The self-directed IRA: Financial freedom and how it works

An individual retirement account (IRA) is one of the simplest ways to save up money. For most people, this means having a financial institution like a bank or employer credit union manage and control the assets that pay into their account. Yet what these retirees don't realize is that they miss out on the financial freedom, tax benefits and ease of investment choice by having not a self-directed IRA.

Today, we'll talk about the advantages of choosing this kind of investment vehicle, how traditional means are costing you money and what you can do with a self-directed IRA.

People choose IRAs because, during tax season, they can deduct their contributions into the account from their bill. Under current U.S. law, the total value for these deductions is $5,000 per year for those under the age of 50 and $6,000 for those above.

Unfortunately, those who choose a traditional or Roth IRA – a type of account that does not feature tax-deductible contributions but has more rule flexibility – are still in lock-step with the financial choices of whichever institution is managing their accounts. Put simply, their retirement is at the whims of a manager who is more concerned about profits than prudence. They may choose a mutual fund that has a higher sales commission – some can go as high as 5 percent or 6 percent per year – but does not offer much in terms of annual return for the investor.

With a self-directed IRA, you can avoid these issues entirely. While it requires more work on your end, you can decide which assets or investments you want to put your money into. One example would be cash flow real estate, which in the form of monthly rent can provide substantial profits for those approaching retirement.

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