Roth IRAs--passed into law in 1997--are a very popular way to save for retirement because investment earnings are tax free.
With a Roth IRA, cash is contributed post tax, meaning the contribution (the amount you delegate out of your salary to put into the account each year) is made with taxable earnings for that year. A Roth account holder can continue to make contributions throughout his or her life. This cash then buys assets (stocks, real estate, gold, etc.) on a tax-advantaged basis. In other words, assets can be bought, sold, or traded within the IRA without incurring capital gains or income taxes and without affecting the IRA holder's personal tax return.
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Roth IRA holders may also withdraw the amount they contributed at any time without penalty or tax liability. When you reach 59.5 years of age, you can begin to withdraw from the account (take a distribution) without penalty and without taxes as long as the account has been open for five years. You are also allowed to convert Traditional IRA assets to a Roth status, but the conversion value will be taxed. The amount converted in a given tax year is added to your ordinary income for that year.
Given the unique tax benefits, Roth IRAs are a powerful tool to save for retirement to begin with. But you can maximize your Roth IRA further by self-directing your IRA and investing in alternative assets like real estate, precious metals, private equity, and more.
Self directed IRAs are becoming popular in their own right and allow you to invest in assets you know and trust. For more information about a self-directed Roth IRA, please feel free to call New Direction Trust Company at 877-742-1270 or send us a message through your client portal at portal.ndtco.com.