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. It provides you all the assistance you have long ago expected from any retirement account, along with these two other gifts, more investment choices and higher privilege to handle your own retirement documents.
Also, this IRA account gives the investor the full privilege to choose how he would like to invest his own money. Looking back to old system used by insurance companies and banks, they are the ones having the authority as to the type of investments with the individual retirement account. However, with self-directed IRAs open to various set of options of investment and permit the investor to buy alternative properties through the IRA.
There are also types of Self-directed IRAs. The first one is the Traditional IRA which is a tax-delayed retirement account. Your contributions in this type of IRA may be fully or partially deductible, as it depends 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. Rollover individual retirement account is an account that performs just like the normal account, except that it is supported by transferring of money or rollover from the past employer’s retirement plan. The investor is not yet permitted to withdraw unless he pays the complete tax rate, along with the 10% penalty.
Another type of self-directed IRA is the Roth IRA, which is a tax-free retirement account that can be paid with after-tax dollars. The contributions of the investor may be given even after he is 70 1/2 years old, and he is also not obliged to take allocations. Additionally, a Roth IRA investor is allowed to withdraw the principal amounts he has invested at any time without any 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.