Skip to Content
Back to Blog
Benefits of a Self-Directed IRA  Retirement 101

Benefits of a Self-Directed IRA | Retirement 101

October 22, 20242383 view(s)

If you're looking for a way to take charge of your retirement savings, a self-directed IRA might be just what you need. A self-directed retirement account lets you choose from many more investment options than a regular IRA. With a self-directed IRA, you can invest in things like real estate, precious metals, and even private businesses.

But before you jump in, it's important to understand the rules. Self-directed IRA rules can be tricky, but don't worry - we're here to help. In this article, you'll learn all about how they work and how you can use them to grow your retirement savings.

 

What is a Self-Directed IRA?

A self-directed IRA is a special type of retirement account that gives you more control over your investments. Unlike regular IRAs, which typically limit you to stocks, bonds, and mutual funds, a self-directed IRA allows you to choose from a wider range of investment options.

With this type of account, you can invest in things like real estate, private businesses, and even precious metals. This flexibility lets you use your own knowledge and skills to make investment choices that you think will work best for your retirement goals.

Self-directed IRAs have been around since the 1970s, but they've gained more attention in recent years. As more people learn about them, their popularity has grown.

 

It's important to note that you'll need to work with a special company called a custodian to manage your self-directed IRA. The custodian helps make sure your account follows all the necessary rules and regulations. However, you still get to make the big decisions about where to invest your money.

So if you're interested in having more say in your retirement planning and are willing to explore different investment options, a self-directed IRA might be a good fit for you. It offers a way to take a more active role in growing your retirement savings.

 

Self-Directed IRA Rules: What You Need to Know

When you have a self-directed IRA, it's important to follow the rules set by the IRS. These rules help keep your retirement savings safe and make sure you're using your account the right way.

First, you need to know about prohibited transactions. This means there are some things you can't do with your IRA money. For example, you can't lend money to your family. The IRS refers to this as "disqualified persons," and you can't do business with them using your IRA funds.

Next, pay attention to self directed IRA limits. Each year, there's a maximum amount you can put into your IRA. In 2024, if you're under 50, you can contribute up to $7,000. If you're 50 or older, you can add an extra $1,000 as a "catch-up" contribution.


Don't forget about deadlines. You usually have until Tax Day (usually April 15) to make contributions for the previous year. Mark this date on your calendar so you don't miss out!

Lastly, when you get older, you'll need to start taking money out of your account. This is called Required Minimum Distributions (RMDs). RMDs start at age 73. It's important to take out the right amount each year to avoid penalties.

By following these rules, you can enjoy the benefits of your self-directed IRA while staying on the right side of the law. Remember, if you're ever unsure about a rule, it's a good idea to ask a financial advisor or tax professional for help.


Main Benefits of a Self-Directed IRA

Now that you understand what a self-directed IRA is and the rules you need to follow, let's explore why you might want one.

Self-directed IRAs offer several important advantages that can help you build a stronger retirement fund. Here are the main benefits you should know about:

 

Expanded Investment Options

With a self-directed IRA, you have access to a much wider range of investments than with a regular IRA. You can still invest in traditional options like stocks, bonds, and mutual funds if you want. But you also get to explore exciting alternatives that might better fit your interests and knowledge.

For example, you could invest in real estate properties, from houses to apartment buildings. If you're interested in precious metals, you could add gold or silver to your IRA.

Some people even use their self-directed IRAs to invest in private businesses or startup companies. This variety allows you to create a more diverse investment portfolio. By spreading your money across different types of investments, you might be able to reduce your overall risk.

It's like not putting all your eggs in one basket. Plus, you can choose investments that you understand well or that you think have great growth potential.

 

Greater Control Over Investments

A self-directed IRA puts you in charge of your retirement savings. You get to make the big decisions about where your money goes, instead of relying on someone else to choose for you. This means you can use your own knowledge and skills to pick investments.

For example, if you know a lot about real estate in your area, you can use that expertise to choose properties for your IRA. Or if you've always been interested in startup companies, you can research and invest in ones you believe will succeed.

You also have the power to change your investments when you want. If you think one investment isn't doing well, you can decide to sell it and put your money somewhere else. This flexibility lets you adjust your strategy as your goals change or as you learn more about investing.

Remember though, with great power comes great responsibility. You'll need to do your homework and stay informed about your investments. However, for many people, the chance to have more say in their financial future is worth the extra effort.

