At this point in your life, you might be thinking about how to invest in your future. One increasingly popular way is to put your money into a self-directed IRA. With a self-directed IRA, you run the show. You are in charge of how your money is invested all while receiving the benefits of an IRA. Keep reading to learn how to invest with a self-directed IRA in Western New York!
What is a self-directed IRA?
A self-directed IRA is an investment vehicle that puts you in control of where your money goes. You can choose to invest in stocks, bonds, precious metals, real estate, mutual funds and other unique investment choices. Many people are attracted to the freedom a self-directed IRA allows for. You will be able to make tax-deductible contributions and defer any earnings you receive. Many people prefer the freedom of a self-direct IRA to other investment options.
How do you set it up?
Shop around and interview different custodian services. They hold your assets on your behalf and it important that you carefully weigh all of your options. You custodian will help to process all transactions and maintain records as required by law. They will help with IRS reporting as well as many other administrative tasks associated with the IRA fund. Your custodian will help to advise you, keeping you from making investments that are prohibited
What are the benefits?
You will often hear the phrase “checkbook control,” which means you have the freedom to invest your money as you choose. Investing in something new is a simple as cutting a check. You choose what you want to invest in from stocks and bonds to real estate and precious metals. You could choose to invest in a local development as opposed to something across the country.
There are many tax benefits when you put your money into an IRA. Over time, you can defer your taxes and see tax free profits on your investments. In addition, the fees associated with a self-directed IRA are typically lower than with a traditional retirement account.
What are the risks?
Upon withdrawal from the IRA, the money becomes taxable. You will want to strategize with your custodian to avoid any major tax penalties. Another risk is when it’s time to sell, you might have to wait longer than you would like. It can be tough to liquify some assets in a timely manner. Just like a standard IRA, there are rules and prohibited transactions you must avoid. You can never write checks for personal reasons or make investments that are prohibited such and the purchase of an antique or rare coin set.
How does it compare to other investments?
On average, real estate often produces some of the highest, most consistent returns. Often times, real estate will outperform the stock market, making it a sure-fire way to invest your money. The old saying goes, “most millionaires got that way through real estate.” And while this might not be as true today, many of the world’s richest people make their money from real estate investments. The strongest portfolios will offer a diversified group of investments. This is the beauty of a self-directed IRA. You can have a highly varied portfolio, with an emphasis on the industries in which you feel the most comfortable.
Before making any property investment, you should seek the advice of your lawyer and financial planner. Speak to your accountant to learn about the specific tax implications for your situation.