There are a number of advantages that Roth IRAs have over other retirement accounts such ordinary Roth IRAs and 401Ks. These advantages generally fall into the category of catering self motivated and directed and motivated individuals. So if you have this type of general temperament and business approach, this alone may be a reason to try out this type of investment vehicle and retirement account. Let’s take a look at some of the ways that Roth IRAs work well with someone with a self directed and enterprising character.
Large Choice of investment Options
In terms of simple investment options alone Roth IRAs offer many more choices than 401Ks and traditional IRAs. With the latter, the bank or your employer offer you a limited range of investment avenues, while with a Roth IRA you can incorporate stocks, mutual funds, CDs, bonds, real estate, business partnerships, equity, and so on, all at your own prerogative. This puts you, rather than some financial institution or employer, in the driver’s seat.
The well known tax advantages of a Roth IRA tend to work in the favor of independent minded people. Though you can’t make contributions to the account tax deductible, when you withdraw profits from the account they are not subject to capital gains tax. This means that you are encouraged to use the money that you have earned rather than merely wait until it accrues to some predetermined level at a later time. Self directed individuals will appreciate this advantage because it means that they can have access to their money when they determine it is the best time.
Ease of Use
Traditional IRAs require that contributions to the account be reported to the IRS as tax deductions. This means extra time and hassle for the owner of the account. However, with a Roth IRA no such reporting is necessary since the contributions are not tax deductible. This is a quid pro quo type of situation: you give up the right to deduct the contributions from your taxable income for the advantage of being able to withdraw them, in increased form, later on without a capital gains tax. This means there is no extra tax paperwork to take care of and it makes the account easier to use in general. It frees up your time to put your attention on other goals, whether they are to start a business, to take a vacation, to stop smoking, or to take up painting.
There are fewer restrictions on a Roth IRA account than on ordinary IRAs. An example is that you can avoid things like early distribution penalties and minimum distributions, which are the types of restrictions you may find with traditional IRAs. Again, this gives the account holder greater freedom and mobility with their money and this fits well with an independent and self directed approach.
In view of all this, you may want to consider a Roth IRA if you consider yourself an individual who is comfortable with a fairly high level of personal freedom and self generated control as regards your financial decision making.