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 kind of retirement account, you have all the gifts you have already expected from a regular retirement account, with these two additional privileges, a lot of investment options and greater authority in handling 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. However, with self-directed IRAs open to various set of options of investment and permit the investor to buy alternative properties through the IRA.
Moreover, there are six types of Self-directed IRAs. The first type of self-directed IRA is the traditional type which is a tax-delayed retirement account. The contributions that you give to a traditional IRA can be optional, either fully or partially deductible.
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 owners with even one or more number of employees, or anyone with freelance job, can apply a SEP IRA. Their contributions which are tax-deductible for their business or the individual, go into a traditional IRA taken from the employee’s name.
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 rule is that you are not yet allowed to make any withdrawal unless you pay the complete tax rate, along with the 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.
The last type of self-directed IRA is the Self-employed 401(k) which is a special account option for owners who run a small business who don’t have any employees, except for his spouse. This type of account is fit for solo proprietors who are looking for a retirement plan identical to the one they might obtain from working at a huge company.