How to Make Money with a Roth IRA

Learn how a Roth IRA can help you maximize your retirement savings by capitalizing on interest and dividends. Find out how you can qualify for a tax credit when you make contributions to a Roth IRA.

How to Make Money with a Roth IRA

A Roth IRA is a great way to save for retirement and make money in the process. It is an independent publisher and comparison service, not an investment advisor, and provides self-help tools and informational content free of charge. It is important to seek personalized advice from qualified professionals regarding specific investment issues. A Roth IRA increases in value over time by capitalizing on interest.

Whenever investments earn interest or dividends, that amount is added to the account balance. Account owners then earn interest on interest and additional dividends, a process that continues over and over again. This can result in growth that is four to eight times what was originally invested by the time of retirement. It is important to pay attention to the costs associated with a Roth IRA account, such as transaction fees for buying and selling investments, and annual fees called expense ratios for the mutual funds chosen.

Robo-advisors generally charge an annual fee of about 0.25% to 0.50%, plus the cost of the expense ratios of the funds chosen for the portfolio. When you contribute money to your Roth IRA, you invest it and it grows tax-free in your account. When you reach 59 ½, you can accept distributions from your Roth IRA without paying taxes on your contributions or earnings. All regular contributions to the Roth IRA must be made in cash (including checks and money orders); they cannot be in the form of securities or property. You may even qualify for a tax credit, known as the Saver's Credit, when you make contributions to a Roth IRA.

However, there are some limitations on Roth IRAs, such as only being able to contribute a limited amount per year. Roth IRAs are different from employer-sponsored retirement accounts, and many people often use them to supplement an existing 401 (k) plan. But few understand exactly how this type of account makes money or how they can get the most out of their Roth IRA account. Start letting your money work on your behalf and give your Roth IRA a chance to grow to $1 million before you retire.