To get right to the point, they’re not that different! As far as the IRS is concerned, self-directed retirement accounts are treated exactly the same as all your other types of retirement accounts.
You know from my previous post that self-directed means you choose from a much wider variety of investments and monitor those investments yourself. That’s the case whether it’s a 401(k), IRA, Health Savings Account (HSA), or Educational Savings Account (ESA).
All of the tax-advantaged accounts have annual contribution limits, and the rules and requirements among them vary (for example, income thresholds, early withdrawal penalties, required minimum distributions, who can participate, etc).
All of the following can be converted to a self-directed account. Simply apply the respective tax rules and other IRS stipulations. That’s it!
Pre-tax dollars go in; original contributions and earnings are taxed when they are withdrawn:
- Traditional IRA
- Simplified Employee Pension (SEP) IRA
- Traditional 401(k)
- Traditional Solo 401(k)
- SIMPLE 401(k)
- Small business 401(k)
- 403(b)
Post-tax dollars go in; original contributions and earnings are tax-free when they are withdrawn:
- Roth IRA
- Roth 401(k)
- Roth Solo 401(k)
Tax-exempt accounts:
- Health Savings Account (HSA)*
- Education Savings Account (ESA)
*These accounts are tax-deductible going in and tax-free when funds are withdrawn for medical expenses.•
These articles are not intended as investment or financial advice. Before making any investment decision, talk to your financial, tax, or legal advisers.
