Roth IRA

A Roth IRA is a type of individual retirement account that allows you to contribute after-tax dollars, meaning you don’t get a tax deduction for contributions like you would a Traditional IRA. The big advantage of the Roth IRA is that the income, gains, and growth in your Roth IRA come out entirely tax-free at age 59 ½. In order get tax-free withdrawals on the earnings, you must have a Roth IRA, any Roth IRA, for at least 5 years before you can take tax-free withdrawals.

More than 24% of U.S. households own Roth IRAs—making it the Nation’s third most popular retirement account behind 401(k)s and Traditional IRAs. At Directed IRA, the Roth IRA is the most popular account type as self-directed investors hope to build a large account with above market returns that they can rely on in retirement without being subject to taxes on distributions in retirement (as occurs with a traditional IRA). 

Can I self-direct my existing Roth IRA?  

Most Roth IRA providers are brokers or banks and limit your investment options to stocks, ETFs, and mutual funds. If you want to invest in an alternative asset like real estate, private funds, or start-ups, you will need to open a self-directed Roth IRA with Directed IRA and then we assist in transferring over your existing Roth IRA funds. There is no penalty or tax to move funds from one Roth IRA custodian to another and you can move the entire balance or a partial amount depending on how much you plan to self-direct in your Roth IRA at Directed IRA. 

Features & Advantages of a Roth IRA 

• Tax-Free Growth & Withdrawals: Investments using Roth funds grow tax-free, meaning all interest, dividends, and capital gains within the account are shielded from taxation. Qualified withdrawals are also tax-free. 
• After-Tax Contributions: Contributions are made with after-tax dollars, meaning you won’t receive an immediate tax deduction. Unlike Traditional IRAs, which offer a tax deduction upon contribution but taxable withdrawals later, Roth IRAs flip the model—pay taxes now, withdraw tax-free later. This can be especially beneficial if you anticipate being in a higher tax bracket in retirement due to wage increases, investments, or other passive income streams.
• No Required Minimum Distributions: The IRS does not impose required minimum distributions (RMDs) on Roth IRAs during the account holder’s lifetime. This flexibility helps retirees avoid forced taxable income, provides better control over their tax bracket, and allows for strategic withdrawals based on personal or family needs.
• Allows Alternative Assets: Your Roth IRA can invest in alternative assets beyond typical Mutual Funds, Stocks, and ETFs (e.g. real estate, private funds, startups, etc.). This process is called “self-directing an IRA” and allows investors to build diversified portfolios within their Roth account.
• Flexible Contributions: Unlike Traditional IRAs that restrict contributions after age 70½, Roth IRAs allow contributions at any age if you have earned income. If you’re working later in life—whether part-time or full-time—you can continue growing your retirement savings.
• Spousal Rollovers & Beneficiaries: A surviving spouse who inherits a Roth IRA can take over the account or merge it with their own, allowing continued contributions and tax-free growth. Non-spouse beneficiaries, like children, cannot contribute or merge the account and must follow required minimum distribution (RMD) rules, either withdrawing within 5 years or over a 10 year window.
• Penalty-Free Early Withdrawals (Education or Medical Costs): While withdrawing earnings before 59½ typically incurs a penalty, there are some exceptions for qualified education expenses, first time home buyer costs, and significant medical bills. Contributions can always be withdrawn at age and without penalty. 
• Roth Conversions: Account holders can convert funds from a Traditional IRA or other traditional retirement accounts into their Roth IRA. You’ll pay taxes on the converted amount in the year of the conversion but can enjoy tax-free growth and withdrawals thereafter. 
• Backdoor Roth IRAs: High-income earners who are ineligible to contribute directly to a Roth IRA can take advantage the Backdoor Roth IRA strategy which allows the conversion of Traditional IRA funds and assets to their Roth account. If you are making annual contributions to a Roth IRA make sure you fall within the income guidelines, which adjust each year, and if your income is over the limits you should consider a Back Door Roth IRA.