Questions you should ask yourself before setting up a self-directed IRA

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

Whether or not you are experienced in the realm of personal financial investments, an Individual Retirement Account (IRA) is a sound method of planning for your retirement. A traditional IRA or one with the Roth option is available at most financial institutions, but some investors are looking for a higher level of control over their investments than is usually the case with an IRA.

An investment strategy that incorporates a self-directed IRA requires a high degree of commitment. There will be a greater burden on you to perform diligence and more awareness of the tax code so you can be aware of the kind of investments that are allowed. However, the higher level of control may reap dividends that will benefit you in the long run. While your financial situation may be unique, here are some general questions you should ask yourself before opening a self-directed IRA account.

1. What Is My Investment Plan?

Before making your first contribution you need to know how you plan to approach your investments. You may find yourself initially overwhelmed by the wide array of options and if you don’t have a plan to start you will regret it later.

2. What Are My Goals?

This goes far beyond knowing a dollar amount you want to target. What quality of life do you want to have in retirement?

3. What Is My Expected Date Of Exit From The Account?

It is crucial to know when you plan to retire. It will determine how aggressive you can be in your investments initially as well as when you will need to start to make more conservative moves or shift to investments that are easier to liquidate upon retirement.

4. What Is The Role Of My Provider?

Despite the status of a self-directed account, you may have other providers involved such as administrators, facilitators, and custodians. Ensure that you know what everyone’s role is in the investment process.

5. How Will My Custodian Protect My Personal Financial Information?

Not enough emphasis is placed on the preservation of this crucial information. Make sure that your custodian is upfront with you regarding their history of security as well as steps they are taking to improve it in step with the sophistication of bad actors.

6. Will My Self Directed Account Be A Roth Account?

This will depend greatly upon your individual tax situation. If you pay a high-income tax rate every year a traditional IRA may keep enough money in your pockets that you can invest more through the life of the IRA. However, if your income tax rate is more manageable, the Roth option may be preferable.

Once you have answered these questions you may find that they lead to bigger questions. A self-directed IRA is a lot to take on, and if you find you need more financial advice before you can make a decision please contact the Quest Trust Company for assistance with taking control of your retirement.

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