An Individual Retirement Account (IRA) is a tax-deferred savings plan designed to allow taxpayers to avoid paying income tax on contributions deposited into retirement each year. Tax-free contributions are also tax deductible, but account holders must comply with age and limits imposed by the IRS. Individuals under the age of 70 during the same year as contributions will be made are eligible to participate.A self directed IRA account is for investors who are familiar with high-yield trading and don’t mind making monetary decisions.” But an investor who holds a self directed IRA account wants to take the steering wheel when it comes to making investment decisions. Some investors have been trading on the stock market for several years and know the ropes of smart investing. Others feel more comfortable self-managing retirement monies and taking a hands-on approach when it comes to researching and making wise choices.
Deposits held in trust can be invested for greater earnings and to allow investors to build diverse portfolios, or a collection of hopefully, profitable ventures. In a traditional IRA, investment decisions are made by a qualified trustee who holds and manages retirement assets. But a self directed IRA account allows owners to decide on which investments are made. The Internal Revenue Service (IRS) mandates that IRAs be held by a self directed IRA custodian. The custodian safeguards the investors retirement funds by providing guidance and professional advice; managing assets under the direction of the owner; filing reports in compliance with IRS regulations; issuing statements of net gains and losses; and recording all transactions pertaining to the IRA.
Custodians are like talent agents: an actress may have a pretty face and lots of skill, but she needs a seasoned professional to help her take advantage of every opportunity. The self directed IRA custodian can avail account holders of good opportunities to make prudent and timely investments, diversify portfolios, and manage assets to ensure a lucrative retirement. A traditional IRA is limited as to the type of investments that can be made, primarily mutual funds, stocks and bonds. But, there is virtually no end to the variety of investitures available for self directed IRA account holders. Portfolios may not only contain mutual funds, stocks and bonds; but domestic and foreign real estate holdings, franchises and partnerships, publicly and privately held corporations, private limited liability companies, secured and unsecured notes, tax liens, and mortgages. While almost an infinite number of choices exist, the federal government prohibits certain types.
Stock market novices or seasoned traders can set up a self directed IRA account by first consulting a financial advisor or logging onto the Internet to get familiar with the basics of stock purchasing. Potential participants should determine contribution limits based on age, income and marital status. The next step is to investigate the myriad of investment choices and select several that have a low level of risk and a track record of good returns. A self directed IRA custodian, investment banker, or financial planner can offer expert advice. Publicly traded stocks are safe investments for novice investors because information about the company is usually available online and in the public domain. The Internet is an investor’s best friend: log onto NASDAQ Stock Market and NYSE Group web sites to find out about potential investment opportunities and whether selected stocks are performing favorably. Browsing corporate home pages will also give added insight into management, profitability, and longevity of ventures which may interest the investors.