An Individual Retirement Account, or IRA, is a system that allows people to put money aside to secure their financial future and retirement. In order to ensure more people save money, the government has allowed for a number of tax benefits to having an IRA.
It is also possible to sign up for a “self-directed” IRA. This means that the owner of the account is in control of where the investments within the account are placed.
This means that you are able to access assets that are non-traditional, including notes, precious metals, real estate, commercial papers, limited partnerships and more. If you are a physician and you are planning your retirement, then a self-directed IRA may just be the best option for you.
Let’s take a look at 10 reasons why.
1. It allows you access to investment options you would otherwise not be aware of.
With a self-directed IRA, you can choose investments such as gold and real estate. This is not possible with other IRAs, where investment decisions are made for you and are often in traditional and standard options. It is important to understand, however, that investing in non-traditional investments can also be riskier, but it does give you a more diverse portfolio.
2. You can invest in items that you understand.
One complaint many people have with traditional IRAs is that they do not understand some of the investments that are made for them. As a result, they find it difficult to keep track of how their money is moving.
As a physician, you may be familiar with companies who create medical equipment or the pharmaceutical industry for instance, and you can then choose to invest in those items.
3. It is possible to have a far more diverse portfolio.
Diversification of your portfolio is the best way to protect yourself against volatility on the market. If one investment fails, you still have other options that may be gaining in there. If your IRA is not self-directed, however, there is a possibility that you do not have that diversity.
4. You can invest in commodities.
Investing in commodities is becoming increasingly popular, particularly since the economic crisis. Items, such as gold, silver, bullion and other precious metals, will always be worth a lot of money.
They may fluctuate, but they will never crash completely. Only with a self-directed IRA are you able to invest in these markets.
5. Your investment can be tax-free or tax-deferred.
If you have a Roth IRA, your investment will be tax free. With a standard IRA, it is tax-deferred. When you have a self-directed IRA, you can see your investment grow without having to worry about how much tax you will have to pay on it.
This is a fantastic option for making sure that you can actually calculate what you will have to live on in the future.
6. You will have checkbook control.
Having checkbook control means that you do not need to seek permission from others, such as a custodian, in order to invest. This is only possible with a self-directed IRA. This is one of the greatest benefits for these types of investment schemes.
Any decision you make on your investment, in other words, is yours and you do not have to explain yourself to others.
7. It is a much quicker system.
Because you have checkbook control, you do not have to involve yourself with others for every decision you want to make. This means that you don’t have to deal with time delays that could just cost you your investment.
Instead, you decide what you want to buy or sell, and you can do it straightaway. Similarly, you can transfer money from your own bank account straight into your IRA, always allowing you to purchase the assets you are interested in.
8. You may be able to lower the fees associated with your account.
Some people say that having a self-directed IRA means that you do not have to pay any custodian fees, thereby making the investment cheaper to manage. At the same time, the financial institutions through which you will hold your IRA may charge you higher than normal fees to open your account.
This means that you have to do some research in order to find out where you will be able to get the best possible deal.
9. You have limited liability on your self-directed IRA.
A self-directed IRA is protected by limited liability, if you use an LLC. Doing this means that if one of your assets is not within this LLC, it will immediately be protected from any kind of attack. This is a very important benefit if you were considering adding real estate as an investment to your IRA.
With real estate, the different states in our country have various statutes designed to imposed a statute of limitation on real estate defects in construction, design or improvement.
It is possible that you will never have to deal with such a situation, particularly if you don’t invest in real estate or if you never have any problems, but if such a problem does arise, it is often incredibly costly.
10. You are protected in terms of assets and creditors.
If you have a self-directed IRA, you should have a protection clause of up to $1 million in case you go bankrupt. Furthermore, the majority of states have protection in place to ensure that you cannot be attacked by creditors if you do get into bankruptcy.
This effectively means that you will always be protected in terms of your assets and against any creditors. It is very important, however, that you take the time to look into the financial institution through which you will be managing your IRA in order to find out how high your protection clause actually is.
In most cases, the higher the protection clause, the higher your fees will be, so this is also something you have to calculate so that you are able to get the best possible value for money.
As a physician, your retirement savings vehicle is very essential that you choose the right one, after all, this is what you have worked your entire career for. Just make sure that it is diversified enough in different asset classes, so you aren’t placing all your eggs in one basket. A self-directed IRA is the perfect vehicle to achieve this type diversification, especially if you want to have physical gold in your plan like myself.
What type if retirement account do you currently have setup?