Overall, the benefits of having any type of Roth account (e.g., IRA, 401k) is something for one to consider, especially when investing in non-traditional assets that have true “growth” opportunity. As an example, purchasing a property for $100,000 with the potential of selling the property later at, let’s say $150,000, provides an awesome opportunity to have tax-free growth within your self-directed ROTH IRA.

However, I receive many calls a year from individuals who, after the fact, wish they may not have established a ROTH IRA. You see, you may have met with your CPA and they advised you that you should make ROTH contributions to an IRA OR do a ROTH conversion on a previous pre-tax or traditional IRA or 401K account. They may have advised that paying the tax with the conversion (specifically) is in your better interests….so, what could possibly be a down side to doing this, especially after receiving CPA advice on this matter?

Well….

Current IRS rules do NOT allow ROTH IRA funds to be rolled over into a 401K (self-directed or not) plan EVEN IF the 401K plan allows ROTH contributions to the 401K plan. While this rule may change in the future, it is currently not allowed to rollover ROTH IRA funds into a qualified plan such as a 401K. Therefore, when I have an individual who meets the qualifications to establish and maintain a 401K and wants to partake in the much greater benefits associated with a 401K over an IRA, we have no current option other than establishing a self-directed ROTH IRA. Now, is a self-directed ROTH IRA bad? No, it is just that the benefits of the 401K plan far outweigh those of an IRA….again, if the individual qualifies for the 401K plan. Continue reading →