What to Do With a Poor-Performing Roth IRA?

A Roth IRA can help you build your retirement nest egg.
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A Roth IRA can be a good way to make tax-advantaged investments for retirement. In addition to avoiding tax on your gains every year, Roth IRAs allow tax-free distributions at retirement. If your Roth isn't performing as well as you'd like, there are a number of changes you can make to increase your chances for financial success.

Change Investment Mix

A Roth IRA is an individual retirement account, meaning you are the one who opens it and you are the one who controls the investments. Unlike other retirement plans in which your investment choices may be limited, such as 401(k) plans, with a Roth IRA you can buy almost any type of investment you would like. The IRS prohibits the purchase of collectibles in an IRA, but beyond that you can buy any of the stocks, bonds or mutual funds that you might normally buy in a regular taxable investment account. If your investments are performing poorly, sell them and start again.

Hire Investment Manager

If you aren't comfortable with your ability to pick winning investments, hire an investment manager to oversee your Roth. While you still maintain control of your IRA and can fire the manager at any time, a reputable investment adviser may be able to get you better investment results in your account. When choosing an adviser, ask how much he will charge, as high fees might outweigh any investment benefit. Convey to the adviser what your investment objectives are and how comfortable you are with risk to improve the chances that you will be happy with his investment strategy and tactics.

Roll Over to New Custodian

Some financial institutions offer only a limited range of investments for a Roth IRA. Other firms charge high administrative fees. In either case, the overall performance of your Roth might be harmed. You can roll over your Roth IRA tax- and penalty-free at any time to another IRA custodian. Many firms will host your Roth IRA for free. Most brokerage firms offer a wide range of investments, unlike other custodians that might provide only certificates of deposit or other bank products.

Withdraw Funds

If you don't want to tie up your Roth IRA money until you retire, you can withdraw your funds at any time. If you take the money out before you turn 59 1/2, you'll owe taxes on your earnings and a 10 percent early withdrawal penalty. However, you can always withdraw the contributions you made to your Roth IRA tax- and penalty-free, even if you are younger than 59 1/2. If the value of your Roth has dropped below the amount of your contributions, you might even be able to take a tax deduction on the loss, although IRS rules are complicated regarding this strategy.

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