Why You Need a Self-Directed IRA for Your Retirement Plan

November 4, 2022

Did you know that 78% of Americans are concerned about not having enough money for retirement?

We all think about our future and how it will feel to finally be able to retire and focus on our hobbies, our loved ones, and relaxation. Whether you dream of traveling the world or sipping coffee on your front porch, these dreams are further away than you think if you don’t have the right retirement plan.

Some of us already have some retirement savings set aside through an employer-supported 401(k), but experts say that isn’t enough.

Here are five reasons you should invest in a self-directed individual retirement account:

1. 401(k)s don’t fully replace your annual income.

Even if you start investing early and have a reasonable employer match rate, 401(k)s still only replace 70 to 80% of your annual income. So how do make up the other 20 to 30%? Financial experts recommend contributing to both a 401(k) and an IRA to ensure the best level of comfort and security in retirement.

2. There’s more freedom and flexibility with alternative investments.

The difference between SDIRAs and other IRAs is the type of investments you can hold in the account. A self-directed IRA provides the opportunity to invest in alternative assets – not just traditional stocks, bonds, and mutual funds. Self-directed IRA custodians facilitate a wide variety of investments for retirement accounts, including real estate, precious metals, limited liability companies (LLCs), tax liens, promissory notes and both non-publicly and publicly traded securities.

3. Self-directed IRAs provide tax advantages.

As long as IRS rules are followed, SDIRAs offer several potential tax advantages. There are two types of IRAs: Traditional and Roth. Traditional IRAs provide tax-deferred growth and tax-deductible contributions. Roth IRAs offer tax-free growth and tax-free qualified withdrawals. You can learn more about these two types of IRAs on our IRA 101 page.

4. SDIRAs can be used for investment capital and charitable distributions.

Whether you are a real estate investor, business owner, philanthropist or just looking to diversify your investment portfolio, SDIRAs offer the opportunity to invest in something you’re passionate about while also saving for retirement. You can use qualified retirement funds toward businesses, charities, and other investment opportunities.

5. You can use your SDIRA to leave a legacy that will last beyond your lifetime.

When setting up your SDIRA, you can elect one or multiple beneficiaries to inherit your account when you pass away. This could be a spouse, child, grandchild or even a charity.  Generally, once a retirement account is passed down, any remaining cash and assets are tax-advantaged while inside the account and can be distributed to the beneficiary. They also have the option to keep the funds in the account and continue investing.

Everyone is different, so everyone’s retirement plan is a different. By working with a self-directed IRA custodian, you can determine the best way to achieve your unique retirement goals.

Ready to get one step closer to your retirement goals? Contact a self-directed IRA custodian today.