Setting up a Self-Directed IRA

Finance | Retirement | Gold IRA | Article By: eBackers Staff Writers – 18th April, 2020

Everyone knows about a traditional IRA. You know, that account that you set and forget. IRAs are designed to grow wealth over time, and they do so with some great tax benefits that make them worthwhile. Now, while this may be the case, a self-directed IRA is another option entirely.

That’s why, today, I’ll be taking you through the steps that it will take you to open one up. Not only will I show you how, but I’ll also break down exactly what a self-directed IRA is as well.

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I’ll be breaking each step down into its own section, so please pay close attention to each one. If you miss one, you may end up a bit lost or confused along the way. Here is a look at the steps I’ll be going over:

  • What is a self-directed IRA
  • Using a custodian
  • Using an LLC
  • Recap

What is a self-directed IRA

A self-directed IRA is a unique IRA account that functions a bit differently than traditional IRA accounts. This is due to the fact that these accounts tend to require some hands-on management, and there are some additional steps that you may need to take with them. I’ll get into the trusts, custodians, and LLC accounts later, but for this section I want to stick to the regulations.

The basics

A self-directed IRA works the same way as any other account, which means that they have the same tax and withdrawal rules. For example, self-directed IRAs grow tax-deferred, and distributions can’t be surrendered without penalty until you’re 59 and a half. Also, forced distributions will still occur at 70 and a half. So, to summarize, the tax rules and distribution requirements are all the same.

Where things start to become different

Things start to become different once you get into account management. Self-directed IRA accounts are not able to be solely owned by you, which means that there are some extra steps involved when it comes to setting them up. For example, you’ll need a custodian, LLC, or trust to technically own the rights to the account. I’ll have more on this for you later.

What can be invested in self-directed IRA accounts?

Self-directed IRA accounts provide you with a whole lot more than traditional IRA accounts. Instead of being limited to just EFT investments, self-directed IRA accounts allow you to invest in almost anything you choose. This can include precious metals, ETFs, and more. Think about a self-directed IRA as a retirement account that provides you with a lot more options.

Self-directed IRA accounts may seem complicated, but when push comes to shove, they typically work in a similar way. So, just think of a self-directed IRA account as an account that offers some different options and routes to take.

Using a custodian 

A custodian is a person that essentially acts as the middleman. You need a custodian because you can’t manage the account on your own. This is why custodians tend to be the first choice for people using self-directed IRA accounts. So, in this section, I’ll provide you with some details about how a custodian actually works.

Who are they?

A custodian will be someone that has the right to make trades and manage a self-directed IRA. They’re chosen by you, and by law, have to act in your best interest. A custodian can also handle the trading, helping you store funds, and managing distributions. Custodians also tend to be firms that handle storage aspects.

Think of a custodian as the middle man for your self-directed IRA account. They’ll essentially be the ones taking care of the busy work for you.

Using an LLC 

You can also use an LLC company to hold the funds and name of the self-directed IRA account. This is a great route to go because it provides the most hands-on experience. Think about it, if you use an LLC, you can get rid of any middlemen that may be involved in the process.

How do I create an LLC?

Creating an LLC is actually a lot simpler than it sounds. For example, all you need to do is consider a company that you would like to have -if you don’t have one already- and establish it. If you already have a business, feel free to use that one. If you will be using an LLC or creating one, you’ll need to make sure that you file with the state you live in.

Going the LLC route is definitely a lot more complicated than using a firm or custodian, but it can be more rewarding if done right.

Final Thoughts

A self-directed IRA is an account that a lot of people tend to avoid. This is due to the fact that they can appear to be very complicated at first. This is due to the fact that they’re not as simple as simply calling a firm and opening an account. This is what turns a lot of people off to the idea, but it doesn’t have to.

I know that I went over a lot, and some aspects of a self-directed IRA can be complicated, so I always recommend using a custodian if you can. A custodian can definitely help make the process easy.

Now that you know the facts, what will you use a self-directed IRA for?

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Frequently Asked Questions

Can my IRA hold anything other than gold?

Yes. Your new precious metals IRA is self-directed, and you have the authority to invest into any assets that you want. You don’t have to just allocate your funds to gold and other precious metals, you can also put them into stocks, cash accounts, mutual funds, and more. There are also other gold related investment products that you can invest your funds into.

Can my existing IRA be rolled over?

Yes, funds from an existing IRA can be rolled over to a precious metals IRA and you can do this as often as you want without having to pay penalties or taxes. You will simply need to set up the new IRA and then authorize the transfer of funds. Typically, the custodian of your new IRA will handle this and will work with your existing custodian to work out the transfer of the funds. IRA rollovers are subject to time limits and other restrictions and you may have to report it to the IRS. In order to avoid complications, be sure to get tax advice before you start the rollover process. Also, you can invest in gold with your 401(k).

What is the difference between a traditional a self-directed IRA?

A traditional IRA is controlled by a custodian or trustee. You must allow them to direct your funds into investments that they deem to be worthy. A self-directed IRA is where you get to choose where your funds are invested. You don’t have to follow the decisions of a custodian or trustee. The main benefit of the self-directed IRA is that you get to choose from stocks, bonds, precious metals, mutual funds, CDs, or other IRA-compliant investments.

How can I invest my IRAs into precious metals?

As long as your IRA is self-directed, you can simply direct some of your funds into precious metals. Most commonly, you can invest in palladium, platinum, silver, or gold. However, you must know that any precious metal, whether it be in coin or bullion form, must meet certain requirements of purity and refinement.

Can my existing IRAs be used to invest in precious metals?

Typically, yes. However, the final decision is left to your current custodian or trustee.

Is it OK to have more than one IRA?

Yes. There is no limit on how many IRAs you can have at once, but there are limitations on the total amount you can invest annually into IRAs. In December 2011, if you were under 50, you can contribute up to $5,000 per year in all IRAs. If you were over 50, you can invest up to $6,000 per year.

What is an IRA?

An IRA, or Individual Retirement Account, is a savings plan for your retirement that has been designed specifically to provide tax advantages to individual investors such as tax-free or at least tax-deferred growth of earnings. There are several different types or IRA accounts- all of which have different rules that govern the mimimum withdrawal age, annual limits on contributions, and others. Most commonly, IRAs are used to supplement an employer’s 401(k) account and typically will be the majority of your investment portfolio.

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