Many investors turn to Self-Directed IRAs because they want access to nontraditional retirement assets as they build a retirement portfolio. That means they will be able to easily invest in assets such as real estate, precious metals, private loans, and more. But that still skips an important step—a step that sometimes gives new Self-Directed IRA investors pause. This step asks a basic question. Just what is the best Self-Directed IRA option, and how do individual investors make the choice?
Here at American IRA, we include a list of Self-Directed IRA accounts that are available. But it is also important to know how to navigate these different options. Here is what investors should know before getting started.
Step One: Do Your Homework
The first step is to get familiar with the different Self-Directed IRA options available to you. Let us browse through some of the top ones so you can get a better idea:
- Self-Directed Traditional IRA: The oldest type of retirement account in the U.S., a Traditional IRA allows you to put aside before-tax money (using tax-deductible contributions) as you build money for retirement. This is a very simple arrangement. You can continue making contributions until you are 72 years of age.
- Self-Directed Roth IRA: This is a popular option for people who believe they will have more money in retirement. A Roth IRA allows investors to put after-tax money aside. That means that you will not get tax deductions for the contributions you make in the current tax year. However, the money put aside in a Roth IRA then grows tax-free, and you are not taxed when you take legitimate distributions from the Roth IRA. For this reason, many people turn to the Self-Directed Roth IRA for long-term wealth-building.
- Self-Directed SEP-IRA. The Simplified Employee Pension (SEP) plan is a strong way to make a large amount of contributions every year.
Of course, there are plenty of other different accounts that people will want to explore, such as the Self-Directed Solo 401(k). Many of these accounts may be more intuitive for certain investors, such as those who are used to the idea of a 401(k). It is important to weigh these different accounts and their unique quirks to get a sense of which may be best for your specific investment plans.
Step Two: Check Your Goals
You also need to understand what it is you want to achieve when you reach retirement age. One reason for setting a goal like this is that it will help you better understand what you should do in the meantime. For example, a Roth IRA is a favorable account type for investors who want to invest for a long time, since there are no RMDs (Required Minimum Distributions) upon reaching retirement age. That means the money within a Roth IRA can continue to grow after reaching retirement age.
Your own individual goals should be the determining factor here. Beware of a Self-Directed IRA administration firm that looks to tell you every decision you make. A Self-Directed IRA administration firm is not an investment advisory firm; we will not tell you which investments to select within your account. For that reason, you should feel confident that you are working with a high-quality firm that can serve as custodian on the account, but not make your decisions for you. You are the one in charge.
These two basic steps are important steps forward in determining which account is right for you. But we encourage you to keep thinking about these important questions. Continue browsing our site here at American IRA to get an idea of what you might want to do.