A Roth IRA is an individual retirement account that lets you contribute post-tax dollars (income you’ve already paid taxes on) in return for tax-free withdrawals in retirement. Money in your Roth IRA can get invested in a variety of traditional assets, and even alternative assets if you choose to open a self-directed Roth IRA.
Roth IRA investment options
Typically, you can invest your Roth IRA funds in a wide range of traditional assets like individual stocks, mutual funds, bonds, and ETFs. The specific investment options of a Roth IRA entirely depends on what your plan provider offers.
In comparison, a typical 401k plan offered at most companies will only allow you to choose from around a dozen mutual fund selections.
Can I invest in alternative assets with a Roth IRA?
Yes, you can invest in alternative assets with a Roth IRA. However, you’ll need to open a special kind of Roth IRA, the self-directed IRA.
A regular Roth IRA only lets you invest in traditional assets like stocks, mutual funds, bonds, and ETFs. A self-directed IRA opens the door to alternative assets like crypto, real estate, precious metals, and private equity.
Most household-name brokers don’t offer self-directed IRAs. They’re more complex to open and operate, and you’ll generally have to pay higher fees. You’ll need a custodian to administer the account, but you’ll be able to pick and choose the investments you want to hold.
Who can open a Roth IRA?
Anyone with earned income can open a Roth IRA, as long as their income for the year doesn’t exceed the Roth IRA income limits.
Roth IRA income limits for 2022 and 2023
- For 2022, your income must be under $129,000 in order to contribute the maximum amount of $6,000 to a Roth IRA (or $7,000 if you’re over 50 years old). If your income is higher than $129,000 but less than $144,000, you can still make contributions, but your limit gets reduced. If you make over $144,000, you cannot contribute at all.
- For 2023, your income must be under $138,000 in order to contribute the maximum amount of $6,500 to a Roth IRA (or $7,500 if you’re over 50 years old). If your income is higher than $138,000 but less than $153,000, you can still make contributions, but your limit gets reduced. If you make over $153,000, you cannot contribute at all.
How much can I invest in my Roth IRA?
The Roth IRA contribution limit for 2022 is $6,000 ($7,000 if you’re at least 50 years of age). The contribution limit for 2023 is $6,500 ($7,500 if you’re at least 50 years of age).
If your income levels are over the Roth IRA income limits, or if you wish to fund your Roth IRA with more money than the contribution limits allow, you could also look into the mega backdoor Roth IRA.
Will I have to pay taxes on my Roth IRA investments?
A Roth IRA grows in your account tax-free and withdrawals in retirement are also tax-free. Unlike a traditional IRA, you contribute to the account with income you’ve already paid taxes on. You don’t get any tax benefits for the years you contribute, but you can enjoy tax-free withdrawals in retirement.
When can I withdraw from my Roth IRA?
A Roth IRA has several unique withdrawal rules. You can withdraw your contributions made to your account at any age without penalties or taxes. To withdraw any earnings from your account, you’ll have to wait until you’re 59½ years old and your Roth IRA must be at least 5 years old. Any early withdrawals of earnings from your account will be hit with a 10% penalty fee, plus income taxes.