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Self-Directed Roth IRA – Is it Right for You?

self-directed Roth IRA Pros
5 Minute Read

A Self-Directed Roth IRA is a specialized IRA that allows for alternative investments. The Self-Directed Roth IRA can be broken down into two parts: “Self-Directed” and “Roth”. Here, we will break down each part in detail. We’ll also share the pros and cons of the plan so you can decide if it’s right for you.


“Self-Directed” means exactly what it implies. YOU are in control of your retirement account. You decide what you want to invest in and when you want to buy and sell your investments. Typically, retirement accounts, such as IRAs and 401(k) plans, invest in a pre-determined group of assets. These are generally limited to stocks, bonds and mutual funds. As a result, you have very little freedom in deciding on investments.

However, if your IRA custodian offers self-directed retirement plans, a whole world of investment opportunities will open up to you.

First things first, you need to find an appropriate custodian for your Roth IRA. The IRS does not describe what you can invest in, however, each custodian has different rules about allowable investments. Not all IRA custodians are the same and certainly not all of them allow for alternate investments.

So, if you want to invest in real estate, make sure the custodian you choose allows for it.

Another consideration is whether or not you need approval from your custodian to make an investment. This is known as “custodial consent”. Depending on what you want to invest in, this may not be an issue for you. However, if you’re looking to make time-sensitive investments, you can’t wait days or even weeks for consent. If this is the case, you need“ checkbook control” of your IRA.

Checkbook control allows you full freedom to make any investment at your leisure. No need to wait for your custodian to give you the go ahead. Just write a check, use a debit card or wire transfer to make your investment.


Now that you know how to self-direct your account, let’s talk about a Roth IRA. Roth is named after Senator William Roth of Delaware. He believed there must be a better way for Americans to save for retirement, rather than spending their money haphazardly.

What separates a Roth from a traditional IRA is how you contribute (and distribute) from the plan. You fund a traditional IRA with pre-tax money. You get a tax-break on the amount you contribute, and taxes are deferred until you take distributions during retirement.

On the other hand, you fund Roth IRAs with after-tax money. While you don’t get an upfront tax break, all distributions during retirement are tax-free.

Senator Roth had a vision to help millions of Americans save for retirement, while also getting the government their share faster. You already pay taxes when you receive a paycheck. You can then budget a set amount from each check that will go into your Roth IRA. Hopefully, your investments will do really well and when it comes time to retire, you won’t owe a single penny in taxes!

Keep in mind, there are two conditions you must meet:

  1. You must be at least age 59 ½ to take a distribution
  2. Your Roth must be open for at least five years

Pros and Cons of the Self-Directed Roth IRA

Regarding the “self-directed” part of the plan, generally there are two cons to consider. Depending on what investments you plan to make, there may be fees that don’t come with a regular IRA. Secondly, there’s always the risk of fraud when self-directing your retirement plan. However, if you do your homework, you’ll find the perfect custodian, such as IRA Financial Trust.

Therefore, there is really no downside to self-directing your retirement account. Of course, there are risks pertaining to alternative investments, such as real estate and cryptocurrencies. But, aren’t the stock markets filled with risk, too?

Let’s focus on the pros and cons of the Roth IRA:


  • Tax-Free Growth – Your investments grow tax-free. Never pay taxes on any qualified Roth IRA withdrawals!
  • No Penalty for Contribution Withdrawals – You can withdraw your Roth IRA contributions at anytime, without penalty. Since fund the plan with after-tax money, you can withdraw it at any time and for any reason.
  • No RMDs – All traditional plans are subject to required minimum distributions (RMDs). Once you reach age 70 ½, you must begin withdrawing funds from a traditional IRA or 401(k). Because you have already paid your taxes, there is no requirement to withdraw from a Roth.
  • No Age Limit – Once you hit that magical age of 70 ½, you can no longer contribute to a traditional IRA. However, there are no age limits for Roth IRA contributions. You may continue to fund a Roth as long as you have earned income for any given year.
  • Estate Planning – Because there are no RMDs, a Roth makes for a great estate planning tool. Your plan will continue to grow unencumbered. This allows you to pass the entire account to your beneficiaries.
  • Diversification – It’s important that your retirement portfolio is properly diversified. Diversification with the types of assets within the account, and the tax treatment. A Roth IRA may be best in conjunction with a traditional workplace 401(k). No one knows what will happen with our tax system. Therefore, it’s wise to have a tax-free account in addition to a tax-deferred account.


  • Low Contribution Limits – IRA limits are the same no matter if it’s a Roth or traditional plan. You may contribute up to $6,000 ($7,000 if you are age 50+) for 2019. On the other hand, 401(k) plans offer more than triple the IRA contribution limit.
  • No Immediate Tax Break – The caveat to receiving tax-free withdrawals is not getting an upfront tax break on your contributions. The tax break you receive right away might steer you towards a traditional plan.
  • Income Restrictions – Not everyone can contribute to a Roth IRA. If you make too much money ($122,000 for single filers in 2019), you may not contribute directly to a Roth. You may, however, rollover traditional funds to a Roth. You can do this no matter what your income.

Is a Self-Directed Roth IRA Right for You?

Now that you have the basics down, you can decide if a Self-Directed Roth IRA is for you. If you want to invest in alternative assets, you must self-direct your retirement plan. The next step is considering whether you want to pay taxes now or wait until retirement.

Here are two other things to consider:

  1. Your age. The younger you are, the more time you have for your investments to grow tax-free.
  2. Your tax situation. If you are in a high tax bracket, the potential tax-break of a traditional plan may be more appealing. If not, paying taxes now may be your best bet.

In the end, it doesn’t matter which retirement plan you choose. The most important thing is choosing to save for your future. A Self-Directed Roth IRA is an excellent choice to both diversify your savings and have the ability to invest in anything you like.

Get in Touch

If you still have questions about the Roth IRA, or self-directed Roth IRA, contact IRA Financial Group directly at 800-472-0646. We’ll be happy to answer any questions to have about the differences between after-tax vs. pre-tax contributions, traditional vs. Roth and the benefits of self-directing your retirement account. You can also fill out the contact form to speak directly with an IRA specialist today.

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