Three Lesser-Known Self-Directed IRAs

You’ve heard of Self-Directed IRAs. The proposition is simple: holding your IRA with a Self-Directed IRA administration firm allows you to choose alternative investments that a typical brokerage might not offer.

But when it comes to the specific account type you use, that’s a different question. Is a Roth IRA best for you? A Traditional IRA? Or are there other options that might suit you better?

Let’s look at three lesser-known possibilities.

Self-Directed SEP IRAs

Many investors overlook Self-Directed SEP IRAs, which is unfortunate because they can be a strong fit for self-employed individuals and small business owners.

SEP stands for Simplified Employee Pension, and the structure is designed to make retirement contributions easier for employers, especially when business income fluctuates from year to year.

What makes the SEP version particularly interesting is the contribution potential. SEP IRAs typically allow higher annual contributions than Traditional or Roth IRAs, which can be appealing during strong income years.

When you pair that with self-direction, you’re not limited to mutual funds or stocks. Larger contributions can be used to invest in assets like real estate, tax liens, or precious metals inside the IRA.

The trade-off is that SEP IRAs are employer-funded, meaning contributions generally have to be made for eligible employees as well.

Still, for solo business owners or small teams, the flexibility and contribution room make this account worth a closer look. If you don’t have any employees other than yourself (and possibly your spouse), this rule may not affect you. But if you have a small business with additional employees, it can add complexity.

Self-Directed Solo 401(k)s

The Self-Directed Solo 401(k) is another account that often flies under the radar, even though it offers substantial flexibility.

This account is designed for self-employed individuals with no full-time employees other than a spouse. If that describes your situation, a Solo 401(k) can significantly expand your retirement investing options.

One reason investors like this option is contribution flexibility. Solo 401(k)s often allow both employee and employer contributions, potentially increasing total retirement savings.

Self-Directed Solo 401(k)s can also allow features such as checkbook control, depending on how the plan is structured. That can make certain investments easier to execute and give investors more hands-on control.

Self-Directed SIMPLE IRAs

SIMPLE IRAs don’t receive much attention, partly because the name makes them sound basic. But the name can be misleading.

SIMPLE stands for Savings Incentive Match Plan for Employees, and it’s commonly used by small businesses looking for a straightforward retirement plan.

What’s lesser known is that SIMPLE IRAs can also be self-directed. That means once contributions are made, you’re not limited to a small list of investment options. You may be able to apply the same self-direction principles and invest in alternative assets, just as with other Self-Directed IRA structures.

There are contribution limits and employer requirements to consider, and SIMPLE IRAs come with specific timing rules. Still, for small business owners who already use this structure, adding self-direction can expand what the account can do.

Choosing the Right Account

The point isn’t that any one account is automatically better than another. It’s about finding the structure that works best for your situation.

Retirement planning isn’t one-size-fits-all. Your work situation, income level, and long-term goals all play a role in choosing the right account.

We recommend speaking with a tax professional to determine which option makes sense for you. Once you understand your options, you can reach out to American IRA to explore opening a Self-Directed account.

Interested in learning more about Self-Directed IRAs?  Contact us at 866-7500-IRA (472) for a free consultation or download our free guide.