Managing Your IRA for Maximum Gain

Identification

1). Research IRS materials to learn general structure pertaining to IRAs. Traditional IRAs are funded with pre-tax money. Growth is tax-deferred until withdrawal. At that point, withdrawals are taxed at ordinary income levels.
2). Differentiate between Traditional and Roth IRAs. Roth IRAs are actually funded with after-tax money and also offer tax-deferred growth. Contrary to Traditional IRAs, Roth IRA investments are not taxed at withdrawal. Roth IRAs may be more suitable for younger investors poised for higher future incomes.
3). Learn the age and funding limits for IRAs. IRAs cannot be withdrawn until age 59 1/2 without severe tax penalties. As of 2010, you are generally limited to $5,000 worth of annual total contributions between Traditional and Roth IRAs. Savers at or above the age of 50 going into 2011 may contribute $6,000 into IRAs.
4). Plan to make withdrawals at age 59 1/2 from your IRA. The IRS sets required minimum distributions at this point. Failure to do so triggers tax penalties.
5). Review your cash flow and budget to calculate contribution amounts into your IRA. Prioritize financial objectives at this time. For example, high-interest rate credit card debt should be reduced to manageable levels before you make large investments. Of course, you may fund your IRA from 401(k) rollover money.

1). Brainstorm different asset classes that may be purchased within your IRA. IRAs typically contain annuities, mutual funds, certificates of deposit, stocks and bonds. Coordinate asset class selections with your investment sophistication.
2). Apply diversification strategies to your overall portfolio. Diversification enables investors to earn steady returns during various economic scenarios. Purchase assets from different classes, industries and regions to achieve diversification. Investors covet mutual funds for diversification and professional money management. Your IRA portfolio may be balanced with less than five mutual funds.
3). Contact mutual fund companies for prospectuses to research funds. The fund prospectus outlines investment policy and fees related to the investment. Compare mutual funds of similar class on performance and fees.
4). Open your IRA account either through an investment brokerage or directly through the mutual fund company. Brokerages offer more flexibility for frequent traders. Purchase mutual funds and stocks that meet your objectives.
5). Monitor performance regularly by comparing your investment decisions against relevant benchmarks. For example, the Standard & Poor's 500 Index tracks large U.S. stocks and is an ideal reference point for large capitalization mutual funds.