A self-directed IRA is vital to maintain power over your retirement’s future.
Saving money is important, especially when it comes to retirement. After working hard your whole life, you should enjoy yourself. Travel, spend time with family, or simply relax. What you should not do is worry about finances or wonder what you’ll have to sacrifice to maintain an affordable lifestyle.
In other words, you shouldn’t take your retirement planning lightly. Experts suggest that you should expect to spend 55-80% of your current income each year when you retire. You need a retirement plan that gives you the most value out of your money and hard work. Specifically, you need an individual retirement account, or IRA. And if you want your money to be immune to inflation, you need a self-directed individual retirement account, also known as a self-directed IRA or self-managed IRA.
What is an IRA?
An IRA, or individual retirement account, is a savings account with additional tax benefits. How those benefits work depend on the type of IRA that you get, but it is far more beneficial than simply creating a savings account at a bank or buying liquefiable assets yourself.
What are the types of IRAs?
Before you ask what is a self-directed IRA, you should understand the types of IRAs in general. Keep in mind that all of these types apply to both self-managed IRAs and IRAs that go through banks.
Traditional IRA
Contributions to a traditional IRA are tax deductible. You do not have to pay taxes for adding money or for the growth of the IRA over time. However, you do have to report it as income and pay normal income taxes when you withdraw from a traditional IRA.
Roth IRA
Roth IRA contributions are not tax deductible. However, withdrawals from a Roth IRA are tax-free. Even if the value of the IRA has grown over time, you don’t pay capital gains taxes or income taxes. Additionally, Roth IRAs do not have required minimum distributions.
SEP IRA
A Self-Employed IRA is not the same as a self-directed individual retirement account. This IRA is for freelancers, contractors, or small business owners. It uses the same rules for withdrawals and contributions as a traditional IRA but with a higher maximum contribution. Employees can not contribute to the IRA.
SIMPLE IRA
SIMPLE IRAs are also for self-employed individuals and small business owners. This account also follows traditional IRA tax rules for contributions and withdrawals. However, it is different from a SEP IRA in the sense that employees can contribute to the account. The employer is also required to make contributions.
What is the difference between an IRA and a 401(k)?
Both IRAs and 401(k)s manage retirement accounts, but a 401(k) is managed by an employer while an IRA is typically managed by an individual. 401(k)s typically allow higher annual contributions, but IRAs offer more financial freedom and options with how to store value.
| IRA | 401(k) | |
| Contribution Limit | $7,000 in 2024 or $8,000 for ages 50 and up | $23,000 in 2024 or $30,500 for ages 50 and up |
| Tax Benefits | Tax-deductible contributions OR tax-free withdrawals depending on the type | Contributions are deducted from taxable income |
| Employer Match | None for most IRAs. | Some employers match contributions up to a certain percent. |
| Asset Control | Complete control over how to contribute and what types of assets to buy | No control over how contributions are used |
| Required Minimum Distributions | No required minimum distributions for a Roth IRA. | Required minimum distributions at age 73 in 2024. |
IRA compared to 401(k) Chart 1
Can’t decide? In most cases, you can have both a 401(k) and an IRA! Keep in mind that you still must stay within the contribution limit for both accounts.
What is a self-directed IRA?
A self-directed individual retirement account lets you take the wheel. Tax-wise, it follows the same rules as a traditional IRA or a Roth IRA, depending on your choice. The key difference is that a self-managed IRA lets you choose which assets to store your value in.
While a traditional IRA only puts money in approved securities such as stocks and bonds, a self-directed IRA can also hold any of the following additional assets:
- Cryptocurrency
- Real estate
- Foreign currency
- Startup equity
- Precious metals
Buying assets outside of traditional stocks and bonds diversifies your portfolio and offers unique benefits depending on the asset purchased.
What assets can I buy with a self-managed IRA?
Cryptocurrency
Cryptocurrency is a completely digital asset that stores value with blockchain technology. There are many different types of cryptocurrencies, with the more recognizable ones including Bitcoin and Ethereum. Cryptocurrency is known for its high volatility, which means it offers a potential high rate of return but an even higher risk. Because it is so new to the financial market, its long-term worth has yet to be established. It is not an ideal option for a self-managed IRA, where long-term value is more important than short-term success.
Real Estate
What is a self-directed IRA in terms of real estate? While some choose to purchase real estate as a way of making money off rent, real estate in the context of a self-managed IRA is a bit different. There are many rules that do not otherwise apply to real estate purchases. For example, you cannot use the property yourself, and you can’t claim any property expenses for tax deductions. Additionally, maintenance fees and repair costs are paid directly by the IRA, meaning some of the money you put into the account will leak into the property.
If you are willing to put in the effort required to maintain and market a property enough for the income to outweigh the upkeep costs, you might consider a real estate IRA. If you want a hassle-free option that doesn’t let money leave the account, you should consider a different asset.
Foreign Currency
A forex IRA is a self-directed individual retirement account that stores money in the digital currencies of other countries. The forex market is the global financial market that trades foreign currencies and currency derivatives. Because the forex market functions in much the same way as the stock market, a self-directed forex IRA is managed similarly to a standard IRA.
If you are interested in a standard IRA but want to diversify your portfolio by trading internationally instead of domestically, a self-managed IRA focused on forex might be for you. If you want a self-directed account so you could have more control over your assets and remain immune to the whims of the financial market, a forex IRA is not the right choice.
Startup Equity
What is a self-directed IRA built out of startup equity? A startup equity IRA stores money in the stock of a start-up company. Similar to cryptocurrency, this can offer a huge reward if the company performs well and grows over the years. However, this is also an incredible risk considering that 75% of new businesses fail within fifteen years. We’re guessing you don’t want a 25% chance that your account will still hold value by the time you want to retire. Unless you are extremely confident in the future performance of a particular startup, you should avoid startup equity IRAs.
Precious Metals
A precious metal IRA relies on precious metal assets such as gold, silver, and platinum. This IRA is commonly used for asset protection. Because precious metals such as gold tend to rise in value when inflation rises, they serve as inflation hedges and protect your assets from market fluctuations. They are particularly ideal for value preservation over large periods of time, which makes them a great choice for a self-managed IRA.
How do I set up a self-directed IRA?
Now that you understand what a self-directed IRA is, you can decide if it’s the right choice for you. A self-directed IRA requires a custodian, or an entity approved by the IRS to manage your account. For example, if you want to buy gold, you need someone to source a reliable gold seller and find suitable storage for the gold. While you have complete control over what types of assets you want to buy, the custodian is the entity that actually does the buying.
Naturally, this means finding the right custodian is an important part of setting up a self-directed individual retirement account. You need someone with the knowledge to navigate the legal requirements that come with an IRA, the experience to find reliable means of acquisition and storage, and the transparency to ensure that you are 100% informed throughout the whole process.
If you have decided that you want to pursue a precious metals self-managed IRA, Safe Haven Metal can make sure that you complete the process smoothly while having complete autonomy over your purchase decisions. You choose what types of metals and how much you want to buy, and we provide you with inventory sheets and itemized statements that can be viewed at any time. And, of course, you should never trust gold that you can’t see and touch yourself. That’s why we encourage you to visit your gold at its depository whenever you want – just remember that if you take any home, that counts as an official distribution from your IRA.
Conclusion
Get started with Safe Haven Metal today by calling and letting us walk you through the setup process. We’ll even cover your first year’s worth of fees for free! Retirement savings is one of the most important decisions you will ever make – let Safe Haven Metal make it an easy one.
