An IRA is Great, but Let’s Talk Self-Directed IRA Basics

A quick chat about self-directed IRA basics to get more from your retirement account

Individual retirement accounts are one of the best ways to grow your money for retirement. To clarify, an Individual Retirement Account is an account that allows you to set aside money for retirement and increase your savings tax-deferred.

There are two types of IRAs, traditional and Roth. Traditional IRAs are funded with pretax dollars, meaning you don’t pay taxes on the money you contribute until you withdraw it in retirement. Roth IRAs are funded with after-tax dollars, so you won’t pay taxes on the money you withdraw in retirement.

While an IRA is great, you can do even more with a self-directed IRA. This post will discuss a self-directed IRA and why you may want to choose one. We’ll also discuss some limitations and what you should be aware of when investing with a self-directed IRA. Let’s discuss the self-directed basics you should know.

Why Choose Self-Directed Retirement Accounts?

We all know the feeling of wanting to diversify our investments but being limited by what we can invest in. An SDIRA might be right up your alley for those with a traditional retirement account! With this account, you can invest in alternative assets, like real estate, cryptocurrency, gold, private placements, etc. 

Like standard retirement accounts, you can choose between multiple account types for your self-directed IRA, be it traditional, Roth, SEP-IRAs, Solo 401ks, and more. Learn more about which type of individual retirement account or business retirement account is right for you.

While you can invest in just about anything as long as it follows the retirement account rules set forth by the IRS, the following are a few things you’ll want to remember when investing with a self-directed IRA.

What types of investments are not eligible in a self-directed IRA?

The IRS has rules and regulations around what you can and cannot invest in your retirement account. In general, you are not able to invest in the following:

-Life insurance policies

-Collectibles (e.g., artwork, coins, stamps)

-S-Corp stock

-Partnerships in which you are a general partner

-Investments that are considered self-dealing

The reason for these rules is to prevent you from taking advantage of your retirement account and using it for personal gain.

With this in mind, when you are investing, ensure it is not one of the following assets mentioned above, and you’re on the right path to investing success with a self-directed IRA.

There are rules that you’ll also need to be aware of so that you don’t break any prohibited transactions, thus removing the tax benefits of your retirement account and possibly having to pay a fine.

Alternative Investments and Taxes

Some alternative investments may have tax implications you’ll need to be aware of. For example, UBIT and UDFI taxes can apply to income and gains from investments in cryptocurrency and other digital assets. These taxes can be complex, so it’s essential to consult with a tax advisor to ensure you are reporting correctly.

UBIT and UDFI aside, alternative investments can also have different tax implications. For example, short-term rental properties may be subject to different tax rules than long-term rentals.

The taxes associated with your specific investments in your retirement account can get a bit in-depth, so you’ll need to know your information. If not, it will be essential to consult with a tax advisor and do your research to ensure you run your retirement account as soundly as possible.

Why Choose Accuplan?

We get questions about everything you can think of when it comes to self-directed retirement accounts. As a result, we have an extensive knowledge of self-directed IRA investing and have been in the industry for roughly two decades. We can help guide you to diversify your retirement accounts with alternative investments further.

Contact us with any questions about self-directed retirement accounts now!

Open an account now with our easy online account signup. Everything can be done online without having to fill out paper forms. If you prefer doing some paper forms, check out our forms page.