For many Americans, the idea that you need to have $1 million in savings to retire is a terrifying thought, which often leads them to bury their heads in the sand and ignore their retirement investments all together. Nevertheless, it is more important than ever to manage your investment in your retirement. Let’s look at how IRAs are being refocused.
Breaking Down a Self-Directed Individual Retirement Account
Opening a self-directed individual retirement account has a number of benefits. Instead of opening a traditional IRA at a brokerage firm or bank, where you usually end up choosing their associated investment products, such as mutual funds, many people are opening self-directed IRAs. Because this kind of individual retirement account allows for more room for your own choices, you have the freedom to do your own research and ultimately invest in non-traditional alternative assets.
Putting It Together: Risks and Rules
A U.S. tax court recently brought to the surface the importance of remaining cautious about your assets when investing in a self-directed individual retirement account. Because you conduct your own research, you must also stay alert for fraud.
There are a number of rules in play for self-directed IRAs as well. For example, you are prohibited from lending to or borrowing from your IRA. Additionally, you are barred from engaging in prohibited transactions with your IRA and you cannot lend to or borrow from this account.
But what it all comes down to is very simple: you can invest in whatever alternative asset you choose and the investment then goes into your self-directed IRA, free from taxation until you retire.
What It Means in the Long Run
Instead of relying on savings or 401(k) plans, getting out of the mainstream is proving to be very lucrative for many people – and investors can put almost literally any kind of investment into their self-directed IRAs, from dressage horses to precious metals and rental properties.
What it all comes down to, for the most part, is that a self-directed individual retirement account is an excellent option for Americans who have the assets to invest in alternative investments. As it turns out, traditional means of getting average Americans to save for retirement are simply not cutting it. Proponents of the self-directed individual retirement account model say that they help keep entrepreneurial activity flowing while also providing a greater variety of options for investors, good news for them and for the rest of the market too.