If you are actively planning for your retirement, you are probably aware that an IRA can be a beneficial tool for achieving your goals. You may not, however, fully realize how you can use a self-directed IRA as a part of that strategy. To better understand the ins and outs of contributing to a self-directed IRA, we turned to information from U.S. Money Reserve, also known as America’s Gold Authority®

What Is a Self-Directed IRA?

In the case of a traditional or Roth IRA, individuals have the option to place funds in a tax-advantaged account to purchase certain commonly owned retirement assets. These assets are typically stocks, bonds, mutual funds, and other assets of a paper nature. The benefit of these accounts is that they allow individuals to save for retirement while taking advantage of tax incentives laid out by the government to encourage financial preparation. A limitation, however, is that the firms that administer these accounts typically only allow a narrow range of assets to be held in the account funds.

A self-directed IRA, by contrast, offers a much greater degree of flexibility since it allows individuals more freedom to select the assets they would like to include. These accounts go beyond traditional assets such as stocks and bonds and allow individuals to hold a range of alternative assets such as:

  • Precious metals
  • Real estate
  • Cryptocurrency
  • Livestock
  • Tax lien certificates
  • Private equity stakes

Additionally, certain assets are prohibited for inclusion in a self-directed IRA. These include:

  • Artwork
  • Antiques
  • Rugs
  • Stamps
  • Collectible coins
  • Life insurance

Benefits of a Self-Directed IRA

Beyond flexibility, one of the most compelling reasons to maintain a self-directed IRA is the high level of diversification that it can provide. Diversification refers to the degree to which assets are correlated within your portfolio, with high levels of diversification typically aiming to reduce correlation among all assets in a portfolio. This is done so that if an event has a negative impact on a certain asset class, then the other assets in a portfolio can help mitigate the effect on the performance of the overall portfolio. 

Precious metals, such as gold, silver, or platinum, is an asset class that has traditionally been regarded as an effective means of diversification. Often known as a “safe-haven asset,” gold is one example of a precious metal that portfolio holders frequently turn to during times of economic turmoil. The financial crisis of 2008 is just one example that saw the price of gold climb to high levels even as other assets, such as real estate, experienced sharp declines.

Contribution Specifics

Contribution limits for a self-directed IRA follow the same guidelines as for traditional and Roth IRAs. These limits go up over time, but in 2020, an individual may contribute up to $6,000 to their IRA account per year. Individuals who are at least 50 years old may also make what are known as “catch-up contributions.” This allowance permits these individuals to contribute an additional $1,000 per year, meaning that if you are 50 years old or older, you can contribute $7,000 to an IRA in 2020. These additional contribution allowances can be a powerful way to increase your savings potential as you move closer to retirement.

To make a contribution to an IRA, you will need to set one up with a third-party administrator. This is typically done in conjunction with a brokerage firm for a traditional or Roth IRA; however, brokerage firms do not usually offer self-directed IRAs. To set up this type of account, you will need to go through a third-party custodian. U.S. Money Reserve has resources available to help you in your efforts to select an IRS-approved trustee or custodian. 

If you have already begun contributing funds to a retirement account in the form of a traditional IRA, Roth IRA, or 401(k), a trustee or custodian can also help you transfer or rollover funds to a self-directed IRA. This may be an option to consider if you are unsatisfied with the level of diversification present in your current portfolio.

About the Company

U.S. Money Reserve, also known as America’s Gold Authority®, is a leading distributor of U.S. and foreign government–issued gold, silver, platinum, and palladium coins. Holding an AAA rating from the Business Consumer Alliance for trustworthy and ethical business practices and an A+ rating from the Better Business Bureau, U.S. Money Reserve is an industry leader in the field of precious metals ownership. This success is supported by the leadership of President Philip N. Diehl, who, thanks to his past experience as a director of the U.S. Mint, has a wealth of knowledge concerning precious metals and personal financial independence.

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About Whitney Wheeler

Whitney Wheeler is a seasoned journalist with a passion for current events. With a keen eye for detail and a talent for storytelling, Whitney brings her readers a unique perspective on the events that shape our world. Whether it's politics, finance, or technology, Whitney's writing is always insightful and thought-provoking.