Self-Directed IRA Withdrawls

[Zachary Litwin]

I hear a lot of people talking about advantages of self-directed IRAs and understand the tax advantages are huge--not to mention essentially having a higher return without taking a higher risk. However, what does withdrawal look like on these vehicles? In what ways, if any, can you benefit from your investment BEFORE reaching 65? 

I have not done a lot of research on laws governing self-directed IRA business transactions, but with self-directed 401ks, the IRS seemed to be pretty good at covering all their bases to make sure that if I am getting that tax benefit, I remain essentially housebroke until kids who are my age are calling me grandpa.

[Dmitriy Fomichenko]

@Zachary Litwin

Self-directed IRA is still an IRA, all of the rules concerning contributions, distributions, taxation, etc. are the same. What self-directed IRA offers is the ability to diversify beyond the stock market and invest in what you know, understand and have greater control over such as real estate. Retirement accounts are designed to provide you with benefits at retirement, not prior to retirement. As a trade off you getting pretty nice benefit of tax-deferred growth.

Distributions from Traditional IRA are taxed at ordinary income tax rates, and if you pull the funds prior to age of 59.5 you would owe penalties on top of taxes. Qualified distributions from Roth IRA are tax-free. There are some loopholes allowing you access your retirement funds early, but you must plan for it.