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" which means that 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. 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 tax and without affecting the IRA holder's personal taxes.
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. Unlike a Traditional IRA, with a Roth IRA, contributions may be made even after you are 70½, and you are not required to take distributions at any age.
You are allowed to convert any amount of funds from a Traditional IRA to a Roth IRA but it 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 on Roth IRAs or self-directed IRAs, visit www.newdirectionira.com.
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