An individual retirement account (IRA) offers a tax-advantaged way to grow your retirement savings long-term. For 2022, you can contribute up to $6,000 a year to your IRA account (plus another $1,000 if you’re 50 years old or over). And, by employing the right IRA investment strategies, you can be sure to effectively boost your savings and increase your chances of retiring early.
Start making contributions early
The powerful snowball effect of compounding shouldn’t be underestimated — especially when it’s tax-free or tax-deferred. The more time your savings have to compound, the bigger your IRA balance becomes. So, invest what you can when you can and don’t stress about not being able to reach the maximum contribution amount for the year. Even small investments add up significantly over time. Similarly, don’t wait for tax day to make contributions to your IRA, which strips your investment of the opportunity to grow for up to 15 months. Instead, your investment will have longer to compound if it’s made at the beginning of the tax year. Or, if it’s more realistic for your budget, smaller monthly contributions will still be just as successful.
Transfer to a self-directed IRA
Transferring your IRA to a self-directed IRA has numerous financial benefits. Primarily, it protects your savings from an unpredictable economy and helps keep you on track to reaching your early retirement goals. An IRA transfer essentially involves moving your IRA to another IRA at a different institution. It’s a quick and easy way of moving your savings from one custodian to another. You can transfer as much or as little as you want with the ability to invest instead in alternative assets that may not be available or allowed by your current provider (like real estate, for example). Or, if you have an employer-sponsored 401(k), a rollover can be used to move these funds to an IRA. In most cases, a rollover IRA is typically used after an employee leaves a job and therefore no longer makes contributions to the employer-sponsored retirement plan. Self-directed IRAs are also typically more powerful performers than stocks and bonds. For example, self-directed IRAs held for three years have an average ROI of over 23%.
Consider your entire portfolio
Perhaps your IRA isn’t the only investment you’re making for your future. In this case, ideally, you want to distribute all your investments across various accounts based on how they’re taxed. So, for example, if most of your retirement savings are held in a 401(k), forming a rather conservative investment, you can use your IRA to diversify into more adventurous options. For instance, you can also hold specialized funds like real estate or small-cap stocks in your IRA.
Smart IRA investment strategies will help you boost your retirement savings and keep you on track to early retirement. Making contributions early on, transferring to a self-directed IRA, and diversifying your portfolio are key ways to maximize your returns.