How Does a Self-Directed Brokerage Account Work?

Thanks to the DIY Network, and a home improvement shop on what seems like every street corner, everyone loves dabbling in do-it-yourself projects. Why not do-it-yourself investing?

When applied to investing, the concept of DIY is known as self-directing, and self-directing brokerage accounts continue to gain in popularity as it become easier and easier to do it yourself.


What is a Self-Directed Brokerage Account?


Historically, when an individual wanted an investment account for buying and selling securities, that person went to a broker who would set up the brokerage account and proceed to make the bulk of the investment decisions.

These days, investors can open a brokerage account directly with an online discount broker or other provider that allows self-directed investing, and, rather quickly, start trading within their accounts. With self-directed investing, investors have more flexibility and control over their investment decisions including what securities to trade, how much to trade, and when to trade. This way, an investor can bypass the need for a personal broker – or “financial advisor” as they’re now known.

Of course, there are still plenty of investors who prefer to rely on the expertise of a financial advisor. A financial advisor at a full-service brokerage firm can offer personalized research, retirement planning, and elevated customer service, in addition to facilitating trades. This, however, comes with a greater cost, as you’d expect.


Types of Self-Directed Brokerage Accounts


There are different types of brokerage accounts that may be used for self-directed investing, and it’s not uncommon to have more than one. They are generally broken down between taxable and retirement accounts.

With a regular taxable brokerage account, tax on any interest, dividends, or capital gains must be paid in the year earned. The main advantage to a taxable account is the freedom to withdraw funds from the account at any time and for any reason without penalty.

Self-Directed IRA retirement accounts, on the other hand, have many tax advantages. The most common retirement accounts that can be self-directed include:

  • Traditional IRA – earnings grow tax-deferred until withdrawn in retirement, at which time you are likely in a lower tax bracket, and contributions may be tax deductible.
  • Roth IRA – contributions are made with money you’ve already paid taxes on so that earnings may grow tax-free with potentially tax-free withdrawals in retirement.
  • Rollover IRA – contributions come from funds that have been “rolled over” from an employer-sponsored qualified retirement plan such as a 401(k) plan or a 403(b) plan.
  • SIMPLE IRA – generally for small businesses with fewer than 100 employees, SIMPLE IRAs allow owners to save funds for retirement for themselves and their employees and employees can also make contributions.
  • SEP IRA – both SEP IRAs and SIMPLE IRAs are easy to establish and maintain and have limited IRS reporting, but unlike SIMPLEs, SEPs are for any size business and only the employer can contribute.
  • Solo 401(k) – the self-employed, or business owners that have no employees, can take advantage of the higher annual contribution limits of a typical 401(k) plan without the high administrative costs.
  • Inherited IRA – Ideal for individuals who are the beneficiary of a Traditional, Rollover, Roth, SEP or SIMPLE IRA
  • Specialty IRA – accounts that can also be Self-Directed such as the Health Savings Account (HSA) and the Coverdell Education Account (CESA).


The Self-Directed IRA


If you’re ready to take the leap and make investment decisions on your own, then it’s time to open a Self-Directed IRA account. With iPlanGroup, you can use an online discount broker with a Traditional IRA for tax deferred profits, or a Roth IRA for tax-free profits.  It’s a simple process at iPlanGroup and your investment choices will expand, including traditional investments like stocks and non-traditional assets like real estate or precious metals.

You can take control of your retirement when you open and fund a Self-Directed IRA.  Invest in what you know and experience the tax-advantages today. Click below for your FREE strategy session.

FREE self-directed strategy session