Building a retirement nest egg for yourself and your family should not have to be a constant toil. Properly planned, you should be able to put aside enough money every month—year after year—that you barely notice as your retirement accounts fill up with value. But sometimes, you need to catch up. And that means leveraging a healthy income to invest as much money in retirement as possible. That leads us to one question: is there a single self-directed retirement account that would allow maximum investment via contributions? Let’s look at some of the central issues here, as well as some popular Self-Directed IRA solutions that allow high contributions.
Determining Your Self-Directed IRA Strategy
It starts with knowing what you want to accomplish. For example, is your goal to maximize contributions, or to maximize value? For some people—such as experienced real estate investors—the ability to maximize the value of a retirement portfolio simply means buying and selling real estate within an IRA. In this case, you would leverage your skills and experience.
For example, consider that Mitt Romney utilized an IRA to put aside millions upon millions of dollars for retirement. It was not just the type of account Romney used, but the investment strategies within the account that ultimately created multiple millions of dollars of value.
If you have that kind of know-how and experience, you can leverage even smaller contributions in almost any type of Self-Directed IRA to build a more powerful portfolio. However, it’s worth noting that you will want to understand the contribution limits of different account types before you proceed.
Which Self-Directed Account Types Allow Maximum Retirement Investment?
The retirement accounts that allow you to put aside the most money tend to be pre-tax accounts (accounts in which you defer taxes until withdrawal), rather than a Roth IRA, which uses post-tax money for investments.
That means an account like the Self-Directed Solo 401(k) plan has high contribution limits—as much as $56,000 of total contributions in 2019.
A Self-Directed SEP IRA is another account type that has high contribution limits, up to $56,000 or 25% of compensation—whichever is less.
Compare these to the contribution limits of a Roth IRA–$6,000 for people under 50 in 2019—and you see how powerful these account types can be for building a lot of wealth in a hurry.
Using a Self-Directed Retirement Account to Build Wealth
These high contribution limits can serve as a nice springboard for putting aside more money for retirement. Not only will it allow you to take advantage of a higher income as you build up your career over time and approach retirement age, but it will give you the ability to deduct more pre-tax dollars from your overall tax burden. That’s a win-win.
However, the journey toward maximizing your retirement dollars does not end there. It also matters what you do with those dollars. Where will you invest them? Will you leverage your experience in buying private equity or real estate? Will you use self-direction to your advantage?
A Self-Directed IRA is more than just an opportunity to maximize contribution limits. It’s also a way for you to craft a portfolio that will give you financial peace over the long-term. It helps you build a portfolio that’s beyond one asset class like the public stock market. And if you effectively manage even small amounts of money over a long-term window, you can use compounded returns to eventually retire with a sizeable nest egg.