First and foremost, let us define Self-Directed IRA. This Self-directed Individual Retirement Account is a retirement account that gives the investors the freedom to have the control of their finances for their future.
Identical with the regular IRA, this self-directed IRA provides you the privilege to enjoy the advantages of tax benefits while you observe your money multiply with a double interest. With this type of retirement account, the investor has all the privileges to enjoy just like a normal retirement account, along with these two additional gifts, more investment choices and greater regulation of your retirement documents.
This allows the investor to choose the manner he decides to invest his money. Previously, banks and other insurance companies decides the type of investment made with IRA, by decreasing the number of options to choose from. On the other hand, self-directed IRA expands to a variety of options and choices for more investments and also permit the investor to buy other properties using the IRA.
Furthermore, there are also six 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 next type is the SEP IRA or the Simplified Employee Pension individual retirement account which is for individuals who are self-employed and own a small business. Anyone having a business, with even one or more number of employees are considered qualified to open a SEP IRA. Their contributions which are tax-conclusive for the individual or the business, go into the traditional IRA taken in the employee’s name.
Another type of self-directed IRA is the Rollover IRA, which is a traditional IRA that is utilized by the investors who have a lot of employers. This type of retirement account is simply like a regular account, except that it is sustained by transferring the money or rolling over the money from the previous employer’s retirement plans. The arrangement is that you are not allowed to make any withdrawal except that you settle your entire tax rate, along with a 10% penalty.
Moreover, the fourth type of self-directed IRA is the Roth IRA which is a tax-free retirement savings account. 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. Furthermore, a Roth IRA account holder is free to withdraw his principal amounts or contributions that has already invested, at any time he wants, without the concern of 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 account is fit for solo proprietors who are looking for a retirement plan identical to the one they might obtain from working at a huge company.