By J.P. Dahdah | VantageIRAs
Your investment dollars matter. Whether you are adding money to a retirement account, buying a new rental property, or diversifying your portfolio, there’s critical information you need to know. At Vantage, we make it easy for clients to invest their IRA savings outside the stock market and into alternative assets such as real estate.
If you’re considering a Self-Directed IRA (SDIRA) which is an individual retirement account that can hold alternative investments, then it’s important to have the right information on hand.
Here are five common misconceptions.
- Misconception 1: SDIRAs are only for wealthy individuals.
Contrary to popular belief, SDIRAs are not just for wealthy investors. There is no minimum investment amount required to open an SDIRA account, making it accessible to every investor. We encourage investors at every level to consider the SDIRA a tool in their diversification toolbox. Looking at the accounts available, and the ways alternative investments can round out your portfolio, ensures you are taking an expansive view of your options.
- Misconception 2: SDIRAs don’t require professional management or advice.
While SDIRAs are self-directed, real estate investors may still benefit from professional financial advisory services. Seeking advice from a registered investment advisor with knowledge of alternative investments can help you develop an investment strategy and set critical milestones. We encourage real estate investors to consider their needs, and not be limited by the name of the SDIRA account. If management or advice is the right option for you, it’s worth bringing on knowledgeable professional third parties.
- Misconception 3: SDIRAs are not regulated by the government.
SDIRAs are subject to the same regulations as traditional retirement accounts. It’s crucial for investors to understand the rules and regulations that govern SDIRAs, including how much you can contribute, when you can take withdrawals, the tax implications of contributions and withdrawals, and which investment types can be held in an SDIRA. As an investor, doing your homework, and potentially working with an advisor, ensures you know all the IRA guidelines upfront.
- Misconception 4: SDIRAs can be used for personal gain.
SDIRAs are specifically designed to help investors save for retirement, and there are regulatory limits on how funds can be used. Income generated through an SDIRA must be reinvested back into the account or distributed as a withdrawal, and withdrawals before retirement age may be subject to penalties. Consider your retirement time horizon and your financial goals. An SDIRA is a strong investment option for future retirement. However, it doesn’t offer the same opportunities for short-term personal gain or pre-retirement income.
- Misconception 5: SDIRAs are not subject to annual reporting requirements.
Like other investment accounts, SDIRAs have clear annual reporting requirements. Investors are responsible for gathering and providing annual reporting documents. Failure to meet these requirements can result in penalties or disqualification from the SDIRA account. When considering an SDIRA, it’s important to recognize and understand the annual reporting requirements. Therefore, make sure you are up to date on your paperwork and keep your account humming along nicely.
To Wrap Up
By understanding the rules, regulations, and strategies associated with SDIRAs, you can accurately assess investment options and set up a retirement plan that aligns with your financial goals.
- SDIRAs work for a wide range of portfolio sizes.
- You may want to consider professional services if you don’t feel confident doing it all yourself.
- SDIRAs are regulated by the U.S. Government similar to other retirement accounts.
- The funds in your SDIRA are earmarked for retirement, so there are liquidity restrictions to consider.
- Failing to meet SDIRA reporting requirements can result in penalties or disqualification of tax-favored benefits.