Self directed IRAs certainly have a number of advantages over standard retirement plans. They give you unlimited access to various asset classes, do away with a ton of retirement-crushing fees, and allow you to take a break from the topsy turvy roller coaster known as the stock market. That being said, there are still a number of people who might not be the best fit for a self directed IRA. Here’s a short list of those individuals who might find more success with a standard retirement plan.
#1 – The Retirement Second Guesser
Most people are able to intelligently think about a situation, come to some kind of semi-reasonable conclusion, and move forward based on that knowledge. For a small percentage of the population, however, doubt quickly sets in. Investors who in general constantly second guess themselves are not going to experience a sudden personal revelation with the acquisition of a self-directed IRA. What usually ends up happening is that the investor constantly doubts his/her investment decisions, which in turn leads to ill-advised investment flipping, and in the end doesn’t provide any real retirement benefits. This kind of investor should definitely still aim for retirement tax breaks, but do so in a format which will limit the decision making as much as possible. A solid index fund is ideal for a non-involved retirement plan.
#2 – The Retirement One Hit Wonder
Some investors like the appeal of the freedom of a self directed IRA, but the truth is that they don’t really need it. If the only objective of the investor is to buy into a property with a number of other investors, and there will be little to no personal involvement with the property, then a straight custodian account might be a better option. Although custodians are usually fee heavy and have burdensome administrative procedures, a one-time deal will not run into those problems. In all cases, though, think through the deal carefully. Many seemingly simple investments can quickly turn complicated, and the benefits of a truly self directed IRA can become very important.
#3 – The Retirement Optimist
There is a small subset of investors who believe that the next thing is always the next big thing. They’re willing to take a chance on every idea they hear, even if their trusted financial sources try to dissuade them. A self directed IRA is ideal for those who want to make sensible investments in assets they understand. Under no circumstances, though, should it ever be used as a stack of chips for indiscriminate gambling. This is a short list of those who should not be getting a fully self-directed retirement plan. However, the vast majority of investors don’t fall into these categories. For the standard balanced center-of-the-road investor, a self-directed account can work wonders. It pays to do a lot of research, and then make the decision that works for you.