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Self-Directed Roth IRA

Self-Directed Roth IRAs

Overview

Roth IRA is attractive to many investors because of its potential tax advantages.Created in 1997 by Senator Roth of Delaware, the  Contributions are made with after-tax dollars and are NOT tax-deductible. All funds within the Roth IRA compound tax-free and all withdrawals from the account are also tax-free (as long as the account owner is 59½ and the account has been open for five years).

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Request Your Self-Directed Roth IRA Guide

Benefits of the Roth IRA

The Roth IRA has many potential benefits, including no required distributions and tax-free withdrawals. Individuals may contribute as long as they have earned income and meet the modified adjusted gross income criteria.

The Roth IRA’s attractive features include:

  • Tax-free growth: Investment returns in a Roth IRA are tax-free and are not subject to capital gains tax or included in your taxable income for the year, allowing them to compound tax-free until withdrawn.
  • Tax-free withdrawals: Withdrawals from a Roth IRA after age 59½ are tax-free and are not included in your taxable income for the year, provided the account has been established for at least five years. This includes distributions of cash or assets.
  • Tax-free to beneficiaries: A Roth IRA, including existing cash and assets, can be passed down with no estate or inheritance tax, allowing the beneficiary to continue investing with tax-free growth or begin taking tax-free withdrawals, even before 59½. Note: Funds must be withdrawn within 10 years of inheriting the account.
  • No required minimum distributions (RMDs) for account owner’s lifetime: Unlike the Traditional IRA and other tax-deferred accounts, Roth IRAs are not subject to RMDs at age 72, allowing you to keep assets in your portfolio, continue investing through retirement, and accumulate tax-free wealth to leave to your beneficiary.
  • No age limits: You can contribute to your Roth IRA as long as you have earned income that qualifies. In addition, there is no minimum age requirement to open or contribute to a Roth IRA for those who qualify and have taxable income. (Accounts opened for minors under age 18 who meet eligibility requirements require a parent/guardian to establish and manage the account.)
  • Ability to withdraw contributions, any time, tax- and penalty-free: Since Roth IRA contributions are made after-tax, you are able to withdraw contributions from your Roth IRA at any time – even before age 59½ – and for any reason without tax or penalty. This applies only to out-of-pocket contributions and does not pertain to earnings or interest accrued.

Video: Self-Directed Roth IRA FAQ

Who can open a Roth IRA?

Anyone who has earned income and falls within the MAGI (Modified Adjusted Gross Income) limits established by the Internal Revenue Service can establish a Roth IRA.

Self-Directed Roth IRAs and tax treatment

Roth IRA Contribution Limits

The IRS sets limits for how much you can contribute to a Roth IRA each year. See the current year’s contribution limits.

What Makes a Roth IRA Self-Directed?

When a Roth IRA is referred to as a self-directed account, it simply means you can use the account invest in areas outside of the traditional stocks and bonds. That’s the primary difference between a self-directed and traditional retirement account — where you put those investment dollars.

With a self-directed IRA or 401(k), you can invest in a variety of areas, including:

  • Real estate
  • Private debt like corporate debt offerings, notes secured by deeds of trust or mortgages
  • Private equity-like stock of C-corporations, limited partnerships, LLCs and REITs
  • Precious metals, including gold, silver, platinum, and palladium
  • Cryptocurrency like Bitcoin
man on mountain

Let’s talk about your financial future.

Schedule a one-on-one session with an expert alternative investment counselor. We’re here to answer any questions, help guide you through the process, and provide more detailed information and education specific to your journey.

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