Investing With a Self-Directed Roth IRA
A Roth IRA is a retirement savings account that offers a wider range of benefits than a traditional IRA. For example, you can continue contributing to a Roth IRA well into your retirement years, whereas with a traditional IRA you must be under age 70 ½ to contribute to the account. In addition, there is no required minimum distribution with a Roth IRA, but beginning at age 70 ½ you must begin taking distributions from a traditional IRA.
Many of our clients hear about the benefits of a Roth IRA and wonder whether it’s possible to use the same structure for a self-directed retirement account. And the answer is a resounding, “Yes!” Keep reading to learn the differences between a Roth IRA and a self-directed Roth IRA and find out which may be the best option for you.
Roth IRA vs. Self-Directed Roth IRA
In a typical Roth IRA, most of your investments will be made using mutual funds, with a bit of stocks and bonds to diversify your portfolio. But how much are you really diversifying if most of your investments are in only these three categories? With a self-directed Roth IRA, you have many more options available to choose from because all of the same alternative investments available with a traditional self-directed IRA are also available in a self-directed Roth.
A self-directed IRA can be set up as either a Roth IRA or a traditional IRA. One difference between the two is in when you can contribute and when you have to make withdrawals. In both traditional and Roth self-directed IRAs, you have the opportunity to use the account to make alternative investments in precious metals, private company stocks, promissory notes, real estate, and more.
The biggest difference between a Roth and traditional self-directed IRA is how you’re taxed. Both provide tax breaks to investors, but there are differences with each. Traditional IRA contributions are tax-deductible at both state and federal returns for the year contributions are made. When the income is withdrawn during retirement, those withdrawals are taxed as ordinary income. Self-directed Roth IRA’s, on the other hand, offer no tax breaks for contributions, but earned income inside the Roth as well as withdrawals at retirement are (generally) tax-free.
Why Invest in a Self-Directed Roth IRA?
There are many benefits to choosing a self-directed Roth IRA, but the most significant may be having control over your financial future. With a self-directed retirement account, you can choose which asset classes to invest in, which companies are worth your energy, and when to withdraw your funds and put them to better use.
If you’re in good health at the time of your retirement and want to keep building your account for future generations, a Roth IRA is particularly attractive because you don’t have to make a minimum distribution. Considering both the tax benefits and the opportunities to invest in varied industries and businesses, a Self-Directed Roth IRA makes sense for many investors.
Learn More About Self-Directed Roth IRAs with iPlanGroup
At iPlanGroup, we think your retirement investments should be in your hands. That’s why we help hardworking people like you make the most of your retirement planning. With an iPlanGroup self-directed Roth IRA, you can enjoy the tax benefits of a Roth IRA and have the freedom to hold alternative investments instead of mutual funds.
Want to learn more and find out whether a self-directed Roth IRA is the right option for you? Contact the team at iPlanGroup today for a free consultation.