As we begin 2025, it’s an ideal time to revisit your tax and retirement planning strategies. One way to start the year on a positive note is by setting yourself up today to benefit from the tax breaks...
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Eric Satz is the Founder and CEO of Alto Solutions, which provides investment access to alternative assets for all.
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As we begin 2025, it’s an ideal time to revisit your tax and retirement planning strategies. One way to start the year on a positive note is by setting yourself up today to benefit from the tax breaks of an individual retirement account (IRA) over time.
Traditional IRAs offer an upfront tax deduction for your contributions, which can trim your 2024 tax bill. Contributions to Roth IRAs are post-tax but allow for tax-free withdrawals once you’ve hit retirement age. Both account types provide tax-deferred growth on your investments, delaying taxes and enabling the upside potential of compounded growth.
You have until April 15, 2025, to make 2024 IRA contributions. Start-of-year planning should take into account both the amount you will contribute to your IRAs and how you’ll invest it to optimize for long-term performance and returns. As you optimize your portfolio, have you considered all the available strategies? A self-directed IRA is one way to open new doors and opportunities for your retirement plan.
Unlike traditional brokerage firms, custodians supporting self-directed IRAs support a wider variety of investment options, which allows for greater portfolio diversification and the potential for market outperformance. Here’s how.
Most brokerages limit IRA investments to public market assets like stocks, bonds and exchange-traded funds (ETFs). However, with a self-directed IRA, you can invest your retirement funds in private market assets such as:
• Real estate
• Private equity
• Private credit
• Venture capital
• Cryptocurrencies
Investments in these asset classes can further diversify your portfolio and help protect against stock market swings. A recent study from KKR found that a 40/30/30 portfolio of stocks, bonds and alternative assets had a higher annual return and greater resilience to market downturns than a portfolio of only stocks and bonds from 1927 to 2021. Crypto also shows a low correlation with stocks, adding portfolio diversification.
By expanding your portfolio to the private markets, you can leverage your skills, interests and market savvy to drive even higher returns. As important, a self-directed IRA puts you in the driver’s seat. You decide what to invest in rather than being limited to those options approved by a traditional brokerage firm.
Opening a self-directed IRA is as quick and easy as opening an IRA at a brokerage. First, consider which self-directed IRA custodian you’d like to use. Check their account pricing, reviews and alternative investment options. Ensure the custodian offers the investments you like as they often specialize in certain areas, like cryptocurrencies or venture capital.
Once you find a custodian that’s a match, you’ll create an account online. Submit your name, address and Social Security number. You’ll also select a username and password. The entire process takes only a few minutes.
Next, fund your self-directed IRA with money to invest by making a contribution, transferring funds from an existing IRA or utilizing a 401(k) rollover. Each of these funding mechanisms is tax-free.
For 2024, the annual IRA contribution limit is $7,000 if you’re younger than 50 and up to $8,000 if you’re 50 or older. Alternatively, if you already have money in an existing IRA, you can transfer funds without limitation over to your new self-directed IRA. This also applies to 401(k) rollovers. And again, you won’t owe taxes on the transfer or rollover.
From there, you can use your self-directed IRA to invest in alternative assets. Top self-directed IRA custodians provide a marketplace for researching and making these selections. If you have any questions during the process, the custodian should provide support by phone and email.
What strategies will you use to get the most out of 2025? A self-directed IRA could be worth having on your radar, given the opportunity for added diversification and higher gains from private market assets.
If you work with a financial advisor, add this to your look-ahead discussion. They can help you determine if a self-directed IRA makes sense for your plan and, if so, walk you through the rules of setting up your investments properly.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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Disclaimer: The views and opinions expressed in this article do not necessarily reflect the official policy or position of IRACircle. Always consult a certified financial planner.