Retirement income for an individual can come from several sources, whether it is a 401(k), SEP, social security, or a SIMPLE IRA, and these retirement accounts will usually have a number of tax advantages that are great for savvy savers. The same goes for Self-Directed IRAs — there are several attractive benefits, including great tax advantages that make the retirement option a no-brainer. Keep reading to learn more about the tax advantages of Self-Directed IRAs. To learn more about IRA non-recourse loans or how you can use them to invest in real estate, simply get in touch with the non-recourse loan lenders at First Western Federal Savings Bank!

Deductible Contributions

The IRS has set up a number of saving incentives to encourage people to plan for their retirement. With the assumption that your income is within certain IRA contribution limits — the dollar amount that an IRA holder puts into their Self-Directed IRA — your annual contributions may be used as a tax dedication on your income tax return. Roth IRA contributions are never tax-deductible, and Traditional IRA contributions may be tax-deductible depending on your income level and whether you or your spouse are covered by a workplace retirement plan. 

Each type of Self-Directed IRA has an annual contribution limit and a date by which the contribution must be made. For 2021, the IRS has maintained the same limit that was in place since 2020: the total contributions you make each year to all Traditional IRAs and Roth IRAs can’t be more than $6,000 for those under age 50, or $7,000 if you are 50 or older; catch-up contributions for those aged 50 and older is $1,000, and these contributions may be tax-deductible. 

Tax-Deferred or Tax-Free Earnings

Compared to Roth IRAs, which do not allow for deductible contributions, as all deposits that are made with current-year wages have already been taxed, Traditional IRAs allow for taxes to be deferred until you begin taking distributions during retirement. With a Self-Directed IRA, you have all of the tax advantages of Traditional IRAs, as well as tax-deferral and tax-free gains. All income and gains generated by your IRA investment will flow back to your IRA tax-free, meaning that you’ll experience tax-free growth.

Tax Deductions

Traditional IRA contributors may qualify for an automatic tax dedication if they do not receive any employer plan contributions for a tax year. If they do receive or make a contribution to an employer plan such as a 401(k), their adjusted gross income will determine their eligibility to use their contribution as a tax deduction. 

If a taxpayer also owns a business, they may also establish an employer plan that directs contributions to IRA accounts, which would be your SEP plans and SIMPLE plans. The contributions made to IRAs on behalf of employees are used as a tax deduction by the employer to lower the employer’s taxable income.    

Retirement Saver’s Tax Credit

Individuals who cannot afford to contribute to retirement plans based on their income are given an incentive in the form of a saver’s tax credit. The amount of the tax credit is based on a percentage of up to $2,000 of contributions made to IRAs, 401(k)s, 403(b)s, governmental 457(b)s, and SIMPLE plans. Through this, you may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. To be eligible, you must be age 18 or older, not claimed as a dependent on another person’s return, and must not be a student. Depending on your adjusted gross income reported on your Form 1040 series return, the amount of the credit is 50%, 20%, or 10% of:

  • Contributions you make to a Traditional or Roth IRA
  • Elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP, or SIMPLE plan
  • Voluntary after tax-employee contributions made to a qualified retirement plan or 403(b) plan
  • Contributions to a 501(c)(18)(D) plan, pr
  • Contributions made to an ABLE account for which you are the designated beneficiary 

Open Your Self-Directed IRA Today

With a Self-Directed IRA, you are able to put all of these tax advantages to use while investing in alternative investments such as real estate, tax liens, gold, cryptocurrencies, private loans, and more. There is a wealth of opportunities waiting for you when you work with our non-recourse loan lenders to use your self-directed in tandem with your non-recourse loan. To learn more about IRA non-recourse loans, how you could go about acquiring one, and more, don’t hesitate to reach out to our office today! We look forward to hearing from you.