If, like many people, you have decided to take a leap of faith to quit your job and become your own boss, there are a few things you have to think about, especially self-directed IRAs. While working in a hierarchical company can undermine your sense of ownership, it does have a few perks. Contributing to your retirement account is one of the benefits that you can easily overlook when you are still years away from the retirement age. (Image Credit: Edar/Pixabay)
When you become a freelancer, you will appreciate the security you once had as an employee. Managing your own retirement plan can be extremely complex. Tons of documents and contribution limits often come in the way of designing a plan that could match what you were used to before. However, thanks to the exponential growth in the number of freelancers nationwide, you now have the self-directed individual retirement account (IRA) plan to feed your retirement account the way you see fit.
The main difference between the regular IRA and self-directed IRA is the wider selection of investment options that you can choose from. Below you will find some reasons why self-directed IRAs are best for freelancers like yourself:
As a freelancer who experiences variability in monthly income, the tax advantages of self-directed IRAs will have a huge effect on your net profit. Your savings will grow tax-free and will only be subject to taxes later on when you start making withdrawals.
Self-directed IRAs allow you the flexibility to diversify your investment portfolio to better manage your risk. Financial experts from The Entrust Group believe that you should put your knowledge and expertise to good use. If you have a special talent for spotting up and coming startups in your industry, it might be a good idea to invest and use the returns to grow your retirement savings. Because you have a self-directed IRA and can benefit from diversifying your investments, you will have a safety net to fall back on should these startups fold.
Opportunity to Make Higher Returns
Unlike regular IRAs, self-directed IRAs do not limit you to safe low-return stocks and bonds. While those might be enough for an employee who has an employer making contributions into his retirement account, as a freelancer you are on your own. Any possibility to grow your retirement savings further will ease your financial burdens especially during times of economic instability.
Speed and Access
In months where you experience business growth and have an influx of income, you will want to make immediate investments in your IRA. Otherwise, you might miss out on an investment opportunity that you couldn’t afford to lose. Self-directed IRA is also accessible, so although it’s not advisable, you can withdraw from the account during slow months where you don’t get to make any money.
To Save Money on Fees
For self-directed IRAs, you are the sole owner and controller of your account. Which means that you will save money on fees that you would’ve otherwise paid to a custodian to manage your IRA on your behalf. You could use this money to reinvest in your personal business or make bigger contributions to your retirement account.
Due to the volatile nature of freelancing, you will need whatever guarantee you can get to protect your savings. Self-directed IRA comes with exclusive protection against bankruptcy and creditors.
No Required Minimum Distribution
With traditional IRAs you are required to start making minimum distributions at the age of 72. However, working as a freelancer who doesn’t necessarily have a retirement age, self-directed IRAs will not require you to do the same.
To Be In Control
You more than anyone understand the importance of being in control of your destiny. You quit being an employee and became a freelancer because you value the freedom of choice. Like any other business decision, once you have the data you need, you will be able to decide how you want to invest in your retirement account. If you are passionate about precious stones or real estate, self-directed IRAs give you the freedom to turn your passions into profits. Without a custodian or a financial advisor forcing their opinions on you, you get to have the final say.
As you have read, there are many reasons why a self-directed IRA will be a great option for you as a freelancer. Use this article to help you on your research journey so you can make an educated decision regarding your retirement savings. However, you don’t want to take too long because the sooner you start, the bigger your savings will be.