Opening a Self-Directed IRA Before Tax Day

As the tax deadline approaches, many people are scrambling to figure out ways to reduce their tax liability. One often overlooked option is opening a self-directed Individual Retirement Account (IRA) before the tax deadline. In this blog post, we’ll explain a self-directed IRA and why it’s worth considering opening one before tax day.

What is a Self-Directed IRA?

A self-directed IRA is a retirement account that allows investors to choose their own investments.

Unlike traditional IRAs, which limit investments to stocks, bonds, and mutual funds, self-directed IRAs can invest in a broader range of assets, including real estate, private equity, and precious metals.

The flexibility of self-directed IRAs allows investors to diversify their portfolios beyond traditional investments, which can provide more stability and potentially higher returns. However, it’s important to note that self-directed IRAs require more due diligence and research, as investors are responsible for selecting and managing their investments.

Why Open a Self-Directed IRA Before Tax Day?

Tax Benefits

The tax benefits are the primary reason to open a self-directed IRA before tax day. Traditional IRA contributions are tax-deductible, meaning the amount contributed is subtracted from the investor’s taxable income for the year. For the 2022 tax year, the contribution limit is $6,000 for those under 50 and $7,000 for those over 50.

By opening a self-directed IRA before tax day, investors can lower their tax liability for the previous year.

If an investor contributes $6,000 to a traditional self-directed IRA before the tax deadline and their income is $60,000, their taxable income would be reduced to $54,000 for the year.

In addition to the tax deduction for contributions, traditional self-directed IRAs also offer tax-deferred growth. This means that any earnings or gains within the account are not taxed until they are withdrawn in retirement. This can provide significant tax savings over time.

Investment Opportunities

Another reason to consider opening a self-directed IRA before tax day is the investment opportunities. Self-directed IRAs offer a wider range of investment options than traditional IRAs. This can provide investors with more opportunities to diversify their portfolio and potentially earn higher returns.

For example, self-directed IRAs can invest in real estate, which can provide rental income and appreciation over time. Private equity investments, such as investing in a start-up, can also offer significant returns if the company is successful. Precious metals, such as gold and silver, can provide a hedge against inflation and market volatility.

Investors must carefully select and manage their investments, which can be more time-consuming and risky than traditional investments. However, self-directed IRAs can provide unique investment opportunities for investors willing to do their homework.

Control Over Investments

A primary benefit of self-directed IRAs is investors’ control over their investments. With traditional IRAs, investors are limited to a small number of investment options, which a financial advisor or investment firm typically manages. With a self-directed IRA, investors can choose and manage their own investments directly. This can provide investors with more control over their portfolio and potentially higher returns.

Potential for Higher Returns

Finally, self-directed IRAs have the potential for higher returns than traditional IRAs. By investing in alternative assets, such as real estate or private equity, investors can access investments that can provide outsized returns. Investors with different tolerance for risk are free to invest in what they want, not what they are limited to. Investors who wish to invest in tangible assets, such as precious metals or traditionally stable assets, are also free to do that.

While you can open an account at Rocket Dollar whenever you decide is best for you, it is important to keep in mind the potential benefits of opening an account early in the year, as you can still make contributions for the previous year. If you have any questions about our accounts, please contact our team at info@rocketdollar.com.