The Roth IRA is a smart investment choice for retirement.
Why? Because not only does your money grow tax free while you’re investing in one of these accounts… but… the flexibility of the Roth IRA allows you to invest in whatever you want; stocks, bonds, mutual funds, real estate, etc.
What prevents most people from getting the most out of this individual retirement account is making preventable Roth IRA contribution mistakes. These mistakes end up robbing you of the full retirement benefits and value you should enjoy. Let’s look at a few of the most common ones.
One big mistake is not contributing enough. In other words, if you are allowed to contribute $4,000, you should max out your account. If you don’t, you lose out because the Roth IRA contribution rules do not allow you to make up the difference the next year. By consistently “shorting” yourself you end up with much less when it’s time to retire. The solution is simple; invest the absolute maximum allowable amount each and every year. Doing so will give you the most money in the long run.
Another costly mistake is making lump sum contributions rather than monthly contributions. What I mean is this: You are better off investing $333.33 per month into your account rather than a lump sum of $4,000. Why? The answer is simple. By breaking up your investment over the course of twelve months you take advantage of interest accrual that accumulates over time.
A third costly mistake is waiting too long before starting to make your Roth IRA contribution. The later you start the less you’ll have in the long run. Again, keep in mind, the Roth IRA is a long term investment vehicle. Your account grows over time. The longer you have to put into it the more you’ll have when you’re ready to use those funds.
A fourth big mistake is depleting your account by taking money out of it before retirement. Of course, things come up. But, your Roth IRA account should be looked at as a forced savings plan that is not to be touched. The power of this investment vehicle comes from consistent contributions made over a long period of time without taking money out. Although the rules do allow for certain withdrawals you are much better off not even thinking about your account if you need a short term financial solution.
Finally, one of the worst mistakes you can make is to rely on incorrect information when investing through your Roth IRA. Remember, you have the flexibility of how your Roth IRA contribution is invested. The wise thing to do is: (a) inform yourself about the different ways you can invest your Roth IRA contribution and choose those you know about… (b) consult with a competent financial professional… and (c) don’t make brash investment choices until you check things out.
In conclusion, if you want to get the most out of your Roth IRA contribution, make sure you… make the maximum allowable contribution each year… invest consistently into your account on a monthly basis… start a Roth IRA account now… let your account grow without taking funds out of it… and… get informed about the investments in your portfolio.