A Self-Directed SIMPLE IRA is a retirement savings plan that most small businesses with 100 or fewer employees can use. “SIMPLE” stands for “Savings Incentive Match Plan for Employees”. But is that enough to know about this type of account? As you might find out, this type of retirement account can be tremendously beneficial depending on your specific circumstances. But what are those circumstances, and how does the Self-Directed SIMPLE IRA fit into them in a way that can offer retirement investing advantages? Here’s what you’ll need to know.
Using a Self-Directed SIMPLE IRA
A SIMPLE IRA is one in which employees can make contributions that are tax-deductible. In other words, putting money toward a SIMPLE IRA means that you can deduct legitimate contributions to the SIMPLE IRA from a tax return. You will then owe money in taxes when taking distributions from the SIMPLE IRA later in life—after hitting the retirement age—similar to the way any pre-tax retirement plan might work. For many people, this is an easy and a straightforward way to understand retirement investing.
However, one thing about SIMPLE IRAs is notable for many self-employed investors. A SIMPLE IRA has high contribution limits, which offers a lot of flexibility for investors who want to maximize their retirement investments as well as short-term tax savings.
The Art of Self-Directing
When using a Self-Directed SIMPLE IRA, one of the chief benefits is that you get to make your own decisions. But what does this mean exactly? It means that you can choose from a wide variety of retirement investing asset classes to keep within the SIMPLE IRA. Rather than choosing from a static list of stocks and bonds, you can work with a Self-Directed IRA administration firm to execute trades on the kinds of investments you want to make.
With the high contribution limits of a Self-Directed SIMPLE IRA and the enhanced freedom that comes from investing with a Self-Directed SIMPLE IRA, you’ll have a lot more flexibility to create a retirement portfolio that suits your needs. For example, if you wanted to build a retirement portfolio that hedges against inflation, you can then choose the retirement assets that you believe will hold onto their value in the long run. This gives you the control and the authority to decide what ultimately ends up in the SIMPLE IRA.
Limits on Using Self-Directed SIMPLE IRAs
Although these are highly flexible accounts, there are certain limits to Self-Directed SIMPLE IRAs—and any retirement account, for that matter. For example, the government will prohibit certain assets from being held within a retirement account. A good example of this kind of prohibition would be a collectible, such as a sports card. Because this can be such a difficult asset to valuate, it would not be considered a valid retirement asset. Instead, investors would have to keep such investments as part of their own personal property, without the tax benefits and protections of accounts like Self-Directed SIMPLE IRAs.
However, these limitations apply to all retirement accounts, not just SIMPLE IRAs. For that reason, SIMPLE IRAs can be powerful ways to save for retirement. They can give investors more options for choosing their own asset classes, ultimately helping them to better build a retirement portfolio that resembles the kind of portfolio they’d like to build. Want to know more about how it all works, including how Self-Directed SIMPLE IRAs work? Now’s the time to reach out.