There’s a lot to be said for simplicity in life. That’s especially true in retirement planning. If you have a simple “setup” to your retirement accounts, you do not have to wonder about your next steps. You just make your contributions, invest your funds, and watch them grow over time. But a Self-Directed IRA can be a unique situation, and many people avoid it because they fear that it won’t be simple.
With that in mind, let’s look at some of the simplest ways to run a Self-Directed IRA by examining the accounts themselves:
In many ways, the Self-Directed IRA is the simplest account type. It’s the oldest retirement plan still in use, and it’s also the most common. Here are a few key points on the simplicity of using a IRA for your retirement planning:
- Any person with an income can set-up a Self-Directed IRA for tax-deferred growth.
- You can keep making contributions to your IRA until you turn 70 ½.
- With a Self-Directed IRA set up, you can start deducting contributions for immediate tax savings.
- Funding and setting up an IRA can be as simple as filling out the paperwork and funding it right away.
That’s it. There’s not much more reason to overthink a Self-Directed IRA. They are common and they are long-lasting because they work. But that doesn’t mean you should ignore the other options…
Self-Directed Roth IRAs
A Self-Directed Roth IRA is very similar to a Self-Directed IRA, but with one key difference that sets them apart: using a Roth IRA means that you pay the taxes upfront (investing after-tax dollars) for tax savings later. If you anticipate having a lot of growth in your account and you don’t want to have to worry about taxes so much when you are older, this is the simple account that will keep your retirement easy to manage.
In terms of contributions, Self-Directed Roth IRAs are similar to Self-Directed IRAs—the IRS even lumps them both together by noting that you cannot make more than $6,000 in contributions to all traditional and Roth IRAs. To keep things simple, you should likely choose either a traditional or a Roth—it does not make much sense to use both, as you cannot “double up” your retirement contributions by using both.
Self-Directed SIMPLE IRAs
We cannot talk about simplicity without talking about the Self-Directed SIMPLE IRA. Here, SIMPLE stands for: Savings Incentive Match Plan for Employees. Is it really as SIMPLE as it claims, or is it a complicated way of managing retirement accounts for small businesses?
A Self-Directed SIMPLE IRA can be used for businesses with less than 100 employees. If you use this plan, you (the employer) will be expected to match employee contributions up to 3% of the employees’ compensation. You may also contribute 2% of compensation without matching.
A SIMPLE IRA is a little more complicated because it’s a way to set up retirement accounts for an entire company. But in terms of giving your company retirement benefits and attracting new employees by advertising that you do offer matching and retirement, it can be a great way to get your foot in the door.
What’s the Simplest Way to Start Retirement Planning?
These are some of the simplest accounts to set up—and you will find that once you are set up, it’s really not difficult at all to continue making contributions throughout the year. Make sure that your account type matches your retirement strategy, and that you do not overcomplicate things with too many accounts—a strategy that can be self-defeating, as your contributions may still be limited.