Learn the benefits and the downside of directing your own IRA
Even many of the more sophisticated, adventurous investors among us know little to nothing about Self-Directed IRAs (SDIRAs). These alternatives to traditional IRAs offer knowledgeable investors the opportunity to customize an exclusive IRA account with a diverse array of products not commonly available in regular IRAs. SDIRAs are particularly appealing to experienced investors who want to include things such as real estate and precious metals in their retirement accounts.
Administered by a trustee or account custodian, SDIRAs are available as either a Roth IRA or traditional IRA. However, they are managed directly by the account holder, who has the burden of due diligence and asset management.
While SDIRAs offer amazing tax benefits and flexibility, they do have some drawbacks of which you want to be aware.
Potential Pitfalls of SDIRAs
· In most cases, SDIRAs are only available through specialized firms.
· Unless you engage a financial or legal advisor with experience in SDIRAs, you are on your own when it comes to managing your account. Hiring experts may add a lot to the cost of having the account.
· Alternative assets, such as real estate and precious metals, are often difficult to value.
· There are regulatory issues not found with traditional IRAs. For example, there is a prohibition against “self-dealing.” If you miss crossing your T’s and jotting your I’s, you could find yourself in hot water with the IRS.
· There is a wide range of things that cannot be held in an SDIRA, including insurance, annuities, and collectibles such as rare coins. These rules affect the kind of precious metals you can include.
· You must still abide by the contribution rules for regular IRA’s. (For 2019, you can contribute $6,000 per year, or $7,000 if you’re age 50 or older.)
· There is an increased risk of losing your retirement savings. There are no guarantees that any of the investments you place into your Self Directed IRA will perform. This could expose you to losses from which you may not have time to recover.
All these things considered, many people continue to warm up to the idea of having an IRA over which they have the ultimate control…and the potential of investing in things they understand and like.
The SDIRA world is growing by an impressive 21% a year, a clear indication that experienced investors want something more from their IRAs. If you would like to investigate the pros and cons of SDIRAs further, please contact me. I will be happy to help you gain the insights you need to make better decisions when it comes to your IRA.
If you decide on a SDIRA, you will almost certainly need guidance from a financial advisor who specializes in these highly sophisticated types of accounts. I also recommend talking to a tax attorney or CPA who understands the nuances of SDIRAs as investment vehicles.