Self-Directed Roth IRA and the Forex Market

Tax planning is an essential element of sound retirement planning.  In the United States, the government has created several vehicles of wealth that help people accumulate wealth and retirement savings at discounted tax rates.  The most common is the 401k retirement account.

In a 401k account, a person is able to contribute pre-tax dollars to a retirement account.  This money then grows tax-free for until the person reaches retirement and begins drawing money out of the account, at which time taxes are applied to the distributions.  Thousands of employers in the United States make these 401k retirement accounts available to their employees, and this is the most common method of retirement planning for most Americans.

The Roth IRA is similar to the 401k in that it offers Americans a tax shelter to grow retirement investments, but it is structured much differently.  While an investor contributes pre-tax dollars to a 401k each year, he actually contributes after-tax dollars to a Roth IRA.  So where is the tax shelter?  Well, once the money is invested in the Roth IRA, the money grows tax-free for life.  When a person reaches retirement age and begins drawing money out of the Roth IRA, he will pay no taxes on that money.  This is an incredibly powerful tax shelter.

The regulatory laws surrounding Roth IRA’s tend to change consistently, so a certified financial advisor should be consulted in order to determine the most recent regulations.  However, let’s break down a typical example.  Let’s assume that you open a Roth IRA and contribute $2,000 of after-tax money per year for 20 years.  That means your account will have $40,000 of capital contributions in it after 20 years.  Now, let’s also assume that you earn an average return of 10% each year for 20 years while your money is in the account.  At the end of the 20 year period, your total capital contribution of $40,000 will have grown to $140,000.  Not bad!

Forex Roth IRA

Many forex brokers in the United States will allow traders to manage self-directed Roth IRA’s.  This means that a person could fund a Roth IRA and trade currencies in the forex market.  If you trade currencies, and you are looking for additional tax shelter, this could be a viable way to do that.

A person can check out forex broker ratings online in order to find brokers that offer Roth IRA trading.

As stated, profits will compound tax-free in a Roth IRA, and a person can withdrawal money tax-free when the reach retirement age.  Retirement age is defined as 59 ½ years old.  Therefore, if the Roth IRA is at least 5 years old and the account holder is 59 ½, then they are able to withdrawal money from the account tax-free.

In a traditional 401k account, retirees are required to begin withdrawing a minimum amount of money at age 70, while there are no similar restrictions with a Roth IRA.  The restrictions that pertain to a Roth IRA relate to how much a person makes in a year.  If a person makes over a specific amount in a year, then they are not eligible to contribute capital to a Roth IRA.  As stated, these regulations change regularly; therefore, a tax advisor should be consulted in order to determine current regulatory requirements. Also, trading foreign exchange on margin carries a high level of risk. Before deciding to invest in foreign exchange you should carefully consider your investment objectives and risk profile.