 

Potential for Higher Returns

When you use a self-directed IRA, you might have a chance to earn more money on your investments. This is because you can look for special opportunities that others might miss. You're not limited to the usual investments that everyone else is buying.

For example, you could invest in a promising new technology company before it becomes well-known. Or you might choose to put some of your IRA money into a successful local business that's looking to expand. These kinds of investments can sometimes earn more money than regular stocks or bonds.

A lot of people have had great success with their self-directed IRAs. Some investors use their knowledge of the music industry to invest in song royalties, earning steady income over time. Others invest in coins, which increase in value over time.

Of course, it's important to note that higher potential returns often come with higher risks. Not every investment will be a winner. But if you do your research and make smart choices, you might be able to grow your retirement savings faster than with a regular IRA.

 

Tax Advantages of IRAs

When you use a self-directed IRA, you get to enjoy some great tax benefits. These benefits can help your money grow faster and potentially save you money on taxes.

Depending on your investments, you may be able to deferred your contributions from your taxes now. This means you could pay less in taxes this year. Plus, your investments grow tax-deferred. You won't have taxes on the money your investments earn until you take it out in retirement.

On the other hand, if you pick a Roth self-directed IRA, you pay taxes on the money you have contributed. But here's the exciting part: when you take the money out in retirement, it's tax-free. This includes all the gained money your investments have earned over the years.

These tax advantages can make a big difference in how much money you have for retirement. By paying less in taxes, you keep more of your hard-earned money. And when your investments grow without being taxed every year, they have the potential to grow even faster.

Keep in mind that tax rules can be complicated and they sometimes change. It's a good idea to talk to a tax professional to understand how these advantages apply to your specific situation.


Get Our Free IRA/401(k) Investor's Guide

Get Our Free
IRA/401(k)
Investor's Guide


Popular IRA Investment Options for Self-Directed Accounts

With a self-directed IRA, you have many exciting investment choices. Let's explore some popular options that you might find interesting:

 

Real Estate

This is one of the most popular choices for self-directed IRA investors. You can buy different types of properties with your IRA funds. For example, you might invest in a single-family home, an apartment building, or a commercial property like a small office building or retail space.

Some people even buy vacant land, hoping its value will increase over time. One common strategy is to purchase rental properties. This way, your IRA can earn regular income from rent payments while potentially benefiting from the property's increase in value over the years.

You could also consider "fix and flip" projects, where you buy a property, improve it, and then sell it for a profit. However, you can't use a property in your IRA for personal use. It must be strictly for investment purposes.

 

Precious Metals

Precious metals are another popular choice for self-directed IRAs. You can add gold, silver, platinum, or palladium to your account. Many people like these metals because they often keep their value when other investments go down.

This can help protect your savings during tough economic times. When you invest in precious metals with your IRA, you don't keep the actual metal yourself. Instead, it's stored in a special, secure facility.

You can choose to buy coins or bars, but they must meet certain purity standards set by the IRS. For example, gold must be 99.5% pure to qualify for an IRA. Some investors see precious metals as a way to add stability to their retirement portfolio, especially when they're worried about inflation or economic uncertainty.

 

Private Businesses

With a self-directed IRA, you have the opportunity to invest in private businesses or startup companies. This means you could become a part-owner of a small local business or invest in a new company that's just getting started.

For example, you might invest in a friend's new restaurant, a tech startup with a promising idea, or a small manufacturing company that's looking to grow. This type of investment can be exciting because you're helping a business grow while potentially earning money for your retirement.

However, it's important to know that investing in private businesses can be risky. Some new businesses don't succeed, and you could lose your investment. But if the business does well, your investment could grow a lot.

 



Taking Control of Your Retirement

With more investment choices and control, you have the power to shape your financial future. But remember, this freedom comes with responsibility. You'll need to learn about different investments and follow self-directed IRA rules carefully.

If you're interested in adding precious metals to your retirement savings, the United States Gold Bureau is a great place to start. We can help you understand how gold, silver, and other precious metals might fit into your self-directed IRA. Grab our free precious metals investor guide to get started. It's a great way to start exploring this exciting investment option.

Benefits of a Self-Directed IRA  Retirement 101
Posting in:
United States Gold BureaubyUnited States Gold Bureau
This site uses cookies to improve your experience. By clicking, you agree to our Privacy Policy.