March 6, 2024

Self-Directed IRA Myths Busted!

In this video, you’ll learn about the common misconceptions people tend to have about Self-Directed IRAs.

Myth: Self-Directed IRAs are illegal according to the IRS

Truth: They’re legal! Self-Directed IRAs were established as part of the Employee Retirement Income Security Act of 1974 (ERISA). Self-Directed IRAs are regulated by both state and federal law, and have IRS rules and regulations they must adhere to.

Myth: Investing Through a Self-Directed IRA Is a Risky Form of Investing

Truth: there’s potential risk involved with any investment, including investing with a Self-Directed IRA. This misconception may stem from the responsibility of Self-Directed IRA investors to conduct their own due diligence.

Myth: You Have to Be an Accredited Investor to Invest With an IRA

Truth: Like a standard IRA, any individual can open a Self-Directed IRA. While specific private equity investments may require you to be an accredited investor, most alternative investments are available to beginning investors.

Myth: Self-Directed IRAs Do Not Need a Custodian

Truth: The Internal Revenue Code (IRC) Section 408 requires all Self-Directed IRAs to be held by a custodian, such as a bank or trust company.

Myth: You Can’t Contribute to a 401(k) and an IRA

Truth: You can contribute to more than one retirement account at a time (such as an IRA and 401(k)). Contributing to an IRA and an employer-sponsored plan allows you to potentially maximize your savings while receiving tax advantages.

Myth: You Must Create an LLC for Your Self-Directed IRA

Truth: You can still receive the tax advantages a Self-Directed IRA has to offer without creating an LLC. Establishing one may be beneficial if you’re interested in transaction-heavy investments, such as rental properties and fix and flips. In this scenario, an IRA LLC avoids everyday transaction fees.

If you decide a Self-Directed IRA is your next venture, Madison Trust is here to provide you with unparalleled customer service and answer any questions from account setup to placing your investment. Experience exceptional service for exciting opportunities at Madison Trust!

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

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