Roth IRA

Self-Directed Roth IRA

A Roth IRA is one of the most beneficial retirement plans available. This is especially true if you expect your tax bracket during retirement to be equal to or higher than your current bracket. For example, all contributions are made after tax. The earnings—including interest, dividend income, and capital gains—grow tax free. A self-directed plan offers the same benefits. However, these plan owners choose their own assets and use alternative investments to build retirement wealth.

Funding a self-directed account is easy. You can transfer funds and assets from an existing Roth or traditional IRA and/or make an annual contribution. You can also roll over funds from a 401(k) or pension plan.

Self-Directed Roth IRA Features

  • Tax-deferred earnings, which can be distributed tax free (see requirements below)
  • Contributions can be made at any age as long as you have earned income
  • Required minimum distributions (RMDs) are not mandatory
  • Above all, you can invest in real estate, private equity, gold, Bitcoin, and more



Tax-Free Distributions

Most importantly, perhaps the greatest feature of this plan is that distributions of the contributions are tax free. Additionally, distributions of income generated by this plan are also tax free (and penalty free) as long as you are at least 59 ½ years old and have had the account for at least five years.

However, if you are under the age of 59 ½, there is a 10-percent penalty on most distributions, and the distribution may be included in your income. There are some exceptions to this rule including:

  • The plan is inherited
  • You are disabled
  • You’re a first-time home buyer
  • You pay education expenses for yourself or dependents

Eligibility to Open a Self-Directed Roth IRA

Anyone with earned income can contribute directly to a Roth IRA. But, your modified adjusted gross income for 2019 must be less than:

  • Married individuals filing jointly: $203,000
  • Single or head of household: $137,000
  • Married, filing separate returns: $10,000

Note: You can move existing Roth IRA funds to a self-directed Roth IRA regardless of your income. You can also perform a Roth conversion of other retirement plan funds to bypass the income limitations. (See below.)


Roth Conversions

You can convert funds from an existing traditional IRA, SEP IRA, 401(k), or other tax-deferred account to a Roth IRA regardless of your income. This is possible because conversions are not categorized as contributions. Roth IRA conversions from other plans are a great strategy if you expect your tax liability to be higher in retirement than it is today.

Contribution Limits of a Self-Directed Roth IRA

Roth IRA 2020 2021
Annual Contribution $6,000 $6,000
Catch-Up Contribution (age 50 and older) $1,000 $1,000