If you’ve heard the term “Roth IRA,” then you definitely aren’t the first. The Roth IRA has become one of the most popular ways to invest for retirement, and it’s constantly touted on the financial radio shows and advice columns as a great way to build a nest egg. But if you’re interested in a Self-Directed IRA, does that preclude you from using a Roth IRA? How does it all work?
You’ll be glad to know that if you’re interested in both a Self-Directed IRA and a Roth IRA, you can have them both in the form of a Self-Directed Roth IRA. This kind of retirement account affords you plenty of benefits as well as flexibility for building your retirement future–as long as you know how to use it properly. Let’s take a look at some of the benefits and advantages to using a retirement account of this type–as well as how to get the most out of them:
Yes, a Self-Directed IRA Can Be a Roth IRA
Some people, particularly new investors, hear a term like “Self-Directed IRA” and assume that it’s a completely different type of account. But really, a Roth IRA can be a self-directed account. This is vital to understand if you want to realize the benefits of the Roth IRA while also choosing your own financial destiny–you’d be surprised at how many people don’t realize that you can accomplish both things at once.
But what exactly are those Roth IRA benefits we’re talking about? Here are a few:
Tax Benefits with the Roth IRA
The most obvious advantages to a Roth IRA are the tax benefits. Your investments within a Roth IRA can be exempt from income tax as long as the proper requirements are met–and the requirements aren’t quite as stingy as you might think.
For example, in order for your Roth IRA tax benefits to kick in, you have to hold it for only five years (assuming you’re already 59 years or older, as these are retirement accounts we’re talking about). This means you can make an investment when you’re 60, you can then withdraw money from a Roth IRA without penalties at age 65. (If, however, you are still younger than 59 when those five years have passed, you’ll still have to wait until you reach retirement age).
In a Self-Directed Roth IRA, you can continue making contributions even beyond the age of 70, which is an advantage if you’re taking advantage of this type of account at retirement age. These benefits don’t only help young people save more money that they can then use in retirement age after a long period has passed, but they help an older generation who will need access to their retirement money sooner rather than later.
It’s important to understand that a Roth IRA is not a license to do whatever you want with investments. There are limits, for example, to the amount of contributions you can make to a Roth IRA every single year. There are also limits about when you can take out withdrawals, as mentioned here. Be sure to remember those limits in this kind of Self-Directed IRA, as you’ll find that knowing those limits helps you to best take advantage of your account in the way that optimizes your portfolio.
If you want to learn about specific account types when using a Self-Directed IRA, be sure to keep reading AmericanIRA.com. You can also get in touch with us at 1-866-7500-IRA(472) to learn more.