A self-directed individual retirement account (SDIRA) is a type of retirement account that allows investors to hold varied and unique asset options. Like a traditional IRA, the SDIRA has multiple tax advantages as long as the participants adhere to the laid down contribution limits and eligibility requirements.
Unlike a traditional IRA, where stocks and bonds are the dominant asset class, an SDIRA allows a broader array of investment options. Here’s a look at the most important reasons why you should consider opening an SDIRA.
1. Maintain Control
With an SDIRA, you have a vast array of potential investments at your disposal. You have the power to choose from the best cryptocurrency IRA companies, promissory notes, tax lien certificates, precious metals, mineral rights, real estate, and water rights. All this in addition to having leeway to invest in traditional IRA assets like stocks and bonds.
Work with a finance professional to guide you in evaluating the risks, opportunities, and costs of different investment options. You decide where to contribute and how much—from the annual limit to nothing at all.
2. Pick Your Custodian
Certain custodians specialize in offering custodial services in the kind of alternative assets an SDIRA would be interested in. With an SDIRA, you have the freedom to choose the custodian who demonstrates the expertise and support you require for your chosen alternative asset class.
3. Achieve Multiple Objectives
Depending on the alternative investments you choose, it’s possible to realize diverse investment goals within an SDIRA. For instance, you could invest in assets that not only increase in value over time but also generate an income.
With an SDIRA, you can have publicly traded investments and cash assets to ensure liquidity in addition to alternative investments with a more long-term objective.
4. Align Investment With Special Interests
Many people would love that their investment decisions reflect their viewpoints around their values and not just the financial return.
For example, you could decide to invest in eco-friendly companies or businesses aiding in the battle against global warming. Investing in women-owned companies, enterprises with a presence in your home town, or organizations specializing in a certain asset class are other avenues you could explore.
5. Same Tax Benefits As Traditional IRA
Contributions to an SDIRA are tax-deductible along the same rules that apply to a traditional IRA. Investment growth in the SDIRA is tax-deferred. That implies you won’t have to pay any tax on the investment earnings until the funds or asset is removed from the SDIRA.
The exception here is earnings from the investments classified as generating unrelated business taxable income since these are taxable.
6. Funded With Other Retirement Savings
An SDIRA can be funded through rollovers and transfers from other IRAs and employer-sponsored plans. You can liquidate the investment or move it in kind without liquidation. When the investment is moved in kind, the rollover or transfer must be the same property distributed from the source IRA.
There are no dollar limits to rollovers or transfers. These are not counted as part of your annual contribution limit.
7. You Can Have Both An SDIRA And Employer-Sponsored Plan
You can contribute to an SDIRA even if you are already on an employer-based retirement plan. The sole requirement is earning income and being under the age of 70 years six months. That said, if you are participating in an employer plan, your eligibility to deduct SDIRA contributions could be affected by your income.
Not Entirely Self-Directed
While it’s referred to as ‘self-directed’, an SDIRA isn’t something you run entirely on your own. You need a trustee or custodian to administer it. The custodian is most commonly passive, which means it’s up to the SDIRA investor to find, evaluate, choose, and direct their investment.
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