Self-directed 401(k)s and self-directed indivi🍨dual retirement ꧟account (SDIRAs) are for investors who are determined to go beyond the usual investments that ar🐻e available for retirement accounts—way beyond, in some cases.

Investors can choose from a range of options: a conservative bond fund, an aggressive stock fund, or one of many choices in between. Some offer alternative investments like 澳洲幸运5官方开奖结果体彩网:cryptocurrency or 澳洲幸运5官方开奖结果体彩网:mineral rights. But they come with risks. Here'🅺s what you need to know.

How a Self-Directed 401(k) or IRA Works

You can open a self-directed IRA just as you would a conventional IRA, with a brokerage or investment firm. This custodian holds your IRA assets and executes the purchase or sale of investments on your behalf. A self-directed 401(k) is also similar to a conventional 401(k): it's employer-sponsored. If you are offered the option of a self-directed 401(k) 🧸by🉐 your employer, your custodian would be your plan administrator. 

The same contribution limits apply as for conventional IRA and🅠 401(k) plans.

The maximum IRA contribution in 2024 is $7,000, plus a $1,000 澳洲幸运5官方开奖结果体彩网:catch-up contribution for those age 50 or ol⛦der. (In 2023,𒆙 those numbers were $6,500 and $1,000, respectively.)

The maximum 401(k) contribution in 2024 is $23,000, plus a $7,500 catch-up contribution for those age 50 or older. (In 2023, those numbers were $22,500 and $7,500, respectively.)

The withdrawal rules are also the same. A withdrawal made from any IRA or 401(k) prior to age 59 ½ will trigger a 10% early withdrawal penalty unless 澳洲幸运5官方开奖结果体彩网:an exception applies.

澳💟洲幸运5官方开奖结果体彩网:Required minimum distributions (RMDs) begin in the year a person turns age 73. This will change to age 75 in 2033.

Roth Option

For those who choose the 澳洲幸运5官方开奖结果体彩网:Roth option for a self-directed IRA or 401(k), the rules are mostly the same, except that there are no required minimum distributions at any age, beginning in 2024. With a Roth, you pay taxes on your contributions in the year it's invested. The entire balance is tax-free when the money is withdrawn in retirement, as long as you've had the account for five years and are over age 59 ½.

Checkbook Control

A self-directed IRA has the option of a checkbook IRA, which essentially acts as a commercial bank account. A 澳洲幸运5官方开奖结果体彩网:limited liability company (LLC) is established and owned by the IRA. The IRA owner can have a busines📖s checking account linked to the IRA funds. The IRA owner manages the LLC and controls the checkbook.

The checkbook control IRA gives the IRA owner the control of writing checks directly from the IRA for various purposes, including investments, such as purchasing real estate. A checkbook IRA helps streamline the payment process by eliminating delays since owners can write checks themselves versus waiting for the custodian to make payments out of the account. The checkbook IRA can also lower transaction fees since the custodian isn't involved in the payment.

Alternative Investments

The Internal Revenue Service (IRS) allows self-directed accounts to invest in 澳洲幸运5官方开奖结果体彩网:real estate, development land, promissory notes, tax lien certificates, precious metals, cryptocurrency, water rights, mineral rights, oil and gas, LLC membership interest, and livestock.

The IRS also has a list of investments that are not permitted. That list includes collectibles, art, antiques, stamps, and rugs.

Risks of a Self-Directed 401(k) or IRA

The U.S. Securities and Exchange Commission has warned that investors in self-directed IRAs may be subjected to "fraudulent schemes, high fees, and volatile performance."

Investors also have to be wary of accidentally violating the complicated IRS rules ♊for self-directed IRA investments. Some of these rules specifically🌳 ban:

• Receiving money directly from an income-producing property in the IRA or 401(k)
• Using real estate held in the account as collateral for a personal loan
• Using property or other investments in the account in a way that benefits you personally
• 澳洲幸运5官方开奖结果体彩网:Borrowing money from the account to repay personal loan obligations or lend to a disqualified person
• Allowing disqualified individuals to maintain a residence in a property owned inside the 401(k) or IRA
• Selling or leasing property within the account to a disqualified person

A disqualified person is a 澳洲幸运5官方开奖结果体彩网:fiduciary of the plan, a person who provides services to the plan, and any other person or entity that may have a financial interest. That includes yourself, your spouse and heirs, the account beneficiary, the account custodian or plan administrator, and any company in which you own at least 50% of the voting stock, directly or indirectly.

If the IRS determines that a prohibited transaction has occurred, your account automatically loses its 澳洲幸运5官方开奖结果体彩网:tax-advantaged status. All the money that you've invested into a self-directed 401(k) or IRA will be treated as a taxable distribution, leaving you with a big tax bill.

The Bottom Line

Self-directed retirement accounts aren't for everyone. Essentially, they're for the person who has little or no faith in professionals and plenty of confidence in their own ability to make the right choices about investing. It's also for the investor who is frustrated by the standard choices available in conventional IRAs. Self-directed IRAs may also work for those who 澳洲幸运5官方开奖结果体彩网:don't have access to a 401(k) plan through their workplace.

If you decide to go out on your own, follow the IRS's advice: be on the lookout for fraudsters and high fees. And make sure to read the fine print—that's especially important, because your retirement fund is at stake.