Your self-directed IRA options mirror IRA options you’d find at a bank or brokerage. Finding the one that is right for your retirement goals is crucial, because different IRA types have different advantages. We always recommend that you talk to a qualified financial advisor to go over your goals and account choices.
If you already have an IRA that you plan on moving to a self-directed IRA, you’ll want to consider the account type you can roll over or transfer funds into. For example, if you have a Roth IRA, you can only move it into another Roth IRA.
With a Traditional IRA, your earnings grow tax-deferred. You are only taxed once you withdraw funds from your IRA. Depending on your income and eligibility, your IRA contributions may also be tax-deductible the year you make them, helping lower your overall tax burden.
Traditional IRAs are popular with investors who are employed now, but plan to have less income when they’re retired. Because the funds are only taxed when taken out of the account, if the investors are in a lower tax bracket in retirement, they stand to pay less taxes on their Traditional IRA retirement funds. There are no age or annual income limits on who can contribute to a Traditional IRA, as long as you have earned income.
A Roth IRA allows you to make after-tax contributions, while still letting your money grow tax-free. Unlike a Traditional IRA, contributions made to a Roth IRA are not tax deductible when you make them, but when you make withdrawals in retirement, you will not have to pay taxes.
For investors who believe they’ll be in a higher tax bracket in retirement, a Roth IRA provides a way to access retirement funds tax-free. However, there are income limitations on who can contribute to a Roth IRA.
A SEP IRA is one way to help you and your employees save for retirement. A SEP IRA does not have the startup or operating costs of conventional employer-sponsored retirement plans. You also do not have to contribute the same amount each year, so you can align contributions with business performance. However, employees can’t make additional contributions.
SEP IRAs allow you to make tax-deferred, tax-deductible contributions of up to 25 percent of each employee's compensation (with annual maximum limits). Individuals only pay taxes when they withdraw money during retirement. If you are self-employed, you are considered an employer and an employee, allowing you to contribute to your own plan. Unlike Traditional and Roth IRAs that have a contribution deadline, the deadline for establishing and contributing to a SEP IRA is the filing deadline for the employer’s tax return.
To establish a SIMPLE IRA, your business cannot have any other retirement plans offered, must have 100 employees or less, and must establish the plan by October 1 for the tax year to which you want your qualifying contributions to apply. Beyond that, it’s simple and relatively inexpensive to establish a SIMPLE IRA plan. Contributions are tax-deferred, meaning you can deduct them. Individuals only pay taxes once they withdraw from their accounts.
With a SIMPLE IRA, employees can make salary reduction contributions. As the employer, you must either match these contributions dollar for dollar up to 3 percent of the employee’s compensation or make non-elective contributions of 2 percent of the employee’s compensation, whether they make contributions or not. Self-employed individuals count as the employer and employee.