Combining the potential for profitability from trading stocks with the financial benefits of a self directed IRA is not only possible; it can be very advantageous.
Using a self directed IRA to trade stocks allows you to simultaneously accomplish 3 major goals:
1. The freedom to make your own purchase decisions
2. The ability to compound growth
3. Paying the least amount of taxes or no taxes at all!
In order to be able to trade stocks inside of your self directed IRA, you have to follow a process. There are a lot of details surrounding each step, but for the purposes of this post we will generalize the process. First, you need a self directed IRA. Then, you create a brokerage account with a broker of your choosing (i.e. eTrade, TD Ameritrade, etc.). Finally, you tell your self directed IRA to invest in the brokerage account which is where you buy and sell shares.
The brokerage account is an investment choice just like a piece of real estate. You, as the SDIRA owner, have to fill out a form called a “direction of investment form” that instructs your custodian to transfer funds to a specific investment. In this case, that investment would be the brokerage account. Then you use the brokerage account to handle your trades. Any profits earned on the brokerage account are deposited back into the self directed IRA. It is also important to note that before deciding to set up a brokerage account inside of your self directed IRA, you should definitely read and understand the rules for prohibited transactions with a SDIRA. We would suggest that you speak with a professional as well. You want to make sure that you have all your ducks in a row as to avoid unnecessary fess from the IRS.
Depending on how you structure your self directed IRA, the money deposited back into the account can be tax exempt. This is true because a SDIRA can be set up as a ROTH account. Think about that, money made by trading sticks can be tax exempt.
Not everyone is a trading wizard but for those people who are stock savvy it could be very advantageous to trade stocks using the self directed IRA.
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