Via Ken Teegardin & stevepb
So, you’ve decided to go with a Roth IRA account, which means you’re probably aware of its advantages and disadvantages. You’ll pay income tax on your Roth IRA contributions before you put them into the account, which means that you won’t be contributing as much, but you also won’t need to worry about paying taxes when you’re withdrawing money for your retirement.
While a Roth IRA is a valuable addition to your portfolio, tax laws mean that you can only contribute up to $5,500 to your account every year. That low maximum makes it even more important that you get the best return on your account every year, and there are two ways to do so:
- Self-management of your account
- Reducing the amount you pay to maintain assets
When you have greater control over your Roth IRA, you have the potential for a far greater return.
Taking Control of Your Accounts
Here’s the problem with most pensions and mutual funds – you have little, if any control of your investments. You can pick the general categories that you invest in, and how much of your account you allot to each category. Maybe you put the majority of your money in stocks, with smaller amounts in bonds and cash. However, it’s your money manager who is really deciding where to invest.
How much can you trust your money manager to get you the best return? For all you know, your mutual fund could be taking an excessively conservative approach at a time when there’s money to be made in stocks or real estate. Over time, allowing another person to handle your financial decisions can result in a decrease in your returns. With a Roth IRA that you manage yourself, you can choose more diverse investments and go for higher risk and reward ventures.
You can invest funds from a self-managed Roth IRA in a wide range of areas, such as precious metals, securities, businesses and much more. Instead of getting a small annual return on an established corporation, you can help a startup get off the ground and reap much bigger financial benefits.
There are regulations in place regarding where you’re able to invest your funds. And it does require more time on your part to self-manage a Roth IRA. But it can also lead to better returns, and even a one or two percent difference makes a significant long-term difference when you consider how your money will compound over the years.
Keep in mind that when you have a self-managed Roth IRA, the IRS looks at the investments you’re making. With many types of investment, such as real estate, you can’t manage the asset at all. Instead, you must use a custodian or a trustee to handle it.
Minimizing Your Investment Costs
You’re saving money the moment you decide to self-manage your Roth IRA, because you won’t be paying a fund manager anymore. It’s important that you continue decreasing your costs to earn the most for your account.
There are a few ways to decrease your costs. To start, look for a trading firm with low fees for making trades and getting professional advice. Make sure that you don’t choose a broker with all kinds of hidden fees, as these will eat into your returns.
Hiring a Custodian
Let’s say that you need to hire a custodian to manage an asset. Depending on the custodian, they will likely charge you either a set percentage of your investment or a commission fee. This information will be in your contract with the custodian.
Don’t simply hire the first custodian you find, as fees can vary quite a bit. Do your homework and compare different options among custodians who handle the type of investment you’re pursuing. Before you sign on the dotted line, ensure that you are aware of all the fees you’ll be paying. For example, a custodian that is managing real estate for you may have fees for collecting rent and managing the property, so it’s important to know this before you hire them.
The most important part of hiring a custodian is learning as much as you can about asset management beforehand. This means you won’t be caught off guard, and it makes it easier for you to negotiate a better deal. Remember that everything is negotiable, including custodian costs.
Final Thoughts
Self-managing your Roth IRA may seem like a daunting task at first, but in the long run, it pays off. You’ll be able to put your money in investments that provide a much greater return, and you can cut down on your costs. Ultimately, it will all add up to a diversified nest egg when you reach retirement age.
SlickBucks.com is a website dedicated on helping people manage money more cleverly and make better decisions by learning strategies, tips and helpful tricks that can lead to the type of wealth one desires.
Slick Bucks
SlickBucks.com is a website dedicated on helping people manage money more cleverly and make better decisions by learning strategies, tips and helpful tricks that can lead to the type of wealth one desires.
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