Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account
Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account

March 30, 2022

What is Tax-Deferred Investing

The defining characteristic of any retirement investment is the fact that the investor realizes a tax benefit because of it. In exchange for putting aside money that will help fund your retirement, the government is willing to give you a tax incentive. For standard retirement plans this incentive comes in the form of a tax deferral. The funds that are placed in the retirement account are not counted towards your annual income, and subsequently will not be currently liable for any taxes. The tax bill will come due eventually during the retirement years, but this will likely be at a much lower tax bracket. In the case of a Roth IRA, the funds that go into the retirement account have already paid their tax liabilities, and thus any profits accrued are totally tax free. 

Does a Self Directed IRA share similar tax benefits?

Absolutely! The only difference between a standard IRA platform and its self-directed counterpart is the ability to choose assets and manage them personally. The tax benefits, however, are identical for both of them. 

What about the profits of a Self Directed IRA?

The profits of a Self Directed IRA are treated in the same manner as if your retirement funds were placed in a mutual fund or other similar vehicle. When profits are realized, they are considered as part of the total assets of the IRA and are treated accordingly. The only situation where the profits of a Self Directed IRA may have different tax liabilities than a standard platform is in the case where the IRA invests in an active business. In this case the IRA would be responsible for UBIT, Unrelated Business Income Tax, on an annual basis. However, even in the self-directed framework, most assets are considered passive in nature, and thus not subject to UBIT.

Who’s the best person to talk to about the tax deferred benefits of a Self Directed IRA?

Your accountant or financial advisor is always a prime source, especially considering that the tax deferred benefits under discussion are similar across the retirement spectrum. If you have a question regarding a specific aspect of self-directed investing, then it’s best to confer with an expert in the field. Here at Broad our Specialists know these platforms intimately and can answer any question that you may have.


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