What Is a Self-Directed Retirement Plan?

Estimated reading time: 3 minutes(Last Updated On: August 13, 2019)

You know that you should be saving money for the future. Part of that savings should be in the form of a retirement account that should be large enough to support you after you’re no longer able to work. However, with the number of retirement accounts that are available, it can be hard to figure out just what each type entails. Today, we’re going to evaluate what a self-directed retirement plan is and the benefits it offers to you. Let’s get started below.

What Is It? 

A self-directed retirement plan is a unique form of savings that allows the account owner the ability to direct their investments in many different areas that they prefer. With traditional forms of retirement accounts, the account owner doesn’t make the investing decisions. Rather, there is a custodian who invests the account owner’s savings. These are typically in stocks, bonds, CDs, and mutual funds.

What Are The Advantages? 

The first major advantage of the self-directed retirement plan is that the owner has full control over all the investments. There is no restriction on what type of investments are allowed. With self-directed IRA accounts, investments can be made in private businesses, gold, tax liens, real estate, and just about anything else you can think of. The traditional IRA accounts don’t allow for these various types of investments as they only offer Wall Street investments.

The second advantage is that you can use your own knowledge to invest in areas that you are comfortable with. With traditional retirement plans you are relying on another individual to manage your investment and many don’t have in-depth knowledge about the investments they’re using. This can be quite risky. When you’re in charge of your own investments, you can stick to investing in areas that you know very well so that you can make as many gains as possible.

The third benefit of self-directed retirement plans is that you can diversify your portfolio even more than with traditional plans. Market volatility and harsh inflation rates can put a damper on your investments. With traditional plans, the only diversification you get is with stocks, CDs, mutual funds, and bonds. With these options, you’re playing the Wall Street game. With a self-directed retirement account, you can invest in a wide variety of sectors, such as real estate, gold, and others. This wider availability of diversification can allow you to better cushion yourself from financial downturns in the future.

The fourth advantage is that you don’t have to pay brokerage fees. When you let your traditional retirement account up to the direction of a trustee, you have to pay them for managing the account. These are in the form of brokerage fees and they’re ongoing for as long as you have that trustee in charge of managing your account. When you opt for a self-directed retirement plan you don’t have to pay brokerage fees as you are the one managing your account.

Hopefully, at this point, you have a full understanding of what a self-directed retirement account is and the many benefits that it will provide for you. It’s important that you take the time to fully understand what these accounts entail. This will allow you to take a more hands-on approach to your future financial health.

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