Self-Directed IRAs
A Self-Directed Individual Retirement Account is an IRA which confers upon the account holder the rights to invest the funds in the plan. Unlike other IRA’s and qualified or otherwise retirement plans, self-directed IRA investments are not restricted to sub-accounts provided by the managing financial institution. Instead, the owner is free to make any investment valid under IRS guidelines ( which opens up a variety of possibilities including real estate, stocks, franchises, mortgages, tax liens and even your own business ).
Annual contributions for self-directed IRA’s for the year 2007 are limited to $4000 ( $5000 for those aged 50 and above ). These contributions can be deductible or not, depending upon your participation in other employer sponsored retirement plans and your adjusted gross income. In case you do not qualify for a tax deductible IRA, the contributions, and earnings, can be withdrawn tax free.
A standard way to set up and manage a self-directed IRA is by setting up an LLC and opening a bank account for the newly registered LLC. You then direct the financial institution managing your IRA to transfer funds in your IRA to the bank account. After tat, you can simply write a check from aforementioned to make investments. Other than collectibles, you are free to invest in just about anything. Please refer to the IRS or your financial planner for investing guidelines. This opens up possibilities of accruing high gains of 15% and over in a tax deferred or withdrawal tax-free investment account. In the world of retirement planning, such benefits and flexibility to choose investments are nearly unheard of. The standard rules concerning taxes and early withdrawals which govern IRA’s also apply to self-directed IRA’s. Early withdrawals before age 59 ½ will be charged with a 10% penalty.
It is not uncommon for employees to be participants in a 401(k) or other qualified retirement plans while simultaneously holding a self-directed IRA. The reasons are not hard to find. Most retirement plans charge fees for administration and management. At best, a list of prospective investment opportunities are put in front of you and you are asked to select one or more. Lastly, the chances for making an investment which you trust implicitly, which also provides a near 100% chance of securing high gains is next to nil. This means that you are either left with safe and low returns or asked to be liable for above normal risks. A Self-Directed IRA gives you a chance to make invest funds into a business or asset which you trust on a personal basis, while working within the boundaries of a federally defined retirement plan.
If you invest $10 per day into a self-directed IRA and manage the investments wisely, you can turn a piggy bank into a mammoth tax deferred nest egg which will secure your future well before you retire. You are advised to consult with your financial planner before opening a self-directed IRA, research the managing financial institution and study the IRS operating guidelines investments.