7 Rules of Using a Self-Directed IRA - Episode 992 - Morris Invest (2024)

FAQs

What are the disadvantages of a self-directed IRA? ›

Cons of a Self-Directed IRA

That's something you don't typically face with a standard IRA holding stocks, bonds or funds. Additionally, there's a higher potential for fraud or misuse of funds without proper due diligence, and the lack of professional guidance could lead to risky investment decisions.

Whether you've just made it to retirement or you are drawing up your long-term goals, eventually, you will be able to take distributions from your self-directed IRA. After years of saving, you may be eager to start reaping the benefits; on the other hand, you may want your assets to continue to grow beyond retirement.

Prohibited transactions generally include the following transactions: A disqualified person's transfer of plan income or assets to, or use of them by or for his or her benefit. A fiduciary's act by which he or she deals with plan income or assets in his or her own interest.

Like ordinary IRAs, assets grow tax-free inside a self-directed account, giving a real estate investor, for example, a way to rent properties or buy and sell them using IRA savings while postponing the taxes on any income or capital gains.

The most important details of a self-directed Roth IRA include: An annual contribution limit of $7,000 for 2024 ($8,000 if you're 50 or older) and $6,500 for 2023 ($7,500 if you're 50 or older). Contributions that are not tax-deductible. Qualified withdrawals that are 100% tax-free.

The beneficiary may choose to keep the assets in the account for five years. On the fifth anniversary of the Self-Directed IRA account holder's death, the recipient must take the entire account as a taxable distribution. If any funds remain in the inherited account, they will incur a 50% “excess accumulation” penalty.

Self-directed IRAs offer more variety in investment options while still providing the tax benefits of an IRA. However, because account holders select and manage investments on their own, SDIRAs are ideal for experienced investors who have the financial experience and knowledge necessary to take on the risk.

The tax advantages of a self-directed IRA become even more powerful when compounded over many years. Because funds return directly back to the IRA without being taxed, those tax savings can be reinvested into another opportunity and can compound in the tax-advantaged environment instead of being paid to the IRS.

How much are self-directed IRA fees? ›

Self-Directed IRA Fees FAQs

Fees for self-directed IRAs vary. At IRAR the flat annual fee is $199 for one asset, $274 for two assets. Other SDIRA custodians can range from $199-$2,000. Fees also depend on your strategy and how many assets you hold.

The IRA owner is subject to potential income taxes, a 10 percent early withdrawal penalty, as well as potential fines and penalties for not reporting the transaction.

Remember, SDIRAs that generate UBTI or UDFI are required to pay income tax. If your account qualifies, you'll need to file a separate tax return with Form 990-T for the IRA. This form requires an EIN.

However, the property must be strictly for investment purposes. This means that you can use a Self-Directed IRA to buy a vacation home, but you can't vacation in that home while it's in your IRA.

The most important details of a self-directed Roth IRA include: An annual contribution limit of $7,000 for 2024 ($8,000 if you're 50 or older) and $6,500 for 2023 ($7,500 if you're 50 or older). Contributions that are not tax-deductible. Qualified withdrawals that are 100% tax-free.

Traditional IRA Income Limits and Contribution Limits 2024. The IRA contribution limit is $7,000, or $8,000 for individuals 50 or older in 2024. Anyone with earned income can contribute to a traditional IRA, but your income may limit your ability to deduct those contributions.