Youre making plans for a comfortable retirement. It isnt always easy and there are many decisions to be made. One important decision is whether or not a self-directed IRA is the right choice for you to make and whether or not its worth the effort. These are a few top reasons people decide to consider self-directed IRAs regardless of their risks.
1) Trust
For some people, its a matter of trust or distrust as the case may be. People are reluctant to trust big buck firms that cost them dearly during the Great Recession. As a result, theyd rather be in the position of choosing their investments within regulations regarding compliance, of course.
2) Autonomy
Other people consider it a matter of freedom. You want the freedom to choose your investments so that if they succeed or fail, it was based on choices you made rather than choices someone else made on your behalf. Since custodians are not required for checkbook control IRAs, this is the IRA of choice for many people who want to be in the drivers seat.
3) Simplicity
There are no complex back office programs to navigate or secret handshakes to learn in order to make investment transactions. Its a straightforward process thats easy to use.
4) Options
One of the best benefits of self-directed IRAs is that you arent limited to specific bank or financial firm investments. In fact, you can think completely outside the world of paper and invest in things like precious metal, real estate, and even businesses.
5) Tax Advantages
Not only is the IRA investment tax deferred, but the proceeds from the investment that go back into the account are also tax deferred. The greater the income on various investments, the bigger this benefit happens to be. Through a combination of wise investment decisions and the tax advantages of self-directed IRAs, investors stand to make huge gains – some even better than what youll make with 401(k) investments and conventional or Roth IRAs.
6) Privacy Protection
While this is only available to people who opt for checkbook control LLC IRA option, it is a big benefit to many people who prefer to keep their investments private. SD bank or custodian IRAs do not have this option available and you are listed as the owner.
7) Speed
This is another benefit reserved for checkbook control IRAs. Because you do not need to seek custodian approval or consent in order to make investments, theres no delay in investing in properties or other items quickly. In competitive markets this can be significant as a deciding factor.
8) Liability Protection
Because checkbook control IRAs are established as LLCs, you have some asset protection.
With all these benefits, its hard to imagine an instance when it wouldnt be worth it. However, self-directed IRAs are not for everyone. Some people will not find these investments worth the effort at all. There are some people who need a little more handholding and guidance in the investment process. Theres nothing wrong with that. Just as youre an expert in your career, there are people who are investment experts and their role is to help others who have less investment experience.
There are also greater tax compliance and record keeping requirements with SD IRAs than with other retirement investment options. These types of transactions also receive greater scrutiny from the IRS because there is a greater potential for fraud.
Despite the effort involved, many people find that SD IRAs provide a high ROI when investments are successful. Like most rewarding investment opportunities, the risks are high, though. Bear that in mind and make a decision based on your age, your level of comfort with risks, and your commitment to the details in order to remain in compliance and provide accurate (but necessary) documents and records to the proper authorities.