Two Ways To Maximize Your Roth IRA Returns

by Sean Bryant on March 27, 2017

Maximize Your Roth IRA

By now you have probably already weighed the tax benefits of traditional and Roth IRA retirement accounts and decided what is best for your retirement needs.

You already know that in a Roth IRA you make contributions after your income has been fully taxed. However, when you withdraw from your retirement nest egg, no tax is due on these funds.

You also already know that Roth IRA’s are an invaluable part of a diversified investment portfolio due to the tax benefits.

However, how can you maximize returns so that these types of accounts are the most beneficial and you can take advantage of a sizable tax-free nest egg when you retire?

Unfortunately, due to tax laws, the IRS limits investors to a $6,000 maximum annual contribution (depending on age and marital status) to Roth IRAs. With this limited investment allowance, investors must be well informed in order to maximize the annual rate of return on their accounts. is taking a look at two ways you can maximize your Roth IRA returns.

So How Do I Maximize My Returns?

There are two ways that can help you achieve maximum returns on your Roth IRA.

First, ditch conservative investment strategies and self-manage your account.

Second, decrease the costs associated with purchasing and maintaining your assets.

Also Read: Betterment Review

The more control you have over your Roth IRA and their associated costs, the better they will perform.

Control Your Accounts

Under most mutual funds or pensions, investors have next to no control.

Although workers can typically choose a general category of investments e.g., stocks, bonds, cash etc., choices are limited as money managers have the final say in where your money is being invested.

Allowing other people to make decisions on your financial accounts puts you at risk.

How can you know whether your fund manager is making a viable and subjective decision?

What if a mutual fund is playing it too safe and not taking advantage of changes in the stock or real estate markets?

Leaving financial decisions to others can leave to loss of capital and a long-term decrease in investment returns. A self-managed Roth IRA allows you to diversify and to take more risk in expanding your financial portfolios.

When self-managing your Roth IRA, you can use funds to invest in a variety of assets. You do not need to depend on money managers and large brokerage firms to make decisions for you.

Self-managed Roth IRA funds can be used to invest in businesses, precious metals, real estate and securities. Although there are rules around what you can and cannot invest in, the long-term benefits of further diversifying your investments can be huge.

For example, using Roth IRA funds to provide capital to a start-up business may have far larger financial benefits when compared to conservatively managed accounts. This type of risky investment would not typically occur when your funds are being managed by outside parties.

You may be asking yourself if all the extra work of self-managing your Roth IRA is worth it, and that’s a good question. However, understanding your investments and properly managing the associated risks will prevent the loss of capital and poor investment returns. Even a difference of 1% over the long term can be huge when compounding is figured in.

Also Read: Automated Investing With The Best Robo-Advisors

One point you MUST remember, though: The IRS will be watching your self-managed Roth IRA. Investors can be very creative in the types of assets they can buy with IRA funds and exotic investments such as individual real estate holdings or franchises will require an approved custodian so that the IRS gets reports of transactions and track profits and losses.

For instance, if you purchase real estate in a self-managed IRA, you must not be involved in handling the asset. This means that you cannot manage the property in any way such as maintaining the residence or collecting rent. According to the IRS, a custodian or trustee has to do all of this.

Unfortunately, there are additional costs to using custodians to manage your assets within the Roth IRA. Which leads us nicely to our next point…

Decrease Investment Costs

After you have decided that you want the responsibility of self-managing your Roth IRA you need to look at limiting your brokerage and other transaction fees. As you no longer have to pay a fund manager for your investment accounts, you have already saved in the long-run.

Also Read: 3 Ways Robo-Advisors Reduce The Costs of Investing

Nevertheless, now you need to look at decreasing transaction costs of your purchases e.g., ETFs or bonds. For instance, if you have decided to put funds in normal asset classes such as stocks or bonds, there are popular low-cost trading firms such as E-Trade that offer low-cost trading and professional advice.

These companies can guide you on how to open and maintain accounts and can be cheaper than banks or private brokerage representatives.

Do your research. Avoid brokerage fees or other hidden costs that can use up incremental amounts of your principal and lower your long-term Roth IRA returns.

As we said before, when self-directed IRAs are used for investments such as commodities, metals or real estate, a custodian will be required.

The Custodian – What You Need to Know

A custodian may charge a percentage of your total investment or a commission. Make sure you understand what is included when you contract a custodian and always negotiate.

Custodial costs can be hurtful to long-term returns as they decrease investment capital. Follow these tips to reduce costs:

  1. Shop around for a custodian who handles the kind of investment you plan to pursue.
  2. Make sure you understand all the fees associated with that investment type before you sign a contract. If you plan to invest in real estate, find out how the custodian handles rent collection and property management.
  3. Remember that knowledge is power when it comes to your asset management. What you don’t know will hurt you, so do your homework up front.

Wrapping it up

By self-managing your Roth IRA and control the transaction and custodial costs of these accounts, you can maximize your returns and have a diversified nest egg to look forward to in your retirement.

It may seem like a lot of work, but self-managing and cost cutting are invaluable tools to long-term asset development. By combining self-management with cost reduction methods, you will be well on.

This is a guest post from is a website dedicated to helping folks manage money cleverly – practical advice, reviews and strategies that can help to get the type of wealth you desire.

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Sean Bryant

Sean Bryant created in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and he wife are avid world travelers. He enjoys spending time with his daughter Colette and dog Charlie.

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