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How to Make Investments in Your Roth IRA


A Roth IRA is an account, not an investment, so once you’ve put money into the account it still must be invested. Common investment options for Roth IRA accounts include stocks, bonds, mutual funds, exchange-traded funds, money market accounts and certificates of deposit. Some sponsors offer many options, while others only have a few. Self-directed Roth IRAs offer the most freedom of choice in investments, although some restrictions remain. You can choose how to invest funds in your Roth IRA when you first open the account. If you want to change the allocation of your money, many Roth IRA custodians allow you to do so online. When you’re considering how to invest funds in your Roth IRA, a financial advisor can help you identify and select the options that fit your individual situation.

Roth IRA Investing Basics

A Roth IRA is a tax-advantaged retirement savings account that is funded with after-tax contributions. Earnings from investments made with funds in the account grow tax-free. After you reach age 59 ½, you can take money out of the account without owing taxes as long as it’s been at least five years since you opened it.

You open a Roth IRA at a sponsor, typically a brokerage or bank, which decides how you can invest funds in the account. Investment options in many Roth IRAs are limited and consist of a limited number of specific money market accounts, mutual funds, exchange-traded funds, index funds and target date funds. A smaller number of accounts may allow account holders to select individual stocks and bonds. With some plans, you can choose to work with a robo-advisor or human investment manager who will help you make selections.

Self-directed Roth IRAs permit account holders to select investments from a much wider range of options. Depending on the specifics of the self-directed account, these may include real estate, business partnerships, gold and other precious metals and even cryptocurrency and derivatives such as options.  

While self-directed accounts offer greater freedom, that comes with added responsibility and risk. A sponsor that offers a fully self-directed account is required to inform you about the risk, return and other characteristics of available investment options, but may require you to release the sponsor from any fiduciary duties to match you only with investments that suit your goals and capacities.

Some investments, as well as certain types of financial transactions, are not allowed for Roth IRAs. Banned investments include collectibles such as antiques, art, stamps and jewelry. You can invest in some coins made of gold and other precious metals, but not as collectibles. Prohibited transactions include lending money to disqualified people, which include you the account holder as well as your spouse, children and grandchildren.

Choosing Your Investments

A couple choosing investments for their Roth IRA.

When you set up your Roth IRA account you will be asked to select investments you want to buy with your contributions. This choice is typically made in the form of a percentage. For instance, you may opt to put 60% of your contributions into one or more bond index funds and the remaining 40% into equity index funds, with that 40% divided equally between small growth stocks and dividend-paying large companies. Future contributions will be allocated among these investments according to the percentages you pick.

Later on, you may want to change your investment choices. For example, you may rebalance your portfolio on an annual or other basis, selling some investments and buying others in order to maintain your desired asset allocation. You may also change your investments as your objectives change, such as when you shift toward a more conservative risk profile as your planned retirement date nears.

Many plans allow you change your investments choices online. For instance, Roth IRA account holders may log onto their company’s website and select the “Investments” tab. This leads to a screen where you can buy or sell investments or reallocate your existing portfolio.

Bottom Line

A client meeting with an advisor to review Roth IRA investments.

As the owner of a Roth IRA, you can decide how the money in your account will be invested. The plan decides how many choices you will get and many limit options to a relatively small number of various types of funds. Others allow a wider investment selection sometimes including individual stocks, bonds and other securities. Some plans offer self-directed Roth IRAs. These permit the most choices and, depending on the plan, may permit investments in real estate, shares of business ownership and other assets. You select investments when you open your plan and can also change your mind later on, often using online tools to decide how to invest your Roth IRA funds.   

Tips for Retirement Planning

  • Whether you have a self-directed Roth IRA or a more conventional one with limited investment options, a financial advisor can help you determine which investment choices you’re your needs and tolerances. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • After entering a few details including your birth year, income, location and planned age at retirement, SmartAsset’s retirement calculator provides an instant estimate of how much you may need to save to retire comfortably.

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