The Self-Directed Roth IRA is a great way to save for retirement because earnings on your investments are free from federal income tax as long as certain conditions are met. Contributions may be made even after you are 70½, and you are not required to take distributions. A Self-Directed Roth IRA holder may withdraw the principal amounts (your contributions) invested at any time without any tax liability.
In order for the Roth IRA to qualify for the tax free treatment, two conditions must be met:
Starting from the time you first open a Self-Directed Roth IRA, the account must be established for a minimum of five years.
You must be 59 ½ or older.
Example 1: If you open the Self-Directed Roth IRA when you are 58, you will have a fully tax free account when you are 63.
Example 2: If you open the Self-Directed Roth IRA when you are 53, you will not have a fully tax free account until you are 59 ½.
Note: The above rules apply to conversions from a Traditional IRA to a Roth also.