IRA accounts are different.
Self Directed IRAs are different from Traditional IRAs, but do aim to accomplish the same result…getting you ready for retirement. A Self Directed IRA is a more advanced IRA than the Traditional IRA.
When choosing between a Self Directed IRA or a Traditional IRA, be aware that the rules and restrictions are more complicated with a Self Directed IRA.
Differences In IRA’s
A Self Directed IRA
- A type of Custodian IRA
- Different from a Traditional IRA.
- You have more control over a Self Directed IRA than a Traditional IRA.
- Self Directed IRA’s are best suited for investors who are very comfortable investing in non-standard investments.
- Different investment options allow for greater portfolio diversification.
- Investment options available: Real estate, private placements, hedge funds, futures, tax liens, life insurance, collectibles, personal loans, plus the standard basic investments like stocks, bonds, mutual funds.
- Different contribution amounts.
- Different taxation.
- Distributions are taxed differently.
- Earnings are taxed differently.
- The IRS does not allow investments into a Self Directed IRA that you or your family members have prior ownership in.
Custodian IRA Firm
- Custodian IRA firms usually do not give investment advice.
- The Custodian firm does help clients understand the rules, regulations and restrictions.
- Custodian firms generally maintain the assets.
- They file required IRS reports.
- Their function is to keep the books and disburse money.
- Your Self Directed IRA must have enough money in it to pay all ongoing fees, the Custodian IRA firm pays those fees for you from your account balance.
- Traditional IRA’s were designed to be easy enough for most investors to understand.
- Traditional IRA’s have been in existence for over 30 years.
- Traditional IRA accounts allow investors to invest in standard investment options.
- Approved IRA investment options include, stocks, bonds, mutual funds and CD’s.
- Traditional IRA’s are restricted from investing in real estate or life insurance, collectibles and the many other unusual investment options that Self Directed IRA’s are allowed to invest in.
Traditional IRA’s have become a fairly standard retirement investment vehicle in the market place. Self Directed IRA’s are relatively new in the market place, so are not as standard, and a bit more difficult to understand.
Ask your banker or financial adviser for an explanation of the Self Directed IRA rules and restrictions. Be careful though because not all bankers, advisers or brokerage firms understand Self Directed IRA’s. Just be sure to do your homework before approaching them.