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Self-Directed IRA: What and How

Let’s first define what is Self-Directed IRA. Self-directed IRA or Individual Retirement Account is a retirement account that gives the investors the privilege of having the control of their finances for the future.

Identical with the regular IRA, this self-directed IRA provides you the privilege to enjoy the advantages of tax benefits while you observe your money multiply with a double interest. It provides you all the assistance you have long ago expected from any retirement account, along with these two other gifts, more investment choices and higher privilege to handle your own retirement documents.

Also, this IRA account gives the investor the full privilege to choose how he would like to invest his own money. During the old way followed by insurance companies and banks, they are the ones who have the control as to what type of investment is to be enjoyed by the investor. On the other hand, self-directed IRA expands to a variety of options and choices for more investments and also permit the investor to buy other properties using the IRA.

Furthermore, there are also six types of Self-directed IRAs. The first one is the Traditional IRA which is a tax-delayed retirement account. Your contributions in this type of IRA may be fully or partially deductible, as it depends on the circumstances.

Next is the SEP IRA or the Simplified Employee Pension IRA is also a tax-deferred retirement account for those who are self-employed and are running small businesses. Any business owner, even though they just have one employee, anyone having freelance job, is qualified to open a SEP IRA. Their contributions which are tax-deductible for their business or the individual, go into a traditional IRA taken from the employee’s name.

Another type of self-directed IRA is the Rollover IRA, which is a traditional IRA that is utilized by the investors who have a lot of employers. This type of retirement account is simply like a regular account, except that it is sustained by transferring the money or rolling over the money from the previous employer’s retirement plans. The arrangement is that you are not allowed to make any withdrawal except that you settle your entire tax rate, along with a 10% penalty.

Another type of self-directed IRA is the Roth IRA, which is a tax-free retirement account that can be paid with after-tax dollars. The contributions of the investor may be made even after the investor is 70 1/2 years old. Also, the Roth IRA account holder is permitted to withdraw the principal amounts or contributions he has already invested, anytime, without the burden of any tax obligation.

Finally, the last type of self-directed IRA is the Self-employed 401(k), which is an option for those who have small businesses without any employees. This type of account is fit for independent proprietors who want to have a retirement plan just like of those who have huge companies.

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