How to Know which Self-Directed IRA Option is For You

You might already be tempted to open a Self-Directed IRA. You know that it gives you all sorts of investment options—from putting retirement money into real estate and private businesses—but you’re still not quite sure about what kind of account to open. A Roth IRA? A Traditional IRA? Is a Self-Directed Solo 401(k) even possible? They’re good questions to ask, and you’re asking them at the right time. So, before you give us a call, it might help to dive through a few of the options:

Traditional vs. Roth Self-Directed IRAs: What’s the Difference?

When choosing between a Traditional and Roth Self-Directed IRA, the key difference lies in how your contributions and withdrawals are taxed. A Traditional Self-Directed IRA lets you contribute pre-tax dollars, meaning you’ll reduce your taxable income today but pay taxes when you withdraw funds in retirement. This option works well if you think your tax bracket will be lower in the future than it is now.

On the other hand, a Roth Self-Directed IRA uses after-tax dollars for contributions. You won’t get a tax break upfront, but your withdrawals—including earnings—will be tax-free in retirement. This account can be a great choice if you expect your earnings (and tax rate) to grow over time. The decision often comes down to timing: Do you want the tax benefit now, or would you rather enjoy tax-free income later?

Considering the Self-Directed Solo 401(k)

For self-employed individuals or small business owners, the Self-Directed Solo 401(k) offers a different opportunity. IRAs have relatively modest contribution limits, but Solo 401(k)s allow much higher contributions, especially if you’re earning significant income from your business.

This type of account combines the flexibility of a Self-Directed IRA with the power of a 401(k). You’ll have the option to invest in alternative assets like real estate or private loans while taking advantage of the higher contribution limits and even the potential for a loan provision, allowing you to borrow from your own retirement savings. If you’re running your own business and looking for a tax-efficient way to save big for retirement? This account could be the one to consider.

What About Checkbook Control?

If you’re planning to dive into alternative investments like real estate, you might want to explore the concept of checkbook control. This option, available with certain types of Self-Directed IRAs, lets you manage your investments directly through a dedicated LLC. With checkbook control, you can make investment decisions quickly, without having to go through the custodian for every transaction.

This approach is especially appealing to investors who want agility and control. For example, if you’re purchasing a rental property at auction, you’ll need to act fast. Checkbook control makes that possible. However, this option also comes with added responsibilities, such as managing the LLC and ensuring compliance with IRS rules. It’s a good fit for seasoned investors who want more autonomy and are comfortable handling the details.

Choosing What Works for You

Ultimately, the best option depends on your unique situation. If you’re just starting to think about retirement savings, a Traditional or Roth Self-Directed IRA may offer a straightforward way to begin. If you’re self-employed and want to save more aggressively, the Solo 401(k) might be the right fit. And if you’re ready to take control of your investments and make quick decisions, checkbook control could be worth exploring.

Interested in learning more? Reach out to us here by dialing 866-7500-IRA.