In 1971, an army veteran from Delaware named William Victor Roth began his near-30 year tenure in the United States Senate. He sought to build upon his brief stint in the House of Representatives by tenaciously pursing tax cuts for the American people. 26 years after his first election, Senator Roth fathered one of the finest achievements in tax reform. As part of the Tax Payer Relief Act of 1997, a new retirement savings vehicle was implemented in accordance with the senator’s vision. Over 20 years later, the Roth IRA continues to provide investors with unparalleled retirement opportunities over the totality of their lives.
Roth IRAs hold hundreds of billions of dollars in cash and assets today. That figure will assuredly climb as investors continue to adopt the unique advantages provided by Senator Roth’s signature brainchild. These accounts don’t allow for tax-deductible contributions the way Traditional IRAs do, but distributions from a Roth IRA may not be taxable if certain conditions are met. The plan holder must be 59 ½ years old and any earnings must remain in the plan for a minimum of five years prior to qualified distribution. Roth contributions may be distributed tax-free anytime since they bear no tax-deferred benefit in the first place. In another departure from pre-tax plans, Roth IRA holders will never have to take required minimum distributions, meaning they can enjoy the continued tax-free growth of their IRA-owned assets.
The Tax Payer Relief Act of 1997 also expanded the parameters for IRA-eligible precious metals. Per Section 304, gold, silver, platinum, and palladium items that meet their respective purity minimums (as well as American Eagle coins minted from the same metals) may be owned by individual retirement plans. This allows individuals to supplement their non-retirement precious metals investments by adding their chosen items to self-directed IRAs.
In addition to precious metals, any alternative investment options permitted by the Internal Revenue Code may be held in a Roth IRA. If you’ve already established a successful Traditional IRA and would like to enjoy the perks of a Roth, you may execute a Roth conversion to apply a post-tax status to your existing portfolio. There is no Roth conversion deadline; a conversion will be included in a given year's activities if completed on or prior to December 31 of said year.
There are currently no limits on the number or amount of Roth conversions an investor may initiate, so any number of Traditional IRAs may be combined into a single Roth IRA if so desired. The same Roth distribution rules apply for converted holdings. Any converted cash and assets may not be withdrawn tax-free until five years after the transaction and only once the plan holder reaches age 59 ½. However, once that period passes, you may execute distributions as if your plan was a Roth IRA all along.