Want To Invest Your Roth IRA? Here Are Your Options



A Roth IRA is an individual retirement account that you build by paying taxes on deposits into the account, which results in all future withdrawals being tax-free. People choose to build a Roth IRA when they can determine that taxes will be higher in retirement. With these savings, people are always looking to invest to generate income in their retirement. Though, choosing where to invest can be tricky since you need to know which assets can and should be in your Roth IRA. So, on that note, here are your options for investing in your Roth IRA.

Assets Held by IRA 

Before looking at your investment options, it’s important to understand which assets are held by Roth IRA accounts. Roth IRA accounts differ from traditional IRAs. While they offer similar benefits, Roth IRAs can hold many more financial assets and have alternative options, giving you more investment choices. Of course, some assets are going to be more advantageous than others.

  • Mutual Funds

Perhaps one of the easiest investments, and highly recommended for first-time investors are mutual funds. Opting for mutual funds makes the process simple and offers low expenses most of the time. A pro tip is to consider actively managed funds rather than passively managed funds as these generate more capital gains short term.

  • Stocks

Stocks are an asset type that is frequently found in Roth IRA accounts because these equities are most likely to consistently ensure profits down the road. However, as with any investment, you need to ensure you choose stocks strategically. It’s best to opt for income-oriented stocks that pay high dividends or growth stocks that are more substantial long-term in an account that can handle the stock market fluctuation, thus mitigating the risks.

  • Bonds

Corporate bonds are another asset that is ideal for Roth IRA accounts for the tax advantages. While this can be high-risk, they do pay a higher interest rate.

  • Real Estate

With a Roth IRA, you can indirectly invest in real estate. This means that you will be allowed to own securities that own property using real estate investment trusts (REITs). However, if you would like to directly own property, you can look into a self-directed Roth IRA account to personally manage your tax-advantaged assets with alternative assets while ensuring you get the same tax advantages from a regular Roth IRA.

Alternative Assets

Assets that go into your Roth IRA need to generate high taxable income. Still, alternative assets can be considered to build wealth and may even build wealth quicker than commonly held assets such as mutual funds, bonds, and traditional stocks would. There are benefits to choosing alternative assets to invest your Roth IRA in, which are as follows:

  • Real Estate  

As mentioned above, real estate is considered a viable asset to indirectly invest in. However, if you use funds that you allocate to your Roth IRA, you can directly invest in real estate, meaning you can own property yourself without having to own securities. In other words, using a self-directed IRA will allow you to own the property directly. In fact, direct real estate is one of the most favored investments. The reason why real estate is the most popular alternative asset to consider investing in is that it is a great retirement plan. However, the process can be complicated as you cannot confuse your personal funds with IRA funds for a real estate investment. So, it’s best to do your due diligence before making this investment as all taxes, expenses, and insurance must be paid by the IRA.

  • Start-up Businesses

Self-directed Roth IRAs can be used to invest in businesses, especially start-up organizations. Start-ups are another alternative investment that can generate income; however, you may want to consult a financial planner before making this decision since there are regulations to follow for owning a business.

  • Precious Metals 

Precious metals like gold are very popular alternative assets to invest in to preserve wealth in retirement, specifically because gold manages to prevail in almost any economic climate. 

You can invest in physical gold bars, a gold ETF, or a gold IRA. As with any type of investing, it’s important to seek the advice of an investment expert. Investment Honey specializes in gold IRAs and other type of precious metal investments.

What is Self-Directed Roth IRAs

As mentioned above, self-directed Roth IRAs are required to personally invest in assets that aren’t traditionally held by Roth IRA accounts. Therefore, it’s important to consider these alternative options when managing your finances as these could generate more profits in the long run.

When looking for the best options, it’s crucial to keep in mind which assets will allow you to reap the benefits of how IRA taxes your income. Ultimately, you need to consider which investments have high or frequent turnover, gain short-term capital gains, generate high taxable dividends or interest, and offer income growth and capital appreciation. So, take your time and make sure that your tax bracket will be higher in retirement before anything else.