What Should I Put in My Roth IRA?
You may know the big advantage of opening a Roth IRA is being able to grow your money tax-free. How to invest in such a retirement vehicle isn't quite so straightforward, aside from the amount of contributions you should make to maximize the investment. According to Fidelity, your investment options run the gamut from stocks and certificates of deposit (CDs) to bonds and annuities.
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Amount
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You should try to contribute the maximum allowable to your Roth IRA, according to Fidelity, because the money is growing tax-free. As of 2011, the maximum amount you could invest in a Roth IRA each year is $5,000. If you're 50 or over, you can contribute an additional $1,000 each year. Kiplinger estimates that someone who starts investing $5,000 each year at age 25 (with an 8 percent annual return) will accumulate nearly $1.5 million by retirement.
Stocks
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If you are not extremely conservative with regard to investments, you should consider investing in the market. Bankrate reports you can trade stocks in your IRA without worrying about IRS penalties. However, you may need to consult with a tax attorney if you are in the unfortunate position of having to claim losses with regard to stocks in your IRA accounts, as this process can be complex.
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Certificates of Deposit
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If the thought of playing the market causes you considerable stress, consider a CD. This investment option is often utilized by the most fiscally conservative people. Bankrate reports it is insured by the FDIC for up to $250,000 (for retirement accounts), which makes it a safe investment. You may not reap the big returns those in the market may have, but you don't have to worry about the possibility of the sharp decline, either. There are penalties for cashing out a CD early, including a loss of interest and possibly principal.
Other Options
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If you invest in a U.S. government debt security called a Treasury bond, according to Pennsylvania-based Smithfield Trust Co., you'll receive interest payments on a semi-annual basis. You may also opt for annuities, which are contracts sold by life insurance companies that allow you to invest money (tax-deferred) and accept either fixed or variable payments at a later point in time, usually as a means of having cash flow during non-working years, according to American Funds. With exchange-traded funds (ETFs), according to NASDAQ, you have the trading flexibility of stock and the diversity of a mutual fund by investing in shares of a portfolio, which follows indices such as the S&P 500.
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