There are various avenues for saving that one can use to save for their retirement including self-directed IRAs, mutual funds, bonds and stocks among others. If you are looking to have the opportunity to invest your retirement funds, self-directed IRAs are the way to go. Some of these include promissory notes, real estate, special loans, closely held businesses and the like.
What Makes a Self-Directed IRA an Attractive Option?
Most people have been putting money in their IRA and it is their biggest source of investment capital. In order to use your retirement funds for investment, it is important to look at the tax consequences. A 401(k) is great if you are planning to receive your distributions a little at a time, after retirement but if you consider withdrawing the whole amount or a large portion of it for investment, the tax consequences are big. An IRA, especially one that is self-directed, saves you from such tax liability and allows you to withdraw the amount you need for investment. You are able to select investments that will cause your retirement account to become more valuable. These IRA investments are what make this form of saving so attractive.
Challenges Facing Self-Directed IRAs
Prior to going into any venture, it is prudent to evaluate the risks. There are several tax rules that govern these IRAs and making a mistake can have dire consequences. These 3 rules must be understood by anyone who is contemplating to use this investment vehicle:
- You cannot invest your IRA Assets into a business where you hold more than 50% shares or where you are listed as one of the corporate officers. Additionally, you cannot use your assets to purchase a vacation home or use it for personal benefits.
- If you are looking to purchase IRA investments and need financing, you cannot combine your IRA assets with personal assets.
- Your investments should not generate a large amount of unrelated taxable income from the business.
In the event that these rules are violated, you jeopardize the special status of your IRA as being tax-exempted, meaning that your retirement account can become taxable immediately and even become subject to various penalties. It is important that you get a professional to explain these provisions to you so that you understand them clearly. Before you start investing in this IRA, you will need to have a clear understanding of the investment you are getting into and ensure that it does not land you in trouble with these provisions.
Keeping Your Self-Directed IRA Safe
You will need to select a financial institution to be your IRA custodian. It is important that you carry out research on the said institution. Make sure that they are known for having integrity and that their charges are wallet friendly. It is important for you to know that the charges for this kind of IRA are generally higher than those for brokerage of a regular IRA. If there is a golden opportunity that you would like to exploit and have a 401(k) plan, you can roll over the money into a self-directed IRA and take advantage of it.
Take Advantage of the Social Security $15,978
There are secrets of social security that you can take advantage of to boost your retirement savings. These loopholes are created for your benefit but are often overlooked by most retirees. If you are behind on saving for retirement, you can simply find out more about these tricks to boost your account. In fact, 17 minutes of your time could lead to an additional saving of $15,978 yearly!
Find out more about these loopholes and learn how you can take advantage of your retirement funds to invest and boost your retirement income. With a self-directed IRA, you can easily take advantage of the various investment opportunities that present themselves from time to time with our tips that will teach you how to grow your nest egg. Contact us here and let us advise you on the best way to take advantage of the funds that you have already saved.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He brings over 30 years of diverse experience as a financial advisor. Rick takes great pride in giving honest and very experienced advice. Rick can readily converse with business owners and people looking to take control of their retirement accounts.