3 Pros of Self-Directed IRA Investing (& 2 Cons To Review)

Rolling your IRA over into a self-directed IRA isn’t for everyone, but those who take the time and effort to oversee their investments can cash in on a number of benefits that others can only dream of. Here, we’ll review some of the pros and cons of using your self-directed IRA for investing.

Pro: Self-Directed IRAs Allow for Tax-Free and Tax-Deferred Status

Traditional IRAs typically allow for a few very safe, very low-yield options. But one of the major benefits of an IRA is that it allows you take advantage of a special tax status. Roth IRA’s, for instance, allow your investments to grow tax-free. Non-Roth IRAs are tax-deferred (for example, you only pay taxes once you begin cashing in on your IRA). With Roth IRAs, the taxes are paid beforehand on deposit.

Roth IRAs are an excellent opportunity to store lucrative investments for your retirement. In addition, with a Roth IRA, there is no set age at which you are absolutely required to begin taking withdrawals. Roth IRAs are thus a great place to store investments.

Con: Self-Directed IRAs are More Costly than Traditional IRAs

While this may be a con for some, the truth is that you can make a lot more money with a self-directed IRA than you can with a traditional IRA. The catch is that yearly fees are more expensive, and they cost more to set up.

Pro: IRAs are Generally Safe from Creditors

IRAs are some of the safest places in which to store assets. While individual laws will differ from state to state, IRAs are technically considered trusts making them very difficult to sue and even immune to bankruptcy.

Con: IRAs are Complicated and Subject to Regulations

The legalities of using an IRA as an investment bucket are subject to regulation. That is the price paid for having preferred tax status. Self-directed IRAs offer you a lot more options in terms of what you can invest in, but there are some restrictions. For instance, you can’t fund your own or your family’s business with your IRA account. You can, however, invest in businesses in which you don’t have any active involvement.

Pro: Self-Directed IRAs Give Your More Options and More Control

For obvious reasons, this is a bit of a mixed blessing. You can save more money for your retirement by investing in ventures with higher yields, but you also have to do your research and keep on top of how your investments are performing.

Just a few of the interesting things that you can invest in with a self-directed IRA that a traditional IRA would not allow for:

  • Gold and silver
  • Cryptocurrencies and ICOs
  • Business equity
  • Real estate
  • Mortgage notes
  • Commodities
  • Hedge funds
  • Natural resources
  • Land

Basically, rolling over your IRA to a self-directed IRA allows you to invest in anything that is legal to invest in. It’s a great opportunity for those that want to take control of their future, and enjoy the tax benefits of their retirement account.

Last Updated: 
March 20, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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