The temperature is rising, and summer is right around the corner in many parts of the country. When I think of summer, BBQ burgers and corn on the cob come to mind. But before summer arrives, there's one more season we must endure -- tax season. Here are a couple of ways investors can apply principles from the grill to add fuel and fiery growth to a Roth IRA.
Roth IRA primer
Roth IRAs are investment accounts that offer us tax-free income in retirement. You can invest in stocks, bonds, exchange-traded funds, and mutual funds in a Roth. For the 2012 tax year, individuals can contribute up to $5,000 -- plus an extra $1,000 if age 50 or older -- into a Roth IRA . You have until the April 15, 2013 tax filing deadline to make the contribution. As an added bonus, and if you have some extra cash stashed in your piggy bank, think about adding additional money now for your 2013 contribution.
If you might be in a higher tax bracket when you retire, a Roth IRA is certainly worth considering. And even if you already max out your employer-sponsored retirement plan, you're still eligible to open and fund a Roth IRA.
Kick your Roth up a notch
In order to get the most tax-free bang for your buck in this tax-free account, consider turning up the heat up with high growth investments. Three companies with exciting growth prospects include tech heavyweights Google (NASDAQ:GOOGL), eBay (NASDAQ:EBAY), and Apple (NASDAQ:AAