Let’s first define what is Self-Directed IRA. Self-directed IRA or Individual Retirement Account is a retirement account that gives the investors the privilege of having the control of their finances for the future.
Identical with the regular IRA, this self-directed IRA provides you the privilege to enjoy the advantages of tax benefits while you observe your money multiply with a double interest. With this type of retirement account, the investor has all the privileges to enjoy just like a normal retirement account, along with these two additional gifts, more investment choices and greater regulation of your retirement documents.
This allows the investor to choose the manner he decides to invest his money. During the old way followed by insurance companies and banks, they are the ones who have the control as to what type of investment is to be enjoyed by the investor. Nonetheless, self-directed IRAs gives the investor a wide range of options for investments and permits him to purchase other estates using the IRA.
There are also types of Self-directed IRAs. The first type of self-directed IRA is the traditional type which is a tax-delayed retirement account. The contributions that you give to a traditional IRA can be optional, either fully or partially deductible.
The next type is the SEP IRA or the Simplified Employee Pension individual retirement account which is for individuals who are self-employed and own a small business. Any business owners with even one or more number of employees, or anyone with freelance job, can apply a SEP IRA. Their contributions which are tax-conclusive for the individual or the business, go into the traditional IRA taken in the employee’s name.
Another type of self-directed IRA is the Rollover IRA, which is a traditional IRA that is utilized by the investors who have a lot of employers. Rollover individual retirement account is an account that performs just like the normal account, except that it is supported by transferring of money or rollover from the past employer’s retirement plan. The rule is that you are not yet allowed to make any withdrawal unless you pay the complete tax rate, along with the 10% penalty.
The fourth type of self-directed IRA is the Roth IRA, which is free from federal income tax and can be paid with after-tax dollars. Contributions may be given even after you are 70 1/2 years old, and you are not obliged to take distributions. Also, the Roth IRA account holder is permitted to withdraw the principal amounts or contributions he has already invested, anytime, without the burden of any tax obligation.
Finally, the last type is the Self-employed 401(k) which is a special account for those owners of small businesses without any employees. This type of account is fit for solo proprietors who are looking for a retirement plan identical to the one they might obtain from working at a huge company.