“Each Day, each month, each year: One more, one thousand more, a million more investors will gradually learn the foolishness of this investment system and will start looking after themselves.”
John Bogle Former CEO of the Vanguard Group
An IRA is one of the most effective tools to have in your quest to secure a financially comfortable retirement.
In addition to offering compounding returns over your lifetime, it also offers several tax advantages. Typically, a bank or other financial institution will control your IRA investments.
However, with a self-directed account, you decide how to save for retirement. Self-directed accounts allow you to be the trustee. As the name implies, a self-directed account allows you to decide where your contributions go.
This means you can invest in startup businesses, gold or anything else you think will earn a return on your investment.
At the same time, you get the same tax advantages as you would with a conventional IRA.
Who Can Have a Self-Directed Account?
Anyone with a self-employment income can start a self-directed account.
Now, before you count yourself out, consider this: anyone can have a self-employment income without quitting their day job.
Even if all you do if babysit for your neighbor’s kids, walk dogs, or write blog articles for money, it may be enough to qualify.
To find out if you have self-employment income, ask a tax professional.
Are There Limits to How Much I Can Contribute?
Contribution limits apply regardless of what type of account you have.
For 2017, you can contribute up to $5,500; catch-up provisions allow those over the age of 50 to contribute another $1,000 in a year.
If you make less than $5,500 in self-employment income in a given year, you can contribute your total amount instead.
Contributions to your self-directed IRA will also be reduced by any contributions made to other accounts, so the total even between 2 accounts must be no more than $5,500.
What About Withdrawal Rules?
If you decide to take money out of your account before the age of 59 1/2, you may be subject to early withdrawal penalties.
That money will also miss out on compounding interest because it is withdrawn early.
Income taxes need to be paid on any cash withdrawn prior to age 59 1/2, and the withdrawal may bump you to a higher tax bracket.
Conventional IRA Accounts Limit Investment Opportunities
A typical IRA will allow you to invest in stocks and bonds. In some cases, you will be allowed to invest in gold or other precious metals.
A conventional IRA can be extremely limiting if you don’t understand how the stock market works or don’t want to deal with low bond yields. Depending on where you have your IRA, you may be paying management fees for trading decisions you could make on your own.
Your Money, Your time
If you are looking for a way to take control of your retirement, consider a self-directed IRA.
The freedom to invest in what you know and love can improve returns without necessarily increasing your risk.
High returns means more financial freedom- freedom to do what you like with your time!
What does “financial freedom” mean to you?
The Smart Asset philosophy relies on a network of like-minded, ambitious individuals who are passionate about making investments that will set them free.
Let’s have a discussion and find out if we could be a good match.