The Roth IRA is one of the most popular plans for individuals who are saving for retirement. Self-directed Roth IRAs are even more powerful because they allow you to invest in alternative assets like real estate, private equity, private lending, and more. Understanding how self-directed Roth accounts work can make a real difference in how you build retirement wealth.
What Is Unique about a Roth IRA?
Self-directed Roth IRAs and typical Roth plans must adhere to the same rules the IRS has for Roth accounts. And each account structure offers these benefits to plan owners:
- Contributions are made with pre-tax dollars and qualified distributions of earnings in the account are tax free in retirement.
- You can continue to make contributions from earned income after the age of 72.
- When you reach 72, you don’t have to take required minimum distributions (RMDs) as you would a with traditional IRA.
- At 59 ½ if you have owned the account 5 or more years, you may take tax-free distributions on your contributions and earnings.
Additionally, you may qualify for tax-free distributions from Roth IRAs before retirement age for a few special reasons including:
- Up to $10,000 withdrawal for first-time home-buyers to help with the purchase
- If you have a disability
- To pay higher education costs for yourself or a dependent
Early withdrawals are not guaranteed as individual situations determine your ability to take funds from your account before the typical timeline and age requirement allows. Consult with your tax professional or financial advisor to ensure your eligibility and for guidance performing these transactions in compliance with IRS rules.
What Is Unique about Self-Directed Roth IRAs?
Typical Roth and other retirement plans housed with mainstream brokers or banks often restrict your investment choices to assets they sell—typically stocks, bonds, and mutual funds.
Self-directed investing accounts must adhere to the same IRS rules that all retirement plans do.
But self-direction allows plan owners to invest in a wide range of investment alternatives to the stock market assets that average retirement plans don’t permit.
Key Benefits of Self-Directed Roth IRAs
- Account owners can use alternative investments to the stock market to build retirement wealth.
- You have the freedom and flexibility to choose your own investments, which puts you in control of your retirement funds and investing decisions.
- You can invest in assets you know and understand.
Although you can still choose traditional investments, a self-directed Roth IRA offers many alternatives allowing you to diversify your retirement portfolio and possibly accrue wealth faster than you might in a traditional retirement plan that’s only invested in Wall Street options.
Alternative investments with self-directed plans include:
- Real estate
- Private mortgages
- Private equity and stock
- Tax liens and certificates
- LLCs and LLPs
- Oil and gas options
- Improved and unimproved land
- Foreign exchange and futures trading
- Precious metals
- Farmland and timberland
- Accounts receivable
- Rights and warrants
- And more…
These are a few investment alternatives available to self-direct a retirement plans. The opportunities for investing are varied and extensive. The idea is to find what you know best and invest. This way, you put your own expertise to work in building wealth for retirement. The only investments prohibited by the IRS are life insurance plans and collectibles as outlined in IRC 4975.
Roth IRA Eligibility Requirements and Contribution Limits for 2022
There are income requirements that determine eligibility for contributing to a Roth IRA.
To contribute the maximum allowable amount to a Roth IRA, you must have taxable income, and your modified adjusted gross income must be less than:
- Married, filing jointly: $204,000
- Married, filing separately: $10,000
- Single or head of household: $129,000
Contributions often change yearly for different retirement accounts. In 2022:
- You can contribute up to $6,000 a year
- You’re allowed to contribute $1,000 extra a year if 50 or older
Open Your Self-Directed Account and Start Investing Today
For people interested in saving for retirement, taking charge of your own investments, and diversifying your portfolio with a wide range of investment options, self-directed Roth IRAs may be an excellent choice for you. But, as with any important financial decision, you need to research your options and feel confident about the choices you make. There are a variety of self-directed plans you can use to build tax-sheltered wealth for retirement, education costs, and health care expenses.
Additionally, it’s important to choose the best self-directed IRA service provider that suits your needs. Not providers allow every alternative asset in their plans.
Why Advanta IRA?
As a leader in self-directed account administration with nearly $2 billion in client assets under management and 20 years in our industry, Advanta IRA delivers expert, professional service—with a personal touch. We handle your account details so you can focus on finding your next investment.
We don’t sell investments or give advice, but we ensure the administration of client accounts is performed in compliance with IRS guidelines. Our clients can invest in every alternative asset that’s allowed in self-directed accounts. And we also offer free educational tools designed to inform and empower individuals who want to invest in alternative assets using self-directed accounts.
If you want to learn more, contact Advanta IRA to schedule a consultation today.
This article was first published in October 2017 and has been updated with current information.