When choosing a retirement plan that is right for them, many people scroll through the list of IRAs and may have trouble understanding the difference between them all. Each plan is governed by the same IRS rules and provides nearly the same tax advantages. However, a Self-Directed IRA is a traditional IRA, but it’s more powerful than the conventional Traditional IRA. SDIRAs or Self-Directed IRAs give account owners control over their own retirement funds and investing decisions. In this blog, we will discuss some of the key differences that separate a Self-Directed IRA from a Traditional IRA. 

One of these key differences is the fact that you can use your Self-Directed IRA in tandem with a non-recourse loan provided by the IRA non-recourse loan lenders at First Western Federal Savings Bank to invest in real estate! To get started, contact our lenders today.

Not All IRA Plans Are Equal

On the most basic levels, IRAs are the same. The tax law outlines the tax-sheltering benefits of the plan and key factors such as contribution limits, timelines for distributions, beneficiary designations, and the like. Where most IRA plans differ, however, is the level of control you have over your investment portfolio, as well as the type of investments you may engage in with the IRA. The biggest difference between Self-Directed IRAs and more Traditional IRAs is that the account owner has more control over the investment decisions and Self-Directed IRAs provide alternative assets for investment. 

 

Self-Directed IRAs Allow Owners To Control Account Funds and Investing Decisions

Traditional IRAs have plan administrators that take control and do most of the investment decisions on their own. Self-Directed IRAs, which their name may already suggest, give the owner the control to make the decisions. Owners of Self-Directed IRAs are given the freedom to invest in tangible assets both on and off the stock market. They can invest in assets that they personally understand, whether it be private businesses, real estate, gold, cryptocurrency, and more. This is important because owners understand their investment and are better able to build their wealth and financial security because of it.

 

Self-Directed IRAs Allow Owners to Invest in Alternative Assets

One of the most important reasons why people choose to set up Self-Directed IRAs is because they have opportunities to invest in alternative assets that are both on and off the stock market. Traditional IRAs are typically restricted to investing in conventional stocks, bonds, or mutual funds. Self-Directed IRAs, on the other hand, broadens the horizon by allowing owners to use alternative assets like real estate, private equity, gold, private lending, and more. Furthermore, Self-Directed IRAs allow people to diversify their portfolio, giving them the potential to earn additional income at a faster pace while remaining in their comfort zone of investments. 

 

A Few Things to Keep in Mind

While Self-Directed IRAs have very clear benefits, as stated above, it is important to remember that the same IRS rules govern both plans. For each plan, owners must begin taking the required minimum distributions, and early distributions taken before the age of 59 ½ will be taxed and may incur a 10 percent penalty. Distributions taken in retirement are taxed as ordinary income; there are no income limits to qualify for a Self-Directed or Traditional IRA; contributions for 2021 are capped at $6,000 unless the owner is 50 years or older; and owner contributions might qualify for a tax deduction in the year they are made, depending on the situation.

 

Open Up A Self-Directed IRA With First Western Today

When you open up a Self-Directed IRA with your custodian, remember to get in contact with one of the IRA non-recourse loan lenders at our office to discuss your financial possibilities. We are happy to help people discover all the ways you can utilize the two in tandem to bolster their retirement savings. Contact us today to learn more.