Whether you’ve already made the move to a self-directed IRA, or it’s simply an option you’ve put on the table to consider, it’s important to know as much as you can before moving forward – after all, the benefits of self-directed IRAs are commensurate with the risks. If you jump in without learning everything you can, you’re going to come out worse than you would leaving all the hard decisions to someone else. So make sure you keep these three tips about self-directed IRAs in mind:
1. Some investments come with extra tax burdens
That’s right, you can make missteps with your IRA that increase the taxes owed on those investments – being an IRA doesn’t shield you from every other tax. That said, these aren’t always bad investments to make. Just make sure you know exactly what you’re getting into, and what you may owe when the dust settles. If you’re going to come out ahead, go for it.
2. You need to do your homework
Don’t make the move to a self-directed IRA if you can’t invest the time necessary to make informed, savvy decisions about your investments. You’re accepting more work and bigger risks in exchange for much, much greater potential earnings on your account. So do the homework, do the reading. Talk to your custodian or another investment professional about ways to educate yourself, stay informed, and figure out the best decisions for your future. And if all of this sounds too difficult, don’t go the self-directed route.
3. You have far more opportunities than you realize
There’s a common misconception that you’re very limited in what you can invest in through your self-directed IRA, but there are in fact a huge variety of approaches to consider. From the start, you might be working with the benefits or restrictions of one of several different forms of self-directed IRA: Roth, Traditional, SEP, SIMPLE, Individual 401(k), including the Roth 401(k), ESA, or HSA. From there, you’ll have to determine which investments and transactions are limited for your account; IRAs in general are only limited from investments in insurance, collectibles, and certain transactions involving disqualified persons. Make sure to ask questions and do your homework to really understand your options.
Remember, all investing is about knowledge – what you know, what you learn, and what you can figure out. If you’re willing to put the time in to accumulate as much knowledge about the facts, the possibilities, and everything else that goes into making money from your IRA investments, you’ll do quite well with a self-directed IRA.