Why Real Estate Investors Choose to Use Roth IRAs

Roth IRAs are perhaps one of the most attractive retirement accounts available. Contributions are made after taxation—and the income earned accrues on a tax-free basis. This means that when you reach retirement age, provided that you’ve owned the account for five years or more, distributions made on contributions and earnings are not taxed at the time of withdrawal. AdvantaIRA clients who choose this type of retirement account are betting that the taxation rate will be higher in the future than it is today.

There are a few other unique differences between Roth IRAs and more traditional IRA accounts:

  • Contributions can continue after you reach the age of 70 1/2
  • There are no minimum distribution requirements when you reach the age of 70 1/2
  • When you reach the age of 59 1/2 and have owned the Roth IRA for at least 5 years, you are allowed to take tax-free distributions on the contributions and earnings

Additionally, a Roth account can be self-directed. Investors choose to self-direct IRAs and other savings plans because they gain complete control over their funds and choose their own investments to build wealth towards retirement. The most appealing benefit of self-directed accounts is their ability to hold many alternative investments as assets. While these accounts can still invest in the traditional stock, bond and mutual fund, true diversity in retirement portfolios can be attained from a plethora of alternative investments available for self-directed plans.

Alternative investments include:

  • Real estate
  • Tax liens and certificates
  • Private lending opportunities
  • Precious metals
  • Oil and gas options
  • LLCs, LLPs and trusts
  • Foreign exchange and futures trading

These are only a few of the more popular alternative investments permissible in self-directed accounts—and all of these options and more can be held in a self-directed Roth IRA. In fact, the list of alternative investments is so extensive that the IRS only defines certain things that are not allowed in these accounts: life insurance contracts and collectibles.

Roth IRAs came into being through the Taxpayer Relief Act of 1997. Initially, only those under a certain income level could benefit from owning this type of retirement account. But, due to a change in IRS rules, no income cap now exists for those wishing to convert a traditional IRA to a Roth IRA. Individuals of all ages who earn an income are able to own this kind of plan, and may contribute provided their income does not exceed the set limits.

For the year 2014, you can contribute to a self-directed Roth IRA if you have taxable income and your modified adjusted gross income is less than:

  • Married individuals filing jointly:  $191,000
  • Single or head of household:  $129,000
  • Married, filing separate returns:  $10,000

It is important that you research all elements of any retirement account before making a choice that is right for you. While Roth accounts may be the perfect choice for many investors—they may not be the perfect choice for everyone. There are additional requirements that you should be aware of. More information can be found by visiting our Roth IRA web site page.

 We can help you perform your own due diligence. AdvantaIRA is a self-directed account administrator but we do not sell investments or give advice on what investments you should choose. However, we do offer many free seminars and webinars designed to empower investors of all ages in the realm of choosing self-directed retirement accounts and the alternative investments allowed in these plans. View our event calendar to find a class you would like to attend to learn more about taking control of your own retirement funds. AdvantaIRA events cover many topics, including Roth IRAs.

For information regarding this article, please contact Kevin Collins of AdvantaIRA Trust, LLC by calling (617) 830-1070 or email him at kevin@advantairtrust.com.

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