Your Money, Your Choice: 5 Fast Facts About Self-Directed IRAs
Self-directed IRAs, among other vital plans, are popular tools which investors utilize to establish diversity by investing in assets that would enable them to create retirement income. If you have been asking yourself what these are, here are five facts you need to know about the self-directed IRAs.
With IRAs, You Can Purchase Anything
With a self directed IRA, you can invest in anything which the law does not expressly prohibit. There is a myriad of investment choices that you can consider including C Corporation stock, real estate, secured and unsecured notes, limited liability companies, trust, limited partnerships, among other kinds of investments.
IRAs Have Restrictions on What can be Done
Although you are able to purchase anything with IRAs, it’s important to be cautious as there are also restrictions on what can be bought. If you happen to get into a prohibited transaction, there are consequences you may face. Therefore, you need to understand what a prohibited transaction entails. Essentially, the rule pertaining to prohibited transactions were created to discourage certain individuals (also called disqualified persons) from handling the income or asset of a plan in a self-dealing way. In that regard, persons who are disqualified cannot directly or indirectly enter into or benefit from the investments of your IRA.
There are Seven Types of Self-Directed Accounts
There are seven types of accounts (all different) when it comes to self-directed IRAs. These accounts include the Traditional IRA, the Roth IRA, the SIMPLE IRA, the SEP IRA, the Individual 401(k), the Health Savings Account (HAS), and the Coverdell Education Savings which was previously called the Education IRA). The good thing about all these investments is that they can invest in the non-traditional investments. Moreover, these accounts can be combined into a single investment.
With IRAs, it’s possible to borrow non-recourse loans. A majority of financial institutions require thirty-five percent down as well as a minimum loan of $100,000. A fraction of the gains relevant to the leverage can be subjected to unrelated Debt Financed Income and/or Unrelated Business Income tax. Individual (k) plans are often not subject to leverage assets tax.
Any Person can have a Self-Directed Account
Although there are some limits to income for Roth IRA contribution, having a retirement plan in your line of profession does not in any way affect your ability to pay towards the Roth IRA. Moreover, there are no age restrictions for contributing to Roth IRA. With the traditional IRA, anyone with an income and under 70 ½ years of age can contribute to the traditional IRA. You must start to withdraw from the traditional IRA on the April 1, one year after the time you attain 70 ½ years. Once you reach 70 ½, you can no longer make your contribution to the traditional IRA.
You should also remember that your teenage child with a compensation from a part-time job may contribute to an IRA of up to five thousand. With a one-time contribution of $5,500, your 15-year old child could grow their investment to more than $39,000 by the time they are 65, assuming an annual yield of 4 percent.
Self-directed plans offer the freedom and flexibility to select investments that best suit your need. Now that you have the five facts about self-directed IRAs, do not hesitate to invest in alternative assets today.