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There are many benefits to establishing a self-directed Roth IRA in order to save money for retirement, including tax-advantaged treatment of funds and access to a wide range of investing options.
Before you take the steps needed to set up one of these self-directed, tax-advantaged savings accounts, you need to make sure you are eligible. To contribute to a Roth IRA, you must earn taxable compensation for the year. If you are making money, chances are you will be eligible to contribute some of it to a Roth IRA.
In addition, your contribution eligibility will be determined by your modified adjusted gross income (AGI). Depending on the amount earned throughout the year, you will be able to make the maximum contribution, a partial contribution, or nothing.
If you are married, your eligibility to contribute is determined by your filing status and income earned during the plan year in question.
If you and your spouse files jointly, only one of you needs to generate compensation or earned income for that year in order to establish eligibility. In this scenario, the amount of your contribution will be determined by the amount of your compensation. If you both generated income during the year, it’s even better.
Self-directed Roth IRAs provide users with a diverse array of investing options, as well as unique tax advantages. What differentiates a Roth from other self-directed, tax-advantaged savings accounts is that contributions are post-tax and the distribution of the earnings may be nontaxable if certain criteria is met. A traditional IRA involves pre-tax contributions, meaning distributions will generate tax liability.
Essentially, contributing to a Roth IRA means paying taxes now instead of paying taxes later. The Center on Budget and Policy Priorities revealed data concluding that in 2011 the total taxes many Americans paid were at all-time lows, or very close to them. If these rates increase in the future, account owners can gain tax advantages by opting to use Roth IRAs instead of traditional IRAs.
A self-directed IRA, such as a self-directed Roth IRA, also allows for greater investment options. By opting for self-direction, you will gain access to a range of alternative investment options that aren’t traditionally available to account owners. These options include commercial and residential real estate, precious metals, notes, oil, and more.
If you think you could benefit from the wide range of investing options and tax advantages offered by self-directed Roth IRAs, please call us today.