What is a Self-Directed Roth IRA?

A Roth IRA is an individual retirement account that is funded with post-tax dollars. The tax benefit of a Roth IRA is that all earnings, including interest, capital gains, etc, grow tax-free. You pay income taxes on initial contributions, but you can withdraw the earnings tax-free as long as requirements are met.


Important Features of a Roth IRA

Roth IRAs are a great retirement-savings account if you expect your tax rate to be higher in the future. That’s because you pay income tax on your money before contributing it to the Roth, so if your tax rate is lower now, it makes sense to pay taxes now in return for tax-free growth on your investment earnings.

In other words, Roth IRAs are a smart savings tool for young people just starting out, because they’re likely to face higher income tax rates as they move along in their career. But even someone who is further along on the career path may like a Roth IRA, because these accounts provide tax-free income in retirement.

Eligibility Requirements

An individual can open and contribute to a Roth IRA if both of the following requirements are met:

  1. Taxable compensation has been received during the year.                                       
  2. Your modified adjusted gross income (AGI) does not exceed the Roth IRA income limits.

If you and your spouse have received compensation during the year, you can both contribute to your own IRA. However, if you are filing a joint tax return, only one of you is required to have compensation, and you can contribute on behalf of your spouse.



Contribution Limits: The amount that you can contribute to a Roth IRA is based on your modified adjusted gross income (AGI). As of 2010, there is no income limit if you are converting a traditional IRA or an employer-sponsored plan to a Roth IRA.  Income limits only apply to annual contributions. Explore more information about Roth IRA contribution limits.

Distribution Rules: With a roth IRA, you pay income taxes on initial contributions in the year they are made, but you can withdraw the earnings tax-free as long as certain requirements are met. In addition, you can withdraw your direct contributions at any time without penalty, as these funds have already been taxed. You can begin withdrawing earnings at age 59½, but, unlike Traditional IRAs, you are not required to take distributions at any age. More details about the distribution rules

Prohibited transactions:

Is self-directed Roth IRA the right plan for me?

  • Do you want tax-free earnings and no taxation on withdrawals?
  • Do you want the option to continue saving for your retirement beyond age 70½?
  • Do you do want to avoid required distributions?
  • Is your income within the income limits for contributing?
  • Do you expect your tax bracket during retirement to be equal to or higher than your current tax bracket?
  • Do you want to diversify your retirement portfolio with alternative investment options?

If you answered 'yes' to all or most of these questions, a self-directed Roth IRA may be a good choice for you.


Investing in Alternative Investments With Your Self-Directed Roth IRA

Investing in alternative investments like real estate is a popular strategy among clients at The Entrust Group. This is especially true for Self-Directed Roth IRAs - which have the benefit of tax-free distributions. This means any earnings gained from investments like real estate can be accessed 100% tax-free, provided you've met the other requirements for Roth IRAs as well. Learn more about investing in real estate with your Roth IRA. 


Transfer or Rollover your funds to Entrust to get started

If your current Roth IRA does not allow self-direction, you can easily transfer funds to an Entrust self-directed Roth IRA and gain access to a wide range of alternative investments, from real estate and gold to private stock and small business. You may also convert a Traditional IRA or a 401(k) with a former employer to a self-directed Roth IRA.  Contact us today to get started.

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Before making contributions to a Roth IRA, learn the contribution limits that apply:

Click here to view the Roth IRA Contribution Limits