Only 8% of eligible taxpayers chose to contribute to an IRA of any type. Why are investors flocking to Roth IRAs? There are several reasons. People love the idea that the money they deposit in a Roth IRA is already taxed, since the contributions are after-tax contributions, giving them enormous retirement freedom. However, when it comes to self-directed Roth IRAs, there is more than one useful piece of information that can help investors understand how powerful these accounts can be as investment vehicles for retirement.
Let's look at some of the key statistics that investors need to know. Are Roth IRAs a unique feature of the tax system, exploited by a few? According to statistics, no. Statistics show that they are one of the most popular retirement accounts, with 19% of American households with a traditional IRA or a Roth IRA accounting for 42.4 million. In any case, investors should be surprised that these numbers are so low, especially considering the advantages of the Roth IRA.
Statistics show that Roth IRAs are popular, but not as popular as perhaps they should be. This may be because investors often use employer-sponsored plans, such as a 401 (k) plan, to invest. And for that reason, the number of people who own a Roth IRA demonstrates the fact that many investors could be using retirement accounts to their advantage and are sometimes unwilling to do so. And with the advantages of self-directed Roth IRAs, we hope the numbers indicate that very few Americans are aware of these options.
The success of the Roth IRA during these years also points to more people opening Roth IRA accounts, suggesting that people are starting to realize it. The minority of retired investors maxed out their Roth IRA contributions. Roth is harder to reach the maximum because it uses money after taxes, while contributions to other accounts may be tax-deductible. For this reason, it's important for self-directed investors in a Roth IRA to understand what they can bring and create a plan.
A self-directed Roth IRA has all the advantages of a Roth IRA, but self-management means that investors can open up to all types of investment options, including real estate, precious metals, and more. A self-directed IRA doesn't have to be complex. At American IRA, we pride ourselves on making the process of creating an IRA easy and worry-free for our customers. Schedule a free 15-minute call with our friendly staff and we'll guide you through everything you need to know, without obligation.
Our essential guide to self-directed IRAs is an excellent resource whether you're a first-time investment or you're looking for greater diversification for your traditional IRA, Roth IRA, SEP, Solo 401 (k), SIMPLE, health savings account or Coverdell education account. Of course, a low-cost asset held in a Roth IRA won't necessarily perform better, but if it does, the investor has more potential for improvement than if the same asset were held in a traditional IRA. Based on the three different scenarios proposed by the authors, people with high incomes achieved absolute returns on their Roth IRA portfolios that were at least double those achieved by high-income individuals in traditional IRAs. That said, according to the authors, people with higher incomes seem to intentionally invest assets that are likely to generate higher returns in Roth IRAs rather than traditional IRAs.