High-Net-Worth Individuals Can Include Roth IRAs in their Retirement Planning

Published on July 8, 2014

Because of the income limits placed on Roth IRAs, higher-income individuals typically do not consider including a Roth IRA in their retirement planning. They may be prevented from contributing to a Roth IRA because they make too much money.

However, there are ways to include a Roth IRA in your portfolio, even if your individual or household income thresholds exceed the proscribed limits. Some high-net-worth individuals who wish to fund a self-directed Roth IRA are starting with a Traditional IRA and converting that into a Roth.

With some planning, high-tax-bracket investors can still enjoy the tax advantages of a Roth IRA—and even greater advantages of directing their own investments if they are comfortable doing so with a self-directed Roth IRA. One way to do this is to open a Traditional IRA and make the maximum allowed contributions to that account ($5500 or, if you are 50 or older, $6500); then convert the Traditional IRA into a Roth IRA. You can repeat this process every year and grow the Roth IRA.

There are tax implications around the Roth conversion but there will be tax-free distributions on the other end during retirement. Depending on the amount of assets held in the Traditional IRA, whether or not you plan to take distributions, and how much you are converting now or taking later will affect your tax burden.

Income limits regarding Roth IRAs
In 2014, the ability to contribute to a Roth IRA starts to phase out for married couples with combined income over $181,000 or single investors with an income over $114,000. The ability to contribute is completely blocked for married investors who earn over $191,000 and individuals who earn over $129,000.

Roth IRAs offer some tax advantages. Unlike a Traditional IRA, account holders do not have to begin taking required minimum distributions (RMDs) at age 70½. Therefore, wealthier investors who do not need those funds during their retirement years can do some estate planning around the Roth IRA. And if it is a self-directed Roth, investors can build a more diverse retirement portfolio by including alternative assets such as real estate, commodities, precious metals, private placements and much more.

Depending on your particular tax and financial situation, you may be able to leave the entire balance, and the account’s tax benefits, to your heirs. However, as with all self-directed IRAs, certain restrictions apply regarding disqualified individuals and prohibited transactions, so don’t hesitate to call one of our professionals to ask your questions about self-directed retirement accounts.
We recommend as with all investing that you consult your tax professional about this strategy, and whether or not it makes sense for you and your family. If you have any questions about self-directed IRAs or the types of nontraditional investments allowed in these accounts, contact Next Generation Trust Services at (888) 857-8058 or Info@NextGenerationTrust.com. To open a new account, everything you need is at https://www.nextgenerationtrust.com/open-an-account/