Three Common Misconceptions About Self-Directed IRAs

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As a self-directed IRA provider, New Direction IRA has frequent run-ins with popular misconceptions about retirement accounts. Below we address three common misconceptions about self-directed IRA investing.
 

1. IRA earnings have an annual limit

 
Regardless of asset type or account structure, self-directed IRA earnings have no annual limit. This means whatever tax-advantaged earnings your IRA may rake in in any given year can grow to any size without tax consequences or penalties. IRA investors needn’t fear a lucrative year in real estate or a particularly wise investment in a booming local business. These investment successes can be celebrated without consequence!
 
IRA earnings are different from annual contribution limits. Each IRA account type has different annual contribution limits which are designated by the IRS. Learn more about these limits here.
 

2. The government oversees IRA investments 


Some investors may believe that the SEC or IRS oversees their self-directed IRA investments. This idea is more than likely rooted in the history of retirement accounts. Since most IRAs were invested solely in the stock market since their inception in the ‘70s, many investors associate the SEC with IRA asset oversight. Although the IRS defines the rules and regulations regarding retirement accounts, it is the self-directed IRA provider and custodian who oversee the booking and paperwork of the investments.
 
In terms of understanding what a disqualified person or prohibited transaction is in the context of IRAs, it is the account holder’s responsibility to stay within legal boundaries with their investments. New Direction IRA employs an education-based business model to help our clients navigate the IRS rules and regulations regarding their accounts. Visit our education page to access our library of educational materials, or schedule a call with one of our representatives to ask specific questions about your self-directed IRA.
 

3. Disqualified persons can’t be beneficiaries to an IRA 


Most IRA owners are aware of disqualified persons rules that prohibit certain people from interacting with an IRA account. Although there are some hard-and-fast rules regarding disqualified persons to a self-directed IRA, a disqualified person can be a beneficiary to an IRA account. A grantor can name his or her spouse, children, grandchildren, or any other individuals as a beneficiary. Benefactors may also name a trust, charity, or some combination of the above. Consult IRS Publication 590 for additional rules governing each type of beneficiary, or visit New Direction’s Inherited IRA page to learn more.
 
Self-directed IRA providers have no legal responsibility to educate clients about the ins-and-outs of retirement investing; however, New Direction prioritizes an education-based business model because we believe in empowering our clients to make the best decisions for the future of their retirement accounts. Visit newdirectionira.com to learn more or call us today with any specific questions. Happy investing!
 

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