Although investing in a Self-Directed IRA doesn’t have to be a complicated mess in the slightest, there are some investors out there who are new to the concept. And when people plunge into new things they don’t understand, mistakes sometimes happen. The prudent investor is willing to take his or her time, have patience, and get to know a strategy before jumping in the deep end of the pool.
That’s why it’s important to take some time out and talk about the common Self-Directed IRA pitfalls…and how new IRA investors can avoid these same pitfalls.
Common Self-Directed IRA Mistake: Not Understanding the Withdrawals
According to USAToday, which recently wrote an article on this very topic, one of the most common mistakes was actually on the back end of investments—when investors start to take the money out of the account. Or, rather, when they forget that they’re actually supposed to.
Taking the proper RMD’s includes an onus on the taxpayer, which means that the IRS isn’t going to send you a letter and tell you exactly what to do. You’ll have to know that it’s time. Hopefully, you’re talking to an adequate tax professional on a regular basis that can help you in this regard, alerting you to the issues at hand. This is the kind of thing that you need to plan for well in advance, as well, because it means that those playing “catch-up” have to be aware that they’ll have to take distributions at a certain age. And, yes, you can face stiff penalties and fines if you don’t follow through on your end of the bargain in this regard.
Choosing the Wrong Type of IRA
Perhaps the most overlooked—and most important—mistake is made at the very beginning. This happens when someone chooses an account type that may not be right for their specific situation. For example, a Roth IRA means you put in taxed money on the front end. Other accounts may let you deduct your contributions, so you’re putting in “pre-tax” money into the account. Is one better than the other? Not necessarily. Your own financial situation and your goals for retirement will have an impact on the type of IRA you should choose.
If you’re unsure, it’s important to consult with a professional to get an idea of what you need. Not only will this professional help fill you in on the rules, but will help recommend the ideal vehicle for your investments—one that lines up with your goals and strategy more than the other options on the table.
Failing to Start
Perhaps one of the most important mistakes investors can make is to never get started in the first place. Sure, it’s true that there are some “catch up” rules in place with the IRS that allow late investors to get some money into their retirement accounts before reaching retirement age. But if you don’t invest early, most of the gains that come about as a result of exponential growth are left on the table. Those are gains that should ultimately go into your pocket—they shouldn’t be left out there for no one to enjoy.
That’s why it’s important to develop an investment plan and to get started as soon as possible. That means asking questions as the first step, even if you’re not sure where you want to put your money yet. Especially if you’re not sure where you want to put your money yet. You can continue to visit www.AmericanIRA.com to learn more about the Self-Directed IRA, or you can call 866-7500-IRA to learn more.