You may have heard the terms "self-directed retirement account," "alternative IRA," or "real estate IRA," but like most investors, you could probably use some clarity. What exactly is a self-managed retirement account? What benefits does it have? And what possible effects can a Self-Directed IRA have as part of your retirement investment strategy? Get answers from the Self-Directed IRA Specialists at Madison Trust, then get help gaining control of your retirement investments with a Self-Directed IRA:
If you're looking to start investing with a Self-Directed IRA, you're in the right place! We can help you learn:
Self-Directed IRAs give you, the investor, the power to diversify your portfolio, invest in what you know and believe in, and hedge against the stock market.
The fees for a Self-Directed IRA held at Madison Trust are among the lowest in the industry - and are set at a fixed rate regardless of the value in your account.
There are three simple steps to setting up a Self-Directed IRA: open an account, fund the account, and place an investment.
A Self-Directed IRA is similar to a standard IRA. It's a retirement account that you contribute funds to, so that your retirement funds can grow through investments. The difference between a standard IRA and a Self-Directed IRA is the types of investments your account can hold. A standard IRA allows you to invest in publicly traded products like stocks, bonds, and mutual funds. With a Self-Directed IRA, you can choose to invest in almost any type of alternative asset. It's common to use a Self-Directed IRA for real estate, precious metals, and private placements.
A Self-Directed IRA is an individual retirement account that lets you invest in alternative assets beyond stocks, bonds, and mutual funds. You, as the account holder, direct the custodian to perform transactions.
This type of Self-Directed IRA allows you, as the account holder, to perform transactions in real-time. This investing power is achieved through the creation of an entity, such as an IRA LLC or IRA Trust.
A Self-Directed IRA can legally invest in almost any asset. The only assets that are off limits are collectibles, life insurance,
and S-corps. Some of the more popular investments include:
One concept that almost all investors and financial advisors can agree on is the importance of diversifying your portfolio. Investing in a variety of assets, including Wall Street products (stocks, bonds, and mutual funds) and alternative assets (real estate, precious metals, private placements, promissory notes, etc.) may reduce overall risk.
But you still may be wondering, "Which IRA is best for me?" Here are some of the basic differences between a
standard IRA and a Self-Directed IRA.
How much does a Self-Directed IRA cost?
Among the lowest in the industry, Madison Trust offers competitive flat fees - set at a fixed rate regardless of the value of your account. For more information, visit our Fee Schedule.
How long does it take to set up a Self-Directed IRA?
At Madison Trust, we make your Self-Directed IRA setup fast and simple. Once you fill out our easy online application, it typically takes about one to two weeks for your Self-Directed IRA to be funded.* Once your account is opened and funded, simply place an investment by instructing Madison Trust to invest in the asset of your choice.
*Please note, our processing timeframe does not include the transferring institution’s processing time. Turnaround time and delivery method back to Madison Trust is subject to the external institution’s processing times and procedures.
Can I roll my 401(k) into a Self-Directed IRA?
Yes, you can roll over your 401(k) into a Self-Directed IRA. You can rollover all – or a portion - of your funds. To do so, you will start the process by contacting your existing 401(k)’s plan administrator. For more information, view The Quick Guide to Funding a Self-Directed IRA with your 401(k).
What are the tax advantages of a Self-Directed IRA?
When you invest with a Self-Directed IRA, all income from an investment returns directly back to the Self-Directed IRA without being taxed and without being added to your personal taxable income for that year. You can reinvest these earnings into another opportunity and keep growing your retirement savings in a tax-advantaged environment.
Like standard IRAs, potential tax benefits vary depending on your Self-Directed IRA account type. If you have a Self-Directed Traditional IRA, you can lower your income tax owed when you contribute to your account. If you have a Self-Directed Roth IRA, you pay taxes upfront, but you can take out your earnings tax-free in retirement.
Do I need a custodian for my Self-Directed IRA?
Yes! All Self-Directed IRAs must be held by a custodian. A Self-Directed IRA custodian is responsible for administering the retirement account and holding custody of the IRA’s assets. Self-Directed IRA custodians allow account holders to invest beyond Wall Street and into alternative assets such as real estate, promissory notes, private placements, precious metals, and more. Visit The Guidelines on How To Choose the Right SDIRA Custodian.
Can anyone have a Self-Directed IRA?
Yes! Just like a standard IRA, anyone can open a Self-Directed IRA. To contribute to a Self-Directed IRA, the investor must earn taxable income. For more information, visit our blog Can Anyone Open a Self-Directed IRA?
How much money can you put in a Self-Directed IRA?
The contribution limits for a Self-Directed IRA are the same as a standard IRA. If you are younger than 50 years old, you can contribute up to $6,500 in 2023 ($6,000 in 2022). If you are age 50+, you can contribute up to $7,500 in 2023 ($7,000 in 2022). Contributions for the year prior must be made by the tax filing deadline. For more information, visit Contributions FAQs.
In addition to annual contributions, Self-Directed IRA account holders may also roll over or transfer all – of a portion of – your funds from an existing qualified retirement account such as an IRA or 401(k).
Do I need an LLC with my Self-Directed IRA?
As a Self-Directed IRA account holder, you are not required to use an LLC to invest in an alternative asset. Depending on your specific investments’ needs, establishing a Self-Directed IRA LLC may be beneficial. An IRA LLC enables you to invest your retirement money directly into the investment of your choice without having to contact your custodian for everyday transactions. IRA LLCs are optimized for transaction-heavy investments, such as real estate rentals and fix-and-flips.
Do you have to file taxes for a Self-Directed IRA?
As a Self-Directed IRA account holder, you do not need to file an annual tax return. However, each year you must provide your Self-Directed IRA custodian with the fair market value (FMV) of your account. Visit IRS Tax Tips for Retirement Accounts for more information.
Your Self-Directed IRA would likely owe taxes is if it generated business or trade income that is not related to the tax-exempt purpose of the organization (Unrelated Business Income Tax) or when debt is leveraged to purchase an asset (Unrelated Debt Financed Income).
What are prohibited transactions in a Self-Directed IRA?
A prohibited transaction is a transaction that involves the account holder or other disqualified persons benefiting from the IRA’s investments. A good rule of thumb is that an IRA may transact with third parties but may not transact with close family members or closely held entities.
When can you take distributions from a Self-Directed IRA?
To start withdrawing funds from your Self-Directed IRA you must be at least age 59 ½. If you opened a Self-Directed Traditional IRA, you must take required minimum distributions (RMDs) each year after you turn age 73. Self-Directed Roth IRA account holders are exempt from taking RMDs, since taxes are paid upfront.
To receive funds earned through your Self-Directed Roth IRA investments without penalty, you must reach age 59 ½ and have the account opened for at least five years. Self-Directed Roth IRA contributions can be withdrawn at any time.
To learn more about distributions, visit Self-Directed IRA distribution rules.
How do I distribute assets from a Self-Directed IRA?
To make a distribution from a Self-Directed IRA, complete a Distribution Request Form that details the distribution type, amount, and frequency of the distribution. If you are distributing an asset, please also submit a third-party certified value (i.e., an appraisal, letter from an investment sponsor, CPA-certified valuation, etc.). Depending on the asset, additional documents may also need to be submitted.
After the documents are submitted and approved, Madison Trust will send an Assignment of Interest to you. This documents the transfer of ownership from your IRA to your personal possession.