Why Choose a Self-Directed IRA?

Many retirement investors do well with company-sponsored 401(k)s, Roth IRAs, and other plans—all without self-direction. So that leads to one question: why do so many people choose a Self-Directed IRA in the first place? It’s a simple question, but with lots of potential answers. In this post, we’ll evaluate some of those answers, detail the benefits of Self-Directed IRAs, and look at some hypothetical situations that may help explain whether a Self-Directed IRA is right for you.

Reason #1: Tax Benefits in a Self-Directed IRA

Using a Self-Directed IRA is a simple, straightforward process of opening a retirement account with a Self-Directed IRA custodian serving as administrator on the account. This means that a Self-Directed IRA isn’t a unique account type; it works like any other retirement account when it comes to the tax benefits you’ll experience. For that reason, if a Self-Directed IRA offers retirement investors any other benefits, like the ones you see below, it’s not hard to guess why they opened a Self-Directed IRA in the first place. Bottom line, it helps investors save for retirement.

Reason #2: Asset Diversification

Opening a Self-Directed IRA means that when you work with a custodian who can facilitate more diverse asset classes, you can put retirement money into a wider range of potential investments. Retirement investing has many more options than most people are used to—typically because investors work through traditional brokerages who only offer a limited set of options. Because a Self-Directed IRA means that investors can choose from a wider range of retirement asset classes, investors who want to diversify retirement assets out of the stock market and into real estate, precious metals, and more often turn to a Self-Directed IRA.

Reason #3: Experience with a Specific Type of Investment

For investors who have a lot of experience with stocks and funds, a traditional approach to a 401(k) or an IRA can be enough. However, even a Self-Directed IRA with a brokerage account can facilitate this type of trading. A Self-Directed IRA can also mean access to investing in a specific type of asset class. For instance, if an investor has a lot of experience with real estate, an investor can focus solely on real estate while using a Self-Directed IRA. Ditto for private stock in companies, or investing in tax liens. Investors who want to use a mix of two or more asset classes can also use a Self-Directed IRA for that purpose—for example, diversifying with real estate and precious metals at the same time, within the same account.

Reason #4: Having Independent Accounts

One reason an investor might put money in a Self-Directed Roth IRA, for example, is that this arrangement can make it easy for an investor to move from job to job without having to do any complicated paperwork regarding the account. This account would belong to the investor without having any reliance on a specific place of work. This can be very freeing for investors, especially those who want to build more of a sense of financial independence as time goes on.

Ultimately, there are many reasons why someone might choose a Self-Directed IRA. This arrangement makes it possible for investors to diversify, to expand a portfolio, to use considerable tax benefits, and generally take more control over their retirement accounts and strategy. However, it requires knowing the next steps. One of those steps is reaching out to a Self-Directed IRA administration firm like American IRA. To get started with that next step, reach out to us by giving us a ring at our phone number: 866-7500-IRA.