The rules and regulations surrounding IRAs can be convoluted and confusing. Understanding what IRAs are, how they work, what the difference between a traditional and a Roth IRA is, how self-directed IRAs work, why some IRAs allow private investments while others don’t and which IRA custodian to go with are all challenges that savvy investors must overcome in order to help make the most of their retirement funds.
Putting your IRA account to work requires some research and homework to be done by the potential IRA owner upfront, as well as considering things most people are unfamiliar with, like setting up your IRA for tax-efficiency.
Because there is so much information to absorb around the subject, it can lead to many investors to go by hearsay and listening to what their friends and family tell them.
In the video below, Joe DiDomenico, Director of Retirement Services at Yieldstreet, debunks three of the most commonly held misconceptions about IRAs:
It’s a myth that a Roth conversion will make sense for everyone. This isn’t always true. Everybody should do some calculations specific to their own situation, or work with a financial advisor or tax specialist to model it for you. Some of the variables to key in on are:
The big one a lot of people neglect to account for is:
5. What is the opportunity cost of the money you would have to pay in taxes earlier than you needed to because of the Roth conversion?
If you just calculate what your IRA will be worth to you tax-free down the road after having paid that taxes from your taxable funds, you’re not seeing the big picture.
The myth is that IRAs can only invest in traditional, marketable securities. This is incorrect.
Stocks, bonds, and mutual funds aren’t even mentioned in the Employee Retirement Income Security Act of 1974 nor in the IRS code that rules them. In fact, there are so many things your IRA can invest in, that it’s easier for the IRS to list the investment that cannot be held in an IRA. Investments that are prohibited in IRAs include:
1. Life insurance
It’s a myth that you can only use your IRA in retirement. There are plenty of things you can do with your IRA savings before retirement. The biggest is that it could be a source of cash in an emergency, called a hardship withdrawal. Hopefully, you and your family will never need it for this, but IRAs can be a source of income during hard times. Typically, if you take money from your retirement funds before retirement you will be taxed and pay a 10% penalty. The penalty is waived for substantial medical bills, paying higher education debt, if you become disabled, and even while withdrawing up to $10,000 for the purchase of your first home or a subsequent home if you haven’t owned one for two years.
Yieldstreet suggests that if you find these rules complex, do some additional research and work with a tax professional to make sure you have a retirement account strategy that works for you. Please note that YieldStreet does not provide tax advice, please consult with a tax specialist for advice specific to your situation.
Additionally, you can now take retirement planning to the next level with a Yieldstreet IRA. The Yieldstreet IRA offers investors the ability to invest in Yieldstreet products with a retirement account. You can explore setting up your Yieldstreet IRA in-depth and get answers to some of the most Frequently Asked Questions about the Yieldstreet IRA. If you have any additional questions about how to set up and get started with a Yieldstreet IRA, please reach out to [email protected].
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