Risks and Benefits of Self-Directed IRAs

Risks and Benefits of Self-Directed IRAs

There are risks and benefits to almost any type of investment. Saving for retirement comes with multiple options. Some people prefer to go through their employers while others prefer to use self-directed individual retirement accounts (IRAs). Learning more about the risks and benefits of self-directed IRAs can help you make this decision. However, if you start struggling with bankruptcy, then talk to a Chattanooga bankruptcy lawyer about the next steps.

Benefits of Self-Directed IRAs

There are a variety of individual retirement arrangements to choose from when preparing for retirement. These include traditional IRAs, Payroll Deduction IRAs, Roth IRAs, and Simplified Employee Pension plans. Each IRA plan comes with different benefits and risks.

Traditional IRAs might be tax deductible depending on certain factors. Whereas a Roth IRA is not tax deductible but might be tax-free in some cases. A Payroll Deduction IRA plan and Simplified Employee Pension plan are managed by employers. You can set up your IRA through a bank, stockbroker, mutual fund, employer, or life insurance company.

A self-directed retirement account is a type of investment in retirement that offers a larger variety of investment options. Unlike other IRAs, a self-directed IRA lets you use multiple investments to maximize the potential return on investment. Common additional investment options for self-directed IRAs include:

  • Land

  • Cryptocurrency

  • Commodities

  • Real estate

Self-directed IRAs offer the benefits of greater investment returns, more control over your investments, a larger pool of investments, and access to more investments overall. However, exploring the risks can be just as important when deciding whether to try self-directed IRAs.

Self-Directed IRA Risks

Common self-directed IRA risks revolve around fraud, less guidance, fees, and complicated tax guidelines. Fraud is more common with self-directed IRAs due to the lack of guidance. Unlike other IRAs, self-directed IRA custodians do not offer investment advice, do not verify financial information, and do not check the accuracy of investments.

This is because self-directed IRAs make you the one responsible for your investments. The possibility opens up for scammers to take your money by pretending to be an IRA custodian. Once they have your financial information, they can drain your money. Avoid this by checking whether they are on the Internal Revenue Service custodian list and by researching their background.

Fees from self-directed IRAs come from transactions, opening accounts, and administration duties. These fees tend to be higher compared to other IRAs. Since self-directed IRAs are managed by you, they may come with more complicated tax rules. Financial penalties and fees can result from not following these tax rules.

Researching these risks and benefits can help you decide which type of IRA is best for you.

Contact Tom Bible Law Today

You may have options if you feel like you are losing control of your finances. Feel free to call us at Tom Bible Law at (423) 424-3116 for a consultation today about your finances. Our legal team of Tennessee bankruptcy attorneys can help you navigate the various options related to filing for bankruptcy. We can be found in the Tennessee cities of Chattanooga and Tullahoma.

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