Understanding How Self-Directed Roth IRAs Work

Of the many avenues one can choose to save for retirement, the Roth IRA is one of the most popular retirement savings plans for today’s investors. Contributions to a Roth IRA are made after taxes, and the income you earn is tax-free. Roth IRAs can also be self-directed, allowing you to invest in alternative assets like real estate and private equity. Understanding how self-directed Roth IRAs work can make a real difference in the way you save for retirement.

Investing with a Roth IRA can help you save on your taxesThese benefits make Roth IRAs an attractive choice for those hoping to increase their retirement savings. Assuming the tax rate of tomorrow will be higher than today, investors choosing this plan prefer to pay the tax now rather than at a higher rate later.

What is unique about a Roth IRA?

  • You can continue to make contributions after the age of 70 ½.
  • When you reach 70 ½, there are no minimum distribution requirements.
  • 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 before retirement age for a few special reasons. First-time homebuyers can potentially take out up to $10,000 to help with the purchase. If you are disabled you may qualify for tax-free distributions, and also if you are paying higher education costs for yourself or a dependent. These 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?

Traditional Roth IRAs housed with mainstream brokers or banks often restrict your investment choices to assets they sell—typically stocks, bonds, and mutual funds. But, what if you had access to almost endless investing options and you were able choose your own investments? With self-directed Roth IRAs, you can.

Self-directed investing accounts offer plan owners a much wider range of investment possibilities than an average retirement plan.

You get the freedom and flexibility to choose your own investments, putting you in control of building critical wealth for your future. You can invest in assets you know and understand beyond the traditional methods. 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 a self-directed IRA plan include:

  • Real estate
  • Private notes and 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 of the alternative assets available when you self-direct a retirement plan. 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 stated in IRC 4975.

Only those earning below a certain income level were eligible for this beneficial retirement plan. But, anyone at any income level can convert a traditional IRA to a Roth IRA account. Investors of all ages and income levels can own and contribute to a Roth account if their income is not greater than the set limits allow.

You must have taxable income, and your modified adjusted gross income must be less than:

  • Married, filing jointly: $194,000
  • Married, filing separately: $10,000
  • Single or head of household: $133,000

There’s never a better time to start saving for your retirement than right now. Self-directed Roth IRAs with Advanta IRA put account owners right in the driver’s seat and allows the possibility of greater wealth accumulation than ordinary investment plans often allow.

If you are interested in saving for retirement, taking charge of your own investments, and diversifying your portfolio with a wide range of investment options, a self-directed Roth IRA 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. Always consult a professional when making important financial decisions such as choosing a retirement savings plan.

Why Advanta IRA?

Advanta IRA does not sell investments or give investment advice. We do provide critical administrative service to ensure the finer details of your self-directed accounts are in compliance with the IRS. As leaders in our industry, our team comes to know each client on a personal level, which ensures unsurpassed professional service. We also offer powerful educational events designed to teach individuals about self-directed plans and alternative assets. We are so passionate about the possibilities self-direction offers that we provide this education for free. Our team is happy to help and answer any questions during these courses to further your own knowledge. Visit our event calendar to register for a seminar or webinar today. 

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.