Difference between a Self-Directed and Traditional IRA

Estimated reading time: 2 minutes(Last Updated On: October 23, 2019)

Setting up an IRA is a great way to make sure you have enough money saved for retirement. IRAs allow you to invest your savings and build your wealth over time. However, when choosing what type of IRA you want, you might find yourself overwhelmed with options. In particular, you may be wondering what the difference between a self-directed IRA and a traditional IRA is.

What is a traditional IRA?

With a traditional IRA, you will have a custodian, typically an investment brokerage, that manages your money for you. They make decisions about how your money will be invested to help you obtain the best possible outcome. You may be asked some general questions about the type of investments and strategy you would like your custodians to use, but generally, they will have financial control over the account until you start withdrawing from it.

What is a self-directed IRA?

A self-directed IRA, on the other hand, gives you control over how your money is invested. You can use a self-directed IRA to invest in alternative commodities, like real estate, that you can’t access with a traditional IRA. You’ll also be responsible for making the financial decisions yourself. Fees for self-directed IRAs are typically lower because there’s far less work involved on the part of the broker.

Why get a self-directed IRA?

For many people, the extra effort to set up and maintain a self-directed IRA is worth it, knowing they will have much more control over how their money is spent. This is particularly true for people who already have some investment experience. Being able to add alternative investments to the portfolio, particularly real estate, is also a big draw for many investors. This flexibility can potentially lead to excellent returns when used with the appropriate investment strategy.

If you are looking for a truly self-directed IRA, contact a Quest Trust Company IRA specialist. Quest Trust Company is an innovative investment company that gives you more control over your money. We also offer traditional IRA options with more flexibility and minimal fees. Our IRA specialists will help you find the right IRA product for you.

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