Optimizing Retirement Savings with a Self-Directed Roth IRA

Using High Contribution Limits with a Self-Directed IRA

When you want to save money for retirement, you sometimes want to do it one little chunk at a time. But for other people, that is not fast enough. Being able to put larger contributions towards retirement means it will be easier and faster to achieve your retirement goals. Can you do that with a Self-Directed IRA? The answer is: absolutely. But it helps to know the lay of the land, and which Self-Directed IRA accounts will be best for you. Let us explore the contribution limits in common Self-Directed IRA strategies and which ones might be best for someone who is looking to expand their ability to contribute to retirement.

Why Bother with Higher Contribution Limits?

You might look at the Roth IRA, which has $6,000 in annual contribution limits for some investors and wonder why anyone might need more than that. After all, isn’t $6,000 per year a lot? Especially if you’re going to invest for decades at a time? Well, yes. But remember that with a Roth IRA, that’s after-tax contributing. That means that you do not get a tax benefit for investing that money in the year that you invest it in terms of a deduction from your tax return.

That means that after hitting that limit, truly aggressive savers will then turn to a before-tax account for investing. That allows them to put aside money in something like a Self-Directed Solo 401(k) plan, in which they can invest large sums of money with a high contribution limit. That money then is deductible— “before-tax” contributions toward retirement. Of course, that means that the taxes will have to come out on the back end when the retirement investor either takes an early withdrawal or takes a withdrawal upon reaching retirement age. However, in the meantime, the money within the account will grow tax-free, allowing retirement investors one of the chief benefits of holding investments within one of these accounts.

Which Accounts Have High Contribution Limits?

When you are talking about high contribution limits for retirement accounts, you are generally talking about two different types of accounts that might suit you.

The first is the SEP-IRA, or the Self-Directed SEP-IRA. In a SEP-IRA, investors can invest a tremendous amount of money, as noted by Fool. Says Fool: “SEP IRAs come with extremely high contribution limits. You can establish a SEP IRA that lets you contribute up to 25% of your salary, with a maximum overall contribution limit of $57,000 in 2020.”

Another is the Self-Directed Solo 401(k) plan. As Solo 401(k) notes, “You reach the full $63,500 contribution limit is by controlling your own retirement with a Solo 401k account.” However, keep in mind that there are specific rules that investors need to know about, especially when it comes to qualifying for accounts of these types.

However, with these high contribution limits, investors with their own businesses will find it easier to invest a tremendous sum of money toward retirement every year. It is possible for investors to go far above and beyond what is possible through a Roth IRA.

With a self-directed account, investors can also choose their own assets, such as real estate or precious metals, which helps promote diversification within a retirement portfolio. Between high contribution limits and the freedom allowed within a Self-Directed IRA, retirement investors who want to be aggressive about their financial situation will find plenty of opportunities to do so.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

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