401(k)s, SEP IRAs, SIMPLEs and Roth IRAs, are potent savings vehicles because of the significant tax advantages and the asset protection benefits of retirement accounts. So it’s almost always a good idea to make the best of them.
Unfortunately, too many Self-Directed IRA owners leave too much money on the table, in the form of foregone tax benefits and exposure to lawsuits, because they failed to take full advantage of available contribution limits.
Age 50 is a critical time, because allowable contributions increase for those age 50 or older. Generally, the law allows you to contribute an additional $1,000 per year to your IRAs or Roth IRAs, and as much as $6,000 extra to 401(k) plans, just for being 50.
If you plan to retire at age 65, you still have 15 years for those additional contributions to compound tax-deferred, or tax-free in Roth accounts, before reaching retirement age. Take full advantage of your contribution limits.
- Overpaying in fees. One of the great advantages in doing your Self-Directed IRA investing with American IRA, LLC, is our transaction-based fee structure. Rather than paying a percentage of assets under management each year, which can add up to thousands or even tens of thousands of dollars per year, we adopted a simple, straightforward fee-for-transactions. You pay only for the transactions you make and services you use. For the vast majority of our clients, the savings are substantial.
- Inadequate diversification. Diversification is critical to risk reduction in most contexts. But too many investors reach their 50s and even enter their retirement years with too much exposure to one or two specific assets or asset classes. If you are getting close to retirement, now’s the time to pull in your horns when it comes to risk exposure, or look for ways to increase diversification. One of the benefits of Self-Directed IRA investing is it gives you a nearly infinite array of potential opportunities to diversify your retirement nest egg into asset classes other than stocks and bonds – sometimes without sacrificing expected return.
- Remaining exposed to long term care costs. The very wealthy can absorb long term care costs and don’t need to insure if they don’t want to. The poorest of us can qualify for Medicaid. For the rest of us, the high cost of long term care is a risk most of us can’t afford to lose. According to the just-released 2016 Genworth Cost of Care study, the average cost of a semi-private room in a skilled care facility is now $82,125 per year – and more in some states. That’s enough to eat up the income from a substantial nest egg. If you are now in good health, getting some long term care insurance coverage may be a good idea.
American IRA, LLC specializes in serving investors who have chosen to take direct control of their retirement assets through Self-Directed IRAs and other self-directed retirement accounts. Our offices are in Asheville and Charlotte, North Carolina, but we are happy to work with Self-Directed IRA owners in all 50 states.
To arrange a no-obligation consultation, call us today at 866-7500-IRA(472), or visit us online at www.americanira.com.
We look forward to working with you.