Do You Have a New Child on the Way? Here are Some Changes to Consider for Your Self-Directed IRA

Big life changes often bring about big changes to your financial plans as well. Finding a new job, losing your job, getting married, getting divorced, or having a parent or family member suddenly require long-term medical care can all introduce a significant need to reevaluate your long-term plans. Having a child is another instance in which you may wish to consider making some changes to your retirement accounts, including your self-directed IRA.

Prioritize Your Contributions

You should be working to prioritize and maximize the effectiveness of your IRA contributions each year, but it will become even more important when you have a new child. You’ll be faced with many new expenses relating to your becoming a parent, and these financial challenges can sometimes have the unfortunate effect of causing individuals to forego or reduce their annual retirement contributions.

But when you know you have another person counting on you – now and into the future – it’s even more important that you continue executing your long term financial plan. And a big part of this is making sure that you contribute to your self-directed IRA every single year.

Updating Your Beneficiaries

As you work to integrate your new child into your life, you’ll likely be doing things like updating your will, adding your child to your health insurance, and perhaps naming them as a beneficiary of your life insurance policy.

This is also a good time to revisit the beneficiary designations you might have made for each of your financial accounts, including your self-directed IRA. Depending on how they are phrased, these types of beneficiary designations can supersede the terms of your will your will, so you never want to just assume that your assets will be distributed in accordance with what you may have written in your will. The beneficiary designations in your IRA documentation must be up to date.

Converting to a Roth IRA

Also on the subject of beneficiaries, it’s important to note that a self-directed Roth IRA contains a number of different estate planning advantages over a self-directed IRA that’s set up as a traditional account.

Converting an existing self-directed IRA from a traditional account to a Roth account will cause a tax hit in the year of conversion, but if you still have a decade or two before retirement, or you have significant other retirement assets, then performing such a conversion can be a big boost to your overall wealth. And if you haven’t yet set up your self-directed IRA, then consider all of the long-term advantages that a Roth account can provide over a traditional account.

Under ideal circumstances, you should be reviewing all of your financial accounts on a fairly regular basis, including long-term accounts such as your self directed IRA. It’s certainly not uncommon for people to neglect those regular evaluations. But when you have a new child on the way, it’s absolutely essential that you give your accounts another look.