Self Directed IRAs

2007-04-17 10:41:55

( Financial )



An Individual Retirement Account, also known as an IRA, is a plan offering tax benefits for retirement savings. Contributions to an IRA may either be through cash or cash equivalents. If you transfer an unapproved kind of asset, you may become disqualified from your tax benefits. There are maximum contributions you can give for your IRAs.

There are a number of IRAs, the more common ones being Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA and Self Directed IRA.

The two most popular types are the tax-deferred Traditional IRA and the tax-free Roth IRA. A Traditional IRA allows your contributions to be tax-deductible; you are free of tax in all transactions in the IRA but are taxed when you finally withdraw the money. Meanwhile, a Roth IRA allows you to make contributions with after-tax money; your contributions are taxed initially, but the entire account, including transactions and withdrawals, becomes tax-free afterwards.

The SEP IRA and SIMPLE IRA are typically used by businesses. If you are self-employed, a SEP IRA allows you to contribute to a Traditional IRA under your name instead of your company’s. Separate from other IRAs, a SIMPLE IRA is an employee plan that permits the employer and employee to contribute.

Normally, you can ask your IRA trustee or IRA custodian to handle your IRA transactions, such as investments and securities. You may also borrow money. Each of these transactions requires the approval of your custodian, some paperwork and a fee. Most IRA custodians limit your choices of investment only to stocks and bonds.

Self Directed IRAs omits this procedure, giving you more control and providing you with more investment options, such as real estate. You can convert certain other forms of IRAs into self directed IRAs. On the downside, self directed IRAs are more complicated than other types; thus, it is advisable for you to hire a qualified expert to help you in understanding the process.


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