Here at American IRA, we feature a page dedicated to understanding the different types of Self-Directed IRA accounts. This is a critical choice for anyone who’s considering self-directing in retirement, because the type of account you use will also reflect what kind of investor you are—the kinds of strategies you want to employ. There is just one question. How do you choose the best plan for you, especially if you are not totally familiar with the accounts? Here are some basic steps to make the process easier by breaking it down:
Step One: Familiarize yourself with the account types.
You will want to know the various account types available with a Self-Directed IRA plan. That includes the Self-Directed Roth IRA, the Self-Directed SEP-IRA, the Self-Directed Solo 401(k), and the Self-Directed SIMPLE IRA. It is a lot of acronyms. It is a lot of confusion, if you haven’t heard of some of these accounts. But all you have to do is navigate over to our Self-Directed IRA account page to learn more about each account.
Consider this the learning phase. You do not have to make any decisions at this point. You just have to learn about what the choices are. As you go through them, you may find out that one of them sticks out to you as particularly suiting your needs. You may not—in which case, you will want to go through the rest of our steps.
Step Two: Determine your priorities in retirement.
The type of account you choose is ultimately about what you want to achieve. Do you want to put aside massive amounts of money every year? Then a Self-Directed Solo (401k) Plan can help facilitate that. Do you want to have zero tax liability when it comes time to take distributions from your retirement plan? Then the Self-Directed Roth IRA is for you because it means that you will be paying the taxes upfront.
You cannot know what is best for you until you know what you want to achieve as you save for retirement. Remember that you can Self-Direct a variety of accounts here, which means that you do not have to choose a Roth IRA for real estate, for example, or a Traditional IRA for precious metals. Accounts like Roth IRAs and Traditional IRAs exist even in spite of those distinctions. But if you are interested in using a Self-Directed IRA, it is important to work with a reputable Self-Directed IRA administration firm.
Step Three: Make your choice.
Now that you know the two essential things you need to know—the lay of the land when it comes to these accounts and the priorities you have for your own retirement—it’s time to put them together. Where is the fit? Do you see an obvious fit between your current situation and a new Self-Directed IRA account type? Or are you still wondering?
You can always do further reading to familiarize yourself with the choices even more. But it is important to remember that you should focus on your needs. Your retirement needs are what will dictate your choice. The more you can pick an account that suits your specific needs, the better able you will be able to navigate the complicated world of retirement. The more intuitive the journey will be.
These three steps are at the core of what should help you make an informed decision. But there is always more to learn about the process of moving to self-direction.