Many investors are wary of participating in plans that are even slightly out of the mainstream, and who can blame them? If there is ever a time in our life for financial caution, it is when we are managing the money we will need as we age. Still, some are dissuaded from taking a closer look at self-directed funds by some common misconceptions that are mistaken as fact.
With relation to these funds, there are several commonly held ideas that are simply untrue. A few of these common misconceptions, and their solutions, are listed below:
Self-directed accounts (SD IRA) are difficult to establish and confusing to manage.
The solution to this is simple: hire a retirement consultant, someone who does this every day and can guide you through the process like clockwork.
Standard IRAs offer plenty of choice.
This choice is ONLY in stocks, bonds and annuities; self-directed accounts have a much broader range of investment options.
Buying real estate with an IRA will result in taxes and penalties.
This is simply not the case; in establishing an SD IRA, the investor can roll over funds from other accounts with no penalty or tax.
A SD IRA custodian has access to the funds.
Again –false! The investor has complete control, and funds are not accessible by the custodian. The facilitator is merely a guide, tasked with ensuring that the account is properly set up, and never handles the investor’s money.
Since a lot of people have never heard of an SD IRA, it must be a little sketchy.
This type of opportunity has not been around very long, arising partially in response to the 2008 economic downturn. It’s catching on each year.
The minimum to open a SD IRA is too high for my account.
The tax code does not set any amount that is necessary to open a SD IRA. However, many custodian may require a minimum amount to open an account. Also, the initial set up fees for a SD IRA may not make it feasible to do so.
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