What is a Roth IRA?  

A Roth IRA is an individual retirement savings account that the owner can contribute to with after-tax dollars. Income tax is paid on the initial contribution. This means that all earnings grow at a tax-free rate, and upon retirement, all distributions are withdrawn tax-free.  

With a self-directed Roth IRA, the owner of the IRA can diversify outside of the traditional portfolio of stocks, bonds, and mutual funds. Self-directed account owners can use their saved retirement funds to invest in alternative assets like real estate, private equity, precious metals and so much more.  

What are the Tax Benefits? 

There are a few significant tax benefits to a Roth IRA. First, you are taxed on the contribution of funds. The benefit to that is all funds and any increase will grow at a tax-deferred rate and are withdrawn at a tax-free. Second, you can leave your funds untouched for as long as you desire. With a traditional IRA, you are required to start taking distributions. Lastly, you can take distributions out penalty-free at any time as long as you follow the qualifying reasons listed below under distributions.  

Contribution Limits  

The annual contribution limit is $6,000 for savers under the age of 50 for 2021. But if the account holder is over the age of 50, they can contribute an extra $1,000, $7,000 in total contributions annually. This contribution limit applies across all IRA accounts. So, if the same individual owns multiple IRAs, then the annual limit is spread across all IRAs.   

Add all limits from the contributions page here for Roth accounts but not limits based on MAGI. 

Taking Distributions 

To distribute investment earnings without owing income taxes and a 10% penalty, you will first have to meet specific criteria. Meet one of the following:    

  • IRA holder has completed age 59 ½  
  • Death or disability of the account holder  
  • Or, the account holder is a first-time homebuyer (maximum withdrawal of $10,000)  
  • Lastly, the amount distributed from the IRA must have been in the same account for at least five years  

If you are under the age of 59 ½ and are not following any of the following criteria above then your account is subject to a 10% penalty.  

How Does Accuplan Improve the Roth IRA?  

Accuplan allows you to do more with a Roth IRA. Most retirement accounts, be it a Roth, Traditional, or 401k, rely on stocks and bonds as the investment option. The IRS allows many more asset types than simply stocks and bonds. 

With Accuplan Benefits Services, you can set up a self-directed Roth IRA and invest in tangible assets like real estate or gold or paper assets like private equity or loans. A self-directed retirement account allows you to take control of your retirement account and invest in what you want. With Accuplan, the possibilities are endless. 

To learn about Traditional IRAs Click Here

Frequently Asked Questions

Anyone can set up and make contributions to a Roth IRA if the following eligibility requirements are met:

  • The account owner has received a taxable salary or wage over the calendar year.
  • The modified adjusted gross income of the account holder does not exceed the IRS mandated Roth IRA income limits.

The short answer is it depends. Depending on your MAGI (modified adjusted gross income), you may not be eligible to contribute to a Roth.

If your MAGI is below the limits decided by the IRS and you have earned income in the contribution year, you may put money into both a 401k and Roth IRA. All contribution limits remain the same as mentioned above.

Your MAGI will determine many different benefits that you may receive. Still, for retirement accounts, it determines if you are eligible to contribute to a Roth and if you can deduct your traditional IRA contributions.

To calculate your MAGI, you’ll first calculate your AGI (adjusted gross income). Then you’ll add any deductions back specified by the IRS, which, more times than not, is irrelevant, and you won’t need to add any back. MAGI is always the same or greater than your AGI.

The main difference between the two account types is when taxes are paid. Roth IRA contributions and investments are taxed immediately, and Traditional IRAs delay taxes until taking distributions.

Roth IRA owners pay taxes upon contributing to the IRA but receive no tax break benefits. They do however receive the benefit of paying zero taxes on their IRA funds when retired.

Traditional IRAs are almost exactly the inverse, no taxes are paid while contributing to the IRA, and contributions can be fully or partially tax-deductible. Taxes for Traditional IRAs are then taxed upon retirement when distributions are withdrawn.

There is no right or wrong account type, both provide the account owner different benefits that they can utilize to their extent.