What is Self-Directed IRA? Self-directed IRA or Self-directed Individual Retirement Account is a retirement account that enables investors to make the decision regarding the future of their finances.
Similar to the typical IRA, a self-directed IRA allows you to enjoy the tax benefits and wait while your money increases with combined interest. With this type of retirement account, the investor has all the privileges to enjoy just like a normal retirement account, along with these two additional gifts, more investment choices and greater regulation of your retirement documents.
Also, this IRA account gives the investor the full privilege to choose how he would like to invest his own money. During the old way followed by insurance companies and banks, they are the ones who have the control as to what type of investment is to be enjoyed by the investor. Nonetheless, self-directed IRAs gives the investor a wide range of options for investments and permits him to purchase other estates using the IRA.
Furthermore, there are also six types of Self-directed IRAs. The first one is the Traditional individual retirement account which is a tax-deferred retirement account. In terms of your contribution, it can either be deducted fully or partially, which is dependent on the circumstances.
The nest type of self-directed IRA is the SEP IRA or the Simplified Employee Pension IRA, which is obviously for those who are considered as self-employed and run a small business. Any business owner, even though they just have one employee, anyone having freelance job, is qualified to open a SEP IRA. The contributions they give are tax-deductible for the individual or the business, which goes into a traditional IRA.
The third type of self-directed IRA is the Rollover IRA, which is being used by investors who have many employers. This type of retirement account is simply like a regular account, except that it is sustained by transferring the money or rolling over the money from the previous employer’s retirement plans. The arrangement is that you are not allowed to make any withdrawal except that you settle your entire tax rate, along with a 10% penalty.
Moreover, the fourth type of self-directed IRA is the Roth IRA which is a tax-free retirement savings account. Contributions may be given even after you are 70 1/2 years old, and you are not obliged to take distributions. Furthermore, a Roth IRA account holder is free to withdraw his principal amounts or contributions that has already invested, at any time he wants, without the concern of tax obligation.
Finally, the last type of self-directed IRA is the Self-employed 401(k), which is an option for those who have small businesses without any employees. This type of retirement account is appropriate for solo consultants who desire to obtain a retirement plan similar to those who are working in huge companies.