Self-directed retirement plans
Discover the Benefits of a Tax-Free or Tax-Deferred Self-Directed Retirement Account. Retirement accounts provide the opportunity to save money for the future in a tax-free or tax-deferred environment. However, a self-directed retirement account allows the investor to benefit in a variety of alternative investment opportunities with the potential to earn even more. Retirement plans for individuals come in all shapes and sizes. The most popular include Self-Directed Traditional Individual Retirement Accounts (IRAs) and Self-Directed Roth IRAs. For small businesses, Self-Directed 401(k)s, Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs are common. In addition, there are savings plans for special needs, such as Self-Directed Coverdell Education Savings Accounts and Self-Directed Health Savings Accounts.
Individuals obtain these accounts for two key reasons: Saving for a need, such as retirement, education or health care. A method for reducing, deferring or eliminating taxes on the gains.
As a Tax-Savings Vehicle. Self-Directed Traditional IRAs offer two big advantages or incentives to encourage people to save for their retirement. First, regular contributions to a Self-Directed Traditional IRA may be tax deductible on an IRA holder’s tax return (IRC Sec. 219(a) and (b)). Second, earnings on a Self-Directed Traditional IRA are not taxed until the IRA holder or beneficiary takes the money out. It is these regular deposits, accrued earnings, and the passage of time that combine to produce large account balances. And, with a self-directed traditional IRA, you can choose your investments.
Self-Directed Roth IRA or Self-Directed Traditional IRA? Effective January 1 , 1998, IRC Sec. 408A, enacted under the Taxpayer Relief Act of 1997, permits the establishment of a Roth IRA. A Roth IRA is a type of IRA whereby contributions are not deductible, but distributions (including earnings) can be tax free if certain circumstances exist, particularly if the account is a Self-Directed Roth IRA. Understanding general tax law will assist in making the decision between the Traditional IRA and the Roth IRA. Your accountant may be able to assist you in determining the account that will best suit you.
Small Business Tax Benefits. Many employers choose a qualified plan to obtain the tax benefits. The tax benefits of qualified plans are worth noting. Generally, contributions to a qualified plan by an employer are tax deductible. Earnings on funds held in a qualified plan accumulate on a tax deferred basis. As with plan contributions, earnings on contributions are not taxed until a distribution from the plan actually occurs. vii. Effective January 1, 2006, the establishment of an Individual Roth 401(k) was allowed. An Individual Roth 401(k) is a type of 401(k) that allows a small business owner the benefit of tax deductible contributions and non-tax deductible contributions. The non-deductible (Roth contributions) and the earnings can be distributed tax free if certain circumstances exist.
