Who: This post is for people who already contribute to their Roth IRA (and know that it kicks some ass) regularly and want to make the most of their investment returns.
What: Everyone knows that the Roth IRA is totally sweet. This post will discuss how to maximize the benefit that you get from your Roth IRA.

So, most folks that are financially savvy contribute to a Roth IRA if they are eligible to do so. For most, it is a no-brainer. However, a lot of people stop right and and fail to maximize the benefit that they receive from their Roth IRA contributions. Today, I’ll list a few tips to make the most of your Roth IRA contributions and avoid costly mistakes.

1. Don’t wait to contribute! Many people wait until April (the deadline) to contribute to their Roth IRA for the previous year. This is a huge mistake since you are effectively giving up almost a year and a half of TAX FREE compounding. Make the contribution to your Roth IRA in January, if you can afford to do so. It is important to note that this may not be possible if you don’t know much about your finances for the upcoming year. For example, you may want to hold off on investing if you think you’ll need your Roth IRA contributions before the end of the year or if you think you will not qualify to contribute to a Roth IRA.

2. Use the Roth IRA for tax inefficient vehicles. I know many people who have index funds in their Roth IRA. Don’t get me wrong, I love index funds, but for most people, they are better investment choices for accounts that are NOT tax advantages. Index funds have a low turnover rate, and as such usually have fewer short term capital gains that are taxed. Funds that make distributions in a Roth IRA do NOT have those distributions taxed! As such, it is advantageous to put bonds, high turnover funds, and other tax inefficient investments in a Roth IRA.

3. Minimize Fees! There are plenty of IRA custodians that will hold your IRA funds without charging monthly maintenance fees. Your contributions to a Roth IRA are limited, so you don’t want to waste those limited funds on various fees. In addition to maintenance fees, excessive commission-based trading in Roth IRA’s will also decrease the capital you have in your Roth IRA to grow tax free. Protect your IRA Capital from fees!

4. Do not withdraw contributions! Everyone knows that a fantastic benefit of the Roth IRA is that you can withdraw your contributions at any time without taxation or penalties. While this is a nice feature to have in the case of dire emergencies, it is very, very, very strongly recommended that you do not withdraw your contributions from your Roth IRA unless you will replace them in less than 60 days OR unless it is an absolute emergency. If you do not replace the money that you have taken out in 60 days, you cannot ever put it back without having the replacement count towards your contribution. If you’re young and have a significant amount of money in your Roth IRA, do not waste the potential for huge, tax free compounding by taking out a large chunk of money. Please. Do it for me, AND for you.

Do you have any other cool tips that you’d give to the Roth IRA crowd?

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