Rule Your Retirement: The Benefits of Self-Directed Over Traditional IRAs

02I21397The Basics: What is a Traditional IRA?

With people living longer and longer, making smart retirement investments is becoming increasingly important. An individual retirement account, or IRA, allows you to plan for your retirement by providing a tax-deferred investment vehicle. Delaying taxes allows more of your hard-earned money to grow with your investments. At age 59 and a half or older, the money you take out of your IRA will simply be taxed as normal income (you will typically face a 10 percent penalty for early withdrawal). This is especially useful for people who plan to be in a lower tax bracket during retirement since it allows them to keep more of their income. In many cases, the funds invested in an IRA are also tax deductible, providing you further benefit. IRAs have been helping Americans save money for retirement since 1975.


Traditional and Self-Directed IRAs: What’s the Difference?

With a traditional IRA, a bank or brokerage firm will act as the “custodian” of your account and its investments. This means that your broker ultimately controls what you invest your money in. Your investment options are typically limited to stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), or money market funds.


But what if you want to invest in something else, diversify your portfolio, or simply have more control over your retirement planning? A self-directed IRA solves these problems by allowing you to invest in just about anything. You can still utilize conventional securities, such as stocks or bonds, but you can also expand your portfolio to include potentially more stable or higher-yield options.


With a self-directed IRA, an administrator will still run your account, per IRS regulations, but this person will abide by your instructions. You may work with a financial professional who can help advise your investments, but many self-directed IRA holders prefer to do their own research and make investments according to their unique market knowledge. For example, if you are a real-estate agent, you may choose to use your expertise to invest in local properties you believe will increase in value.


Self-Directed IRA Investment Options

With a self-directed IRA, you can invest in everything from businesses to dairy cows (which self-directed IRA investor Rajeev Kotyan did, and with a 20 percent return!). Having so many investment options can be liberating, but also daunting—especially if you’re not a broker, how can you decide which investments will help you grow your retirement funds?


One of the most popular choices for self-directed IRAs is precious metals, such as gold. Many people choose to use a self-directed IRA because they don’t trust the sometimes-volatile traditional investment market, especially after the recent recession. Since gold, silver, platinum, and other precious metals have been consistently valuable for thousands of years, including them in your portfolio can help protect your assets from the busts of the market. Other common self-directed investments include real estate and S-corporation shares.


Take Charge of Your Retirement with a Self-Directed IRA

Why should you limit your investment options and let someone else determine your financial future? A self-directed IRA, bolstered by smart investments such as precious metal securities, can help you feel confident in your retirement plans.

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