You might disagree, but hear me out on this. Your Roth IRA rate of returns doesn’t depend on a choice between playing it safe or playing it smart. Believe it or not, it is possible to do both. All it takes is some simple information and willingness to be open to creative investment choices.I’d like to illustrate by telling you a story about a friend of mine. As long as I’ve known him he’s always told anyone who would listen that he is going to retire a millionaire. From the time he was very young, he followed his parents advice to save money. His father opened a joint savings account for him when he was ten and every time he made a deposit his father would match it. He was also one of the first people to take advantage of saving money with an Individual Retirement Account when they were introduced.He liked the tax advantages of the Roth IRA and educated himself about annual contribution limits, as well as the Roth IRA income limit. He knew he met the eligibility requirements for a Roth IRA since his annual income didn’t exceed $100,000. He was also confident that he would be able to make the maximum contribution of $5000 (for 2008*).
My friend had opened his account at his local bank. At that time he was told that he could expect his Roth IRA rate of returns to compound annually and was cautioned that the actual rate of return would depend on the type of investments made with his contributions.Without asking any questions, he made the assumption that, given their financial “expertise,” and the fact that he was a loyal customer, the bank would make some great investments on his behalf. He didn’t realize it at the time, but he was, unknowingly, playing it safe. And when he got his first financial report, he was very disappointed.He realized that the less than stellar 8% return he received was further reduced by some heavy management fees. With his arrangement with the bank, his Roth IRA income limit his investments to in-house assets. This means that the bank was making money off of him on both the front and back end. Just because he was a loyal customer didn’t mean they were going put his financial interests first.That was his “wake-up” moment. He knew that playing it safe was not the way to reach his retirement goals. He decided it was to time play it smart. He knew that if he was going to significantly increase his Roth IRA rate of returns, he would have to take control of how his funds were being invested.He quickly went into action, and after doing some research, he located a company that would help him roll over his account into a self directed Roth IRA. Imagine his excitement when he learned that they would take investing instructions from him, and that they would handle all the official paperwork and reporting.Real estate was an investment area that he knew would be safe AND smart. Here was an opportunity to increase his Roth IRA rate of returns, which could be reinvested in real estate properties, over and over. There would be no Roth IRA income limit on his profits, and these profits would be free from taxation.
Now that he’s been set free, he hasn’t limited himself to investing just in real estate. Having a self directed IRA means that he can get very creative with increasing his Roth IRA rate of returns with a diversified portfolio. He recently added a franchise investment to his list of holdings and is also looking into tax liens. Needless to say, there is no stopping him now.Make no mistake about it. My friend’s story illustrates how you can play it safe AND play it smart when your goal is to increase your Roth IRA rate of returns. If you follow my friend’s example, and take control with a self managed retirement savings account, its conceivable that there will be no Roth IRA income limit on your investments. Then you might meet my friend at the monthly meeting of the local Retired Millionaires club.*Annual maximum contribution subject to change