Self-Directed Roth IRA FAQs

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In this segment, learn about self-directed Roth IRAs and get answers to some of the most frequently asked questions.

1. What is a self-directed Roth IRA?

Well, this is pretty simple. A self-directed Roth IRA is really no different than a Roth IRA with any other financial institution.

2. When we say, "self-directed," that's merely an industry term. It indicates to you that you can self-direct your own Roth IRA into really any asset class that you see fit for your retirement plan. That could be stocks, bonds, mutual funds.

That could be, in the case of many of our Equity Trust clients, real estate, buying rental properties, flipping houses, making loans secured by real estate, investing in venture capital or small business startups, investing in precious metals, cryptocurrencies and a wide array of other alternative investments.

3. Who can set up a self-directed Roth IRA?

Well, this is one of the great things that every American, assuming that they are eligible, can have a Roth IRA. It could be folks that are in way past their retirement years could have a Roth IRA.

What are the eligibility requirements? Well, with a Roth IRA, you have to have earned income & you have to make sure that you don't make too much money- MAGI limits.

You can check with your CPA or accountant to determine if you make too much money to do a direct contribution to a Roth IRA. Again, these are modified adjusted gross income limits.

There is a little-known tactic used called a backdoor Roth IRA. Check with your CPA or tax accountant or tax attorney to verify that you can do this, but you could potentially contribute to a traditional IRA and then convert the funds over to a Roth IRA.

4. How much can be contributed to a Roth IRA?

The contribution limits are as follows. When under the age of 50, in the tax year 2019, you can contribute up to $6,000. When you're 50 and over, you can contribute up to $7,000. They call that a $1,000 catch-up provision when you're 50 and over. And you can contribute all the way up into your later, later years, providing that you have earned income.

Another great thing about the Roth IRA is there are no required minimum distributions for the account holder, so with the Roth IRA, there are no RMDs. You're not forced to take money out of the account.

Keep in mind that with these contributions, earnings within the plan can be unlimited.

5. Are Roth IRA contributions tax-deductible?

No. Now, you might look at that and say, "Well, I'm not really sure that I want a Roth IRA if I don't get a tax deduction. I'm used to getting tax deductions when I make contributions to IRAs."

When you put money in, it's after tax. You don't get a tax deduction, but it grows tax-free through all of your earnings, and then when you take the money out after 59-1/2, providing that you've seasoned the account for five years, it's all tax-free earnings. It's all tax-free money coming out of the Roth IRA.

6. What are some advantages of a self-directed Roth IRA?

A self-directed Roth IRA with Equity Trust gives you different options. Although we don't sell or solicit investments or show you where to invest or how to invest, you can leverage your own knowledge.

So, if you have an expertise with flipping real estate, or buying rentals, or partnering with other investors through real estate joint ventures, or venture capital, or small business startups, precious metals, whatever it is, you can do this with a self-directed Roth IRA, providing that you follow the rules.

Then the second advantage would be what we already sort of talked about - the tax nature associated with the self-directed Roth IRA. It grows tax-free and distributions are tax-free.

I have two clients here at Equity Trust Company, a husband and wife, and they have 13 rental properties in their Roth IRAs, 2 Roth IRAs, 6 rentals in one Roth IRA, 7 rentals in the other Roth IRA. Husband and wife, they're generating over $110,000 in net, tax-free income, every single year, in their Roth IRAs. And because it's a Roth IRA and they're over 59-1/2, the great thing is is that $110,000 can be distributed and it never hits their 1040 as ordinary income taxes. It's tax-free cash flow.

7. How do I open a self-directed Roth IRA?

Here at Equity Trust Company, go to our website and start the application process. Or, you can call and speak to one of our representatives and they can help you establish and fund this self-directed Roth IRA.

Maybe you have a Roth IRA with another financial institution you want to transfer over into the self-directed Roth with Equity Trust, you can do that. Maybe you have funds from a Roth 401k you want to roll over into the Roth IRA, or maybe you just want to make a one-time contribution.

Видео Self-Directed Roth IRA FAQs канала Equity Trust Company