Is Your Nest Egg Large Enough for a Self-Directed IRA?

Estimated reading time: 2 minutes(Last Updated On: December 9, 2019)

Self-directed IRAs are great foundation for your long term retirement planning. But because self-directed IRAs are not offered by more familiar discount brokerage custodians, some potential account holders may be intimidated at the prospect of paying for services on a different fee structure. This is true regardless of the fact that those fees are reasonable for the services that the individual receives when they invest in more complicated assets such as real estate and private equity.

Furthermore, some individuals may assume that their account balances simply aren’t large enough to effectively invest in a self-directed IRA. This simply isn’t the case. Regardless of the size of your nest egg, you can benefit from having a self-directed IRA.

You Probably Have More Options Than You Think

First of all, let’s be clear that you probably don’t need as large of an account balance as you might think in order to leverage the power of a self-directed IRA. While it’s true that having a modest account might preclude you from purchasing large real estate investments such as multi-family units or apartment buildings (or at least doing so without having to borrow with your account and incur unrelated business taxable income), you’re certainly not frozen out of real estate investments as a whole.

Smaller self-directed IRAs can be used to purchase more speculative real estate investments, including undeveloped land, as well as properties that may be located in areas that have fallen out of favor with homeowners and investors (but which you believe will make a comeback).

Your Account Will Grow Over Time

By making the maximum contributions to your self-directed IRA each year, and investing sensibly, you can expect that your account balance will grow over time. Once you have a self-directed IRA established you can make contributions to that account each year, as well as rollover any other IRAs or 401(k) accounts that you have.

Are You Interested in Traditional Investment Classes?

Another factor that sometimes leads retirement savers to stay away from self-directed IRAs is that they mistakenly assume that such an account can only be used to invest in things such as real estate, precious metals, and private equity. It’s true that those investment classes are possible with a self-directed IRA, but that account can just as easily be used to invest in publically traded stocks and mutual funds.

When it comes to having a relatively small nest egg, the only real limitations on a self-directed IRA are the time and level effort you’re willing to invest. A self-directed IRA can benefit retirement savers at every stage of life, individuals with a relatively small stake, and anyone who wants to maximize their retirement investment options.

Leave a Reply

Your email address will not be published. Required fields are marked *