One big advantage of a Roth IRA is that qualified distributions are tax free. But, there are a number of other Roth IRA advantages, particularly with a self-directed account. If you are trying to choose between a traditional and a Roth IRA, here are some things to consider.
The yearly amount that you are allowed to contribute to an IRA is the same, no matter which type of account you choose. In 2008, you can contribute up to $5000 or $6000 if you are age 50 or older. With a traditional IRA, if you meet the qualifications, you may be able to deduct the amount you contribute from your regular income and thus avoid paying income taxes on that amount, but when you begin to take disbursements, you will pay income taxes.
Roth contributions are not tax deductible, but as mentioned above, qualified distributions are tax free. Another advantage of the Roth IRA is that profits from investments made with Roth IRA funds are not subject to capital gains taxes. For example, if you had a self-directed account and you chose to invest in real estate, any profits from reselling property would not be subject to taxes, as long as the funds went back into the account.
Another of the Roth IRA advantages has to do with age limitations. Once you reach the age of 70.5, you can no longer make contributions to a traditional IRA. You can continue to make contributions to a Roth for as long as you live.
On the flip side, there are income limitations that apply to the Roth and not to the traditional IRA. You can visit your tax advisor or the official website of the IRS to find out if you meet the income limitations for a Roth.
There is another advantage of a Roth IRA that may apply to you. Some people want the money in their retirement accounts to go to the kids. With a traditional IRA, after they reach the age of 70.5, they are required to begin taking minimum distributions. Roth IRA owners are never required to take distributions. The money can stay in the account for as long as they like.
Because there are Roth IRA advantages and traditional IRA advantages, some people choose to split their contributions between two separate accounts. That might be an option to consider. You could use the traditional IRA for standard investments like stocks and bonds, while using the Roth IRA for investing in things like real estate.
If you would like to take advantage of a Roth IRA for real estate investments, there are a small number of investors that are willing to take you by the hand and show you the way. Because the potential for large returns is high, with the right deals, you could quickly grow your account balance and secure your retirement. It might be worth a try. Just make sure you get the right help.