What are the advantages of a brokerage account within a Self-Directed IRA? Many of the advantages are directly linked to the benefits of retirement investing. You’ll be able to use money that has tax protections. You may be able to make tax-deductible contributions, depending on your account type. But most of all, using a brokerage account within an IRA means that you’ll have the freedom to invest on your terms. And that can be a powerful thing for retirement investors who follow the beat of their own drummer.
With that in mind, let’s explore the advantages of holding a brokerage account within a Self-Directed IRA:
Advantage #1: Freedom
Ever look at a retirement account and wonder how anyone can choose from a few limited options for mutual funds? It’s not a fun notion. After all, an independent-minded investor wants to have all sorts of options to allow for diversification. Without that, you don’t really have the freedom you’ll need to create your own retirement strategy.
Using a Self-Directed IRA with a brokerage account allows you to manage your own retirement as you see fit. It allows you to construct a portfolio according to your own design—even if that’s to choose safe index funds for the long-term. If you want to be bold or if you want to be safe, there’s a lot you can do when you’re in charge of your own retirement.
Advantage #2: Tax Benefits
Before we move to the next advantages, we can’t go without mentioning the tax benefits here. If you hold a brokerage account within an IRA, then you have lots of incentive for investing more. For example, if you were to hold a Self-Directed Solo 401(k), then you could use that account to make tax-deductible contributions. The more you invest, the more you get to deduct. This is using before-tax money to create a larger portfolio with a Brokerage Account. The result: you’re incentivized to make more investments, which in turn can help you build a portfolio designed to create wealth over the long-term future.
Advantage #3: Diversification
Diversification isn’t an automatic with a brokerage account. It will be up to the individual investor to choose how they diversify. But with that said, it’s important to note that a brokerage account can include diversification possibilities that move across asset classes. A brokerage account can invest in REITs, gold stocks, ETFs, and a broad range of mutual funds to create a well-diversified portfolio that maintains a good amount of balance when there are troubles in the market.
Of course, retirement diversification can be much more than building a stock market portfolio. It can also include buying up real assets like precious metals and real estate, which is possible with a Self-Directed IRA.
We should note that there are levels of diversification that many investors choose to ignore. While some investors think that diversification is a mix of stocks, and others think it’s a mix of stocks and bonds, true diversification can go even beyond that, including a mix of asset classes that hedge against economic issues.
Should You Have a Brokerage Account with a Self-Directed IRA?
As a Self-Directed IRA administration firm, American IRA’s role is not to tell you how to build a retirement portfolio. We don’t advise on specific investments. But we can help inform you about the role that something like a Self-Directed IRA can play in your retirement. We can tell you about the possibilities of investing with a Self-Directed IRA, and we can help administrate the account.