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  • Writer's pictureAnthony Kane

Exploring the Differences Between Self-Directed and Traditional IRAs

Are you considering a self-directed IRA to help grow your retirement nest egg? The concept of the self-directed IRA is not that hard to grasp. The most significant difference between a traditional IRA and a self-directed IRA boils down to who manages (directs) the account. A traditional IRA is typically managed by a brokerage house. The brokerage house invests funds from the IRA on behalf of the IRA's owner. By contrast, a self-directed IRA is managed by the account owner. The owner of the self-directed IRA makes his own investment decisions, usually with the oversight of a broker or custodian.

Advantages of a Self-Directed IRA

A self-directed IRA gives the account owner a heightened level of flexibility when selecting options for investing when compared to a standard IRA. This type of IRA can be a traditional IRA or a Roth IRA. Because the custodian or broker is not involved in the investment transactions associated with a self-directed IRA, there are generally fewer fees that come along with this type of retirement account when compared to a regular IRA.

Allowable Investments With a Self-Directed IRA

With a self-directed IRA, an account holder has the freedom to diversify his portfolio with more than just stocks, bonds, and mutual funds. As long as the account owner remains within Internal Revenue Service codes, they are free to invest in alternative investment opportunities, such as gold, silver, and other precious metals, that help hedge his portfolio against fluctuations in the economy.

Other allowable investments in a self-directed IRA include:

  • Real estate, including commercial real estate

  • Private lending

  • Private equity

  • Land

  • Venture capital for startups

  • Blockchain technology/digital currency

Both regular and self-directed IRAs are governed by the same Internal Revenue Service codes and rules in regards to distributions, contributions, contribution caps, and so on. In addition, self-employed account holders can also self-direct SEP IRAs, individual 401(k)s, and SIMPLE IRAs.

Although a self-directed IRA may be a bit more complex to set up when compared to its regular or traditional IRA cousins, many account holders enjoy the flexibility and freedom that this type of retirement account offers, which makes the extra work well worth the hassle.

For more information, turn to Safeguard Metals for help growing your retirement fund with precious metals. Contact us today to get started!

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