The Roth IRA Advantage – Tips for Self-Directed IRA Owners

Roth IRAThe Roth IRA, under current law, is a terrific deal – especially for younger investors: You put money in now on an after-tax basis. Your account grows tax-free for as long as you leave the money in there. There’s no income tax, no dividend tax and no capital gains tax on anything left in a Roth IRA for at least five years. And when you take the money out, distributions are tax-free.

Furthermore, Roth IRAs, unlike tax-deferred traditional IRAs, 401(k)s and other tax-deferred investment or savings vehicles, are not subject to required minimum distributions in retirement. That’s great news for self-directed IRA owners who have large, illiquid and indivisible investments within their IRAs or other self-directed retirement accounts.

The Roth IRA, in short, is a terrific home for assets you can hold until retirement age or longer. Here are some advantages – especially for younger investors.

  • Your employer doesn’t control it. The IRA is a personal asset. You own and control your own IRA. Your employer cannot set limits on how you access or use the money. For example, some employers will restrict access to 401(k) funds for in-service workers. Some prohibit in-service withdrawals outright. You have to abide by the plan sponsor’s rules, and those may not be in your interest.
  • IRAs allow you to make penalty-free emergency withdrawals. In the case of a Roth IRA, if you’ve left the money alone in your account for five years, you will owe income taxes only on the investment gain, not on your original contribution (since you already paid taxes on it). You will not owe a penalty if you make the withdrawals for certain emergency expenses:
    • You are deceased
    • You’re disabled
    • You are using the money to fund educational expenses for you or a family member
    • You are a first-time home buyer making a down payment on a house for yourself or a loved one (up to $10,000)
    • You are using the money to pay medical insurance premiums or avoid getting foreclosed on or evicted.
  • There are important advantages to heirs who inherit a Roth IRA as opposed to assets outside of an IRA. For example, your heirs can take advantage of a “stretch IRA” strategy, in which the IRA can continue to grow tax-free throughout the life expectancy of your heir, provided your heir continues to make required withdrawals.
  • You aren’t committed. You can make a contribution this year and skip next year with no penalty.

[tweetthis twitter_handles=”@iraexpert” hidden_hashtags=”#RothIRA”]The Roth IRA, in short, is a terrific home for assets you can hold…[/tweetthis]

Legislative Risk

Roth IRAAt the beginning of this article, we wrote that the Roth IRA is a great deal under current law. But the reality is that the tax benefits of tax-free growth and tax-free withdrawals are all in the future, while you will have already paid tax on dollars you contribute to an IRA this year. In effect, the government has pledged to pay you Tuesday for its hamburger today… but it has no obligation to do so.

What the government giveth, the government can take away. It is possible that Congress will eliminate, limit or means-test the tax benefits of the Roth IRA in the future. However, this is speculation. Under current law, the Roth IRA is a great deal for anyone who wants the tax-free growth available under the Roth IRA banner, and who expects to be in a higher tax bracket when they retire than they are in, currently.

Do you need some help choosing between a Roth IRA and a traditional IRA or other investment vehicle? Call American IRA, LLC at 866-7500-IRA (472). Or visit us at We are among America’s premier administrators of self-directed retirement accounts, and we’re looking forward to hearing from you.





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