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A Guide to Self-Directed IRAs

A self-directed IRA allows you to hold alternative investments in a retirement account.

A self-directed IRA allows investors to hold unique and varied investment options inside a retirement account. Unlike traditional IRAs or Roth IRAs, which often consist of stocks and bonds, a self-directed IRA provides a broader selection of investment options. “The account owner is the person who is managing the account, and therefore they must take on the responsibility of due diligence and ongoing management of the underlying assets,” says Cassandra Kirby, a partner and wealth advisor at Braun-Bostich & Associates in Pittsburgh. “You should be a pretty knowledgeable investor to open and manage a self-directed IRA, and you should also be aware of the risks associated with the underlying investments.”

What Is a Self-Directed IRA?

In some ways, a self-directed IRA is like a traditional IRA or a Roth IRA. The account is designed to provide tax advantages, and participants must follow the same eligibility requirements and contribution limits. The maximum contribution limit for 2021 is $6,000, or $7,000 if you’re age 50 or older. You’ll be able to start withdrawing funds without penalty when you are 59 1/2 years old.

The difference lies in the type of investments you can hold in the account. While a traditional IRA or Roth IRA might be used to invest in CDs or mutual funds, a self-directed IRA can be invested in many other alternatives.

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