04 Feb Roth IRA 101: Choosing the Best Investments for Maximum Growth

A Roth IRA is one of the most powerful tools for building long-term wealth and securing a tax-free retirement. Unlike traditional retirement accounts, your qualified withdrawals from a Roth IRA are tax-free—making it an attractive option for those looking to maximize growth over time. But once you’ve opened your Roth IRA, the next big question is: What should you invest in to get the best returns?

At Level Coaching, we help individuals take control of their financial futures. While we are not tax professionals and recommend consulting with a financial advisor for personalized guidance, this blog will help you understand investment strategies that can optimize your Roth IRA for long-term success.

Choosing the Right Investments for Your Roth IRA

When it comes to growing your Roth IRA, you have several investment options. The right choice depends on your risk tolerance, investment timeline, and overall financial goals. Two of the most common strategies include:

1. Investing in Individual Stocks: High Risk, High Reward

Individual stocks give you complete control over your investments and the potential for high returns—but they also come with greater risk.

✅ Pros of Individual Stocks

✔️ Higher Growth Potential: Historically, the stock market has delivered strong long-term returns, and investing in individual stocks allows you to capitalize on the fastest-growing companies.
✔️ Control Over Investments: You decide exactly where your money goes, giving you flexibility in choosing industries or companies you believe in.
✔️ Tax-Free Gains in a Roth IRA: If a stock appreciates significantly, you won’t owe capital gains taxes when you withdraw funds in retirement (as long as it’s a qualified withdrawal).

❌ Cons of Individual Stocks

⚠️ Higher Risk: A single company’s stock can fluctuate significantly, and poor performance could result in losses.
⚠️ Time-Intensive: Requires research, monitoring, and adjustments to stay ahead of market trends.
⚠️ No Built-in Diversification: If you’re only investing in a handful of stocks, you may be at risk if one company underperforms.

Who Should Consider Investing in Individual Stocks?

• Investors with a high risk tolerance and a long time horizon.
• Those willing to actively research and manage their investments.
• People comfortable with market volatility and potential downturns.

2. Target Date Funds (TDFs): A Hands-Off Approach to Retirement Investing

If you prefer a set-it-and-forget-it investment strategy, a Target Date Fund (TDF) may be the best choice.

A TDF is a mutual fund that automatically adjusts your investments as you get closer to retirement. These funds start out with a higher percentage of stocks for aggressive growth and gradually shift to more conservative investments (like bonds) as your retirement date approaches.

✅ Pros of Target Date Funds

✔ ️ Automatically Adjusts for Your Retirement Timeline: The fund gradually becomes more conservative as you near retirement, reducing the need for active management.
✔️ Diversification in One Fund: Instead of picking individual stocks, a TDF spreads your investments across multiple asset classes.
✔️ Ideal for Long-Term Investors: If you’re decades away from retirement, a TDF allows you to invest for growth without constant adjustments.

❌ Cons of Target Date Funds

⚠️ Less Control Over Investments: Since fund managers adjust the portfolio automatically, you won’t have direct control over asset allocation.
⚠️ Fees Can Vary: Some TDFs have higher expense ratios than low-cost index funds, which can impact long-term growth.
⚠️ May Be Too Conservative for Some Investors: As the fund shifts to more bonds, growth potential may slow down compared to a stock-heavy portfolio.

Who Should Consider a Target Date Fund?

• Investors who want a hands-off approach to retirement investing.
• Those looking for built-in diversification without actively managing their portfolio.
• Individuals with a clear retirement timeline who want their investments to adjust over time.

Top Brokerages for Your Roth IRA

Choosing the right brokerage can make a big difference in fees, investment options, and overall experience. Some of the best brokerage firms for Roth IRAs include:

1. Fidelity

🔹 Low-cost index funds and no account minimums
🔹 Strong selection of Target Date Funds with low fees
🔹 Excellent research tools for DIY investors

2. Charles Schwab

🔹 Commission-free stock and ETF trades
🔹 Wide range of low-fee mutual funds and index funds
🔹 Strong customer service and financial planning resources

3. Vanguard

🔹 Industry leader in low-cost index funds
🔹 Best known for Target Date Funds (TDFs) with low expense ratios
🔹 Ideal for long-term, buy-and-hold investors

4. TD Ameritrade

🔹 Advanced trading platform for active investors
🔹 Large selection of individual stocks, ETFs, and mutual funds
🔹 No account minimums or maintenance fees

Each brokerage has its own strengths, so it’s important to consider fees, fund availability, and tools that align with your investment style.

Understanding the Tax Implications of a Roth IRA

A Roth IRA offers significant tax advantages, but it’s important to understand how contributions and withdrawals affect your taxes:

🔹 Contributions Are Made with After-Tax Dollars – Unlike a traditional IRA, you don’t get a tax deduction for contributions, but you won’t owe taxes on qualified withdrawals in retirement.
🔹 Qualified Withdrawals Are Tax-Free – If you wait until age 59½ and have had the account for at least five years, all withdrawals (including gains) are completely tax-free.
🔹 Early Withdrawal Penalties May Apply – If you withdraw earnings before age 59½, you may owe income tax and a 10% penalty, unless you qualify for an exception (such as a first-time home purchase or medical expenses).
🔹 No Required Minimum Distributions (RMDs) – Unlike traditional IRAs, Roth IRAs do not require you to take distributions at a certain age, allowing for more flexible retirement planning.

Since tax laws can be complex and change over time, we always recommend consulting with a tax professional or financial advisor before making major decisions about your Roth IRA. As part of a Level Coaching member, you will have access to our tax and financial professional partners on your exclusive access to the Level Coaching Platform.

Final Thoughts: Maximize Your Roth IRA Growth with Smart Investing

A Roth IRA is an excellent way to build tax-free wealth, but what you invest in matters just as much as the account itself. Whether you prefer the high-growth potential of individual stocks or the set-it-and-forget-it approach of Target Date Funds, the key is staying consistent and making smart investment choices.

If you’re unsure about the best strategy for your situation, Level Coaching is here to help. Our financial coaching programs provide the guidance and tools you need to make informed investment decisions and set yourself up for long-term success.

🚀 Start building your financial future today!

📞 Call Level Coaching at 888.359.7755 to learn how we can help you make the most of your Roth IRA and retirement savings.

Written by Nichole Miller,
January 2025