Financial expert James Royal, Ph.D., from Bankrate.com discusses the benefits and considerations of actively trading in a Roth IRA. A Roth IRA allows investors to make after-tax contributions, enjoy tax-free withdrawals in retirement, and benefit from decades of compounding growth. While there are no rules against active trading in a Roth IRA, there may be extra fees for certain investments and margin trading is not allowed.
Research shows that passive investing typically outperforms active trading, even for professional fund managers. It is recommended to stick to a traditional long-term buy-and-hold strategy with low-cost index funds for most investors. While trading in a taxable brokerage account allows for tax deductions for losses, this benefit does not apply to a Roth IRA due to changes in the tax code.
Overall, investors should carefully evaluate the costs and potential benefits of actively trading in a Roth IRA and consider a more passive investing approach for better long-term results.
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