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Have You Considered A Self-Directed IRA?

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For those looking for a tax efficient, long term, investment vehicle and to diversify their retirement holdings, a self-directed IRA could be a viable option. Rather than investing in stocks, bonds, and mutual funds, self-directed IRAs are intended for alternative investments. Typically, we see self-directed IRAs set up for passive investment in real estate, but self-directed IRAs can be used for other business ventures. Self-directed IRAs can be designed with traditional as well as ROTH components, which follow the general contribution and distribution rules associated with standard traditional and ROTH IRAs.

While self-directed IRAs offer greater investment flexibility, certain transactions are prohibited. The IRA is barred from investments in which the IRA owner, or the IRA owners’ lineal descendants, have previous ownership as well as investments which create an indirect personal benefit for the IRA owner. Care must be taken not to run afoul of these rules as doing so could disqualify the IRA account’s preferential tax status. Given the complexity of these rules and potential tax consequences, it’s always recommended that you consult an advisor prior to setting up a self-directed IRA.

While not for everyone, self-directed IRAs provide an opportunity for tax preferred alternative investments. Still not sure if it’s a viable option for you? Give Berntson Porter a call at 425.454.7990 to speak with a tax professional. We’re here to help!