Do this to Map Out Your Self-Directed IRA (SDIRA)

Your vital financial future may very well hinge on the options you exercise as well as the necessary decisions you make pertaining to all of your investment strategies and, in this case, it’s good to remember that “hope is not a strategy.” Before selecting any one type of investment, it’s important to realize that consulting with an accountant, financial planner or attorney is always in your best interest. An expert in these matters can help you avoid pitfalls and unnecessary risks as well as help to minimize potential liability. At the same time, you’ll be able to maximize you investment potential.

Let’s examine four easy steps anyone can take to start a SDIRA. For many people looking toward their future, this kind of IRA is fast becoming an attractive, top alternative to traditional IRAs, 401(k)s and the many other options for managing one’s retirement investments.


1. SDIRA Options: Get Educated

You should know the three main approaches regarding a self-directed IRA investment:

* SDIRA controlled by a bank

* SDIRA managed by a custodian

* Your own SDIRA (checkbook control)

Looking at this list it probably becomes obvious that the only truly self-directed investment is the one managed by your checkbook. Note however, that with this level of direction comes an increased level of risk because the IRS has very specific requirements and stipulations related to these accounts. If you find yourself outside of compliance, even unwittingly, you could be subject to hefty fines, fees and penalties that can easily hinder your plans.

At this stage, you should also decide on your custodian if you’re electing to have one monitor your accounts. Having a custodian will incur additional fees and provide less freedom, but you’ll enjoy the added safety net of reduced risk when it comes to compliance. This is due to the fact that custodians are accountable to the IRS for keeping accurate records and providing appropriate and timely reports.

Please note that they are in no way responsible for ensuring the fitness or compliance of your investments. Those are personal details only you can oversee.


2. What Type of Investment Should You Make?

Different rules mean various things for all kinds of investments. You must know your options beforehand. For example, generally speaking you’ll find that bank and custodian controlled SDIRAs offer an investor fewer options than checkbook controlled IRAs, although you will still have more latitude than those working with traditional IRAs. The most popular choices have been real estate and commodities—this is typically platinum, gold or silver—but don’t arbitrarily limit yourself. There is a wide variety of options to explore.

Now that you know which investment option is right for you, let’s get that account created.


3. Now is the Time to Create Your Account

One of the attractive benefits of a checkbook-controlled IRA is being able to create an account in your local community which is designated for your self-directed IRA. This simply means that your funds are local: you’ll be able to access them when you’re ready to create an account. This approach undoubtedly puts you in the driver’s seat of your retirement account in a way that no other financial vehicle can do.

Of course, once your account is created, you must fund it. Currently as of 2022, the IRS only allows up to $6,000 a year for investors age 50 and under. Those 50 or older may add an additional $1,000 into their IRA accounts. For older accounts (tax years 2015-2018), deduct $500 from each demographic to meet the cap.


4. Rules are Rules: Ensure you’re in Compliance

Knowing the regulations and making certain you comply with them is the single most important thing you can do to protect yourself from liability, manage your investments and ensure your future retirement. You should check the governing rules before you open your account, and continue to monitor it for compliance while it’s active because tax laws change over time.

For example, if you have real estate holdings, you will find it prudent to set aside an adequate amount of funds to cover the costs of damages and necessary repairs. Only funds from the IRA are permitted to be applied to expenses incurred for these improvements and changes. Failing to follow rules such as these can turn out to be an expensive mistake you don’t want to make.

Taking these steps in order can help you make decisions that are wiser and enable you to be as prepared as you can be while you map out details and plan the growth of your strategic investments for retirement.

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