The Roth IRA (individual retirement account) is one of the most coveted retirement accounts available -- especially since ProPublica released information about Peter Thiel's $5 billion Roth IRA. But if you have no idea how it works and you're not armed with a game plan for success, you'll miss out on the true power of the Roth IRA. 

Although I had a general idea of how it works when I opened my account in college, there were some pivotal bullet points that I was missing, and it caused me to leave thousands of dollars on the table.

I'll break down my three biggest mistakes below so that you can turn my bloopers into a waterfall of tax-free income in your Roth IRA.

Roth IRA and tax money jar.

Image source: Getty Images

1. I did not contribute the max

Every year, the IRS announces retirement account contribution limits. For 2021, the Roth IRA limit is $6,000 for savers under 50. To make a direct contribution, your modified adjusted gross income must fall below the annual threshold. However, you can never contribute more than your gross income for the year. 

Although I made contributions throughout the year, my annual total never came close to the maximum amount I could have put in. Instead of hearing the benefits of maxing out my account, I was bombarded with warnings of the penalties I would receive if I contributed too much. 

Let's say I would have made total Roth IRA contributions of $40,000 in my 20s. With a 7% annualized rate of return, my portfolio would be worth nearly $60,000 once I hit 30.

Since I had a Roth IRA during the longest bull market in history, a six-figure account wouldn't have been out of reach if I would have contributed the maximum amount every year and took advantage of the explosive returns from growth stocks.

2. I did not invest my contributions

Even if I would have contributed the maximum every year in my early 20s, there was another missing piece of the Roth IRA puzzle that would have stunted my growth: I didn't invest my contributions. 

I knew the power of investing, but I assumed that my contributions would automatically be put into the stock market. After questioning the growth in my account, I realized that my money was not being invested and that my investment options were limited because of where I opened my account. 

Here are some takeaways. First, do your research and consider opening a brokerage account at a firm that best fits your needs. Then, make sure you understand how to make investments within your account. Choose options that align with your risk tolerance, or work with a professional who can help you make those decisions. 

3. I did not create a long-term game plan

It's never too early to start thinking about your future goals. A Roth IRA has no age restrictions, but you must have earned income to make a contribution. 

When thinking about your retirement goals and your game plan for success, ask yourself the following questions: 

  • Do I expect to make more money in the future, making larger contributions easier to make?
  • When do I want to retire? 
  • What type of life do I want to live during retirement?
  • How much money will I need to have a comfortable retirement? 
  • Does my risk tolerance match my long-term expectations? 
  • How much do I need to save and invest today to achieve my long-term goals? 

This is a questionnaire that I wish I had at the beginning of my Roth IRA journey. It helps you be more strategic with your Roth IRA and it motivates you to keep tabs on your retirement goals even when you're decades away from that special moment. If I would have answered these questions, I could have calculated how much I needed to save every year to reach my ultimate goal and fund my dream lifestyle tax-free. 

Turn your mistakes into millions 

If you've made any of these mistakes, don't beat yourself up. As long as your income hasn't surpassed the annual threshold, you can still make direct contributions to a Roth IRA. All you have to do is contribute after-tax dollars to fund your Roth IRA and invest in assets that will lead to tax-free growth. Then, you'll be eligible to withdraw your funds 100% tax-free after you turn 59 1/2. 

If you make too much money to contribute to a Roth IRA, you can look into a traditional IRA, backdoor Roth IRA, and other retirement vehicles. 

One lesson I've learned on my financial journey is that there are always opportunities to come back stronger. You can't be so focused on what you missed that you fail to see the opportunities ahead. As long as you keep growing, opportunities will continue unfolding. 

Now that you've unlocked some powerful Roth IRA benefits, you can identify your goals, do the necessary calculations, and use these lessons to become the millionaire next door.