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).

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subject to capital gains tax or included in your taxable income for the year, allowing them to compound tax-free until withdrawn.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 Note: Funds must be withdrawn within 10 years of inheriting the account.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.

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

Invest Tax-Free. Retire Tax-Free. Build a Legacy Tax-Free. Learn More in Your Roth Account Guide