financial advisor self directed IRA

What Financial Advisors Should Know About Self-Directed Investments

Have your clients been asking about Self-Directed investments?   Self-Directed IRA accounts are gaining popularity and being a part of the conversation takes some research.

Self-Directed IRAs are attractive for several reasons.  They provide capital resources often not found outside of the IRA, they can create tax deferred or tax free profits, and they give investors more control over investments they feel more comfortable with, like real estate. Self-Directed IRA accounts are an excellent way to grow that nest egg, and potentially a great strategy for long term financial growth. But how do you know which clients are the right fit for this particular investment option?

What You Need to Know About Self-Directed Investments

Unlike other investment opportunities, a Self-Directed IRA account is for clients who want to take control of their financial future, and be more involved with their investment choices.  Ultimately, more control over the potential return. While your clients may be interested in utilizing a custodian to hold the assets in a Self-Directed IRA, they will be the ones involved in vetting the investment to insure it is the appropriate investment for him or her. They will then direct funds to the investment, manage it, and exit the investment according to the investment strategy involved.

One benefit of having a Self-Directed IRA is potentially lower account management fees.  With an administrator such as iPlanGroup, savings on transaction fees are also considerable.  iPlanGroup does not have transaction fees and that adds up to big savings for an active investor.

There are some huge tax benefits and challenges to consider

While owning a Self-Directed IRA can be a great way to shield your clients’ investment funds from Uncle Sam, the truth is, it’s only temporary. Traditional Self-Directed IRAs benefit from deferred taxation on gains, which means that you can hold onto investments that might otherwise be considered taxable assets. Those saved tax dollars can be reinvested elsewhere for a bigger ROI.

On the flip side, the tax bill will eventually come. When a Self-Directed IRA owner makes a distribution down the road, those funds are taxed. And if your client has a substantial withdrawal amount, that added income could push them into a higher tax bracket during retirement. In addition, there could be huge tax penalties if your clients don’t take the annual required minimum distribution.  With a Roth Self-Directed IRA, there will not be a required minimum distribution and the earnings, (growth), are not taxed when distributed at the age of 59 ½ when the client is eligible to take the money out without penalty.  That can make a great impact when it comes to tax mitigation!

Is your client really prepared for the responsibility of a Self-Directed investment? 

While advising your client on the many merits of Self-Directed investment options, it’s important to know not only what their financial goals are, but also their experience in alternative investments. Their confidence and past performance are considerations. Take into account all of the major factors as well – age, income, desired lifestyle, descendants, plans to work, etc., when considering whether a Self-Directed IRA is the right option.

Your clients will need to choose investment asset classes that match with their particular financial goals. Their level of risk should be commensurate with the amount of time they have and the level of risk they’re willing to take. A Self-Directed IRA is an excellent way to grow a retirement fund, but if your client needs income right now it might not be the best option.

Learn More About iPlanGroup

If you think your clients might be a good fit for a Self-Directed IRA, contact the experts at iPlanGroup. We will work with you and your clients to find the Self-Directed IRA accounts for their financial goals. Are you ready to get started? Contact us now.

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