Two Steps for Getting the Most Out of Your Roth IRA

Updated on March 24, 2017

1897223By Andrew Altman

If you’ve chosen a Roth IRA over a traditional retirement account, you probably already know how the two differ. You’ll be able to exercise far more control with a Roth IRA than you would with a traditional retirement account, and your contributions will be taxed before going into your Roth IRA. That means less money going in, but the good news is that you won’t get hit with taxes when you later withdraw funds from the account.

Since the IRS puts a cap on Roth IRA contributions every year, it’s crucial that you allocate those funds correctly to get the greatest return on your money. is giving you some advice on how to do that.

Maximizing Your Roth IRA Returns

Two simple concepts are key in getting the most out of your Roth IRA: managing your account investments yourself and minimizing the costs of your account. When you manage your investments, you’re able to go for higher-reward strategies instead of sticking to a conservative approach. Minimizing costs keeps fees from eating into your return.

Controlling How You Invest

The main drawback of mutual funds and pensions is that in most cases, you have hardly any control of where your money is going. You’ll have the opportunity to choose general categories, such as stocks and bonds, but after that, it’s up to your money manager to decide where to invest.

How do you know that your money manager is choosing the right investments? You don’t, and that puts your financial future at risk. For all you know, your money manager could be choosing an overly conservative approach, earning you only a miniscule return at a time when stock or real estate prices are shooting upwards.

With a self-managed Roth IRA, you decide where you want to invest your money. Perhaps you think that you should invest in securities or real estate. Or maybe there’s a startup that you want to help finance, as investing in those businesses can lead to far greater returns than you would get investing in already established corporations.

It’s always important to keep in mind the power of compounding. Even if self-managing your Roth IRA leads to your annual return going up just 1 percent, that money is going to compound, and the difference could be tens of thousands of dollars by the time you reach retirement.

Cutting Costs

When you decide to self-manage your Roth IRA, you’re already eliminating the fee you would have been paying to a money manager, saving you money. There are also additional ways that you can reduce costs related to your Roth IRA. If you’re investing in stocks and bonds, research different trading firms to see their transaction costs and the type of advice they offer. Choosing a trading firm with the lowest fees is essential to minimizing expenses.

Getting a Custodian for Certain Investments

There are rules in place regarding your Roth IRA investments, and the IRS will keep an eye on your account to make sure that you’re following those rules. One important rule to note is that with certain types of investments, you can’t handle the asset at all. This applies to real estate, franchises, commodities, metals and other types of investments, and you’ll need to hire a custodian to manage the asset.

Custodians do charge a fee, which can cut into the returns on your Roth IRA. That’s why you need to do your due diligence to find the right custodian and to understand the terms of the contract you sign with them.

To find a custodian, first look for custodians that manage the type of investment you’re considering. For example, if you’re investing in real estate, you’ll need a custodian who handles that. Next, find out all the fees that the custodians you’re considering will charge. Depending on the custodian, the fee might be a percentage that they take from your total investments, or it may be a flat commission. The type of investment could determine the fees the custodian charges. A real estate custodian may charge for collecting rent and managing the property.

The more that you know before you hire your custodian, the better. When you’re knowledgeable about asset management, you won’t end up getting hit with unexpected fees. It also puts you in a better position to negotiate.


Self-managing your Roth IRA does require a greater time commitment and more work, as you’re doing everything yourself. However, it’s well worth it in the long run, because you can cut costs and obtain a far greater return than you would by leaving your fund in a money manager’s hands. You’ll be happy you took control when you reach your retirement and have a nice nest egg.


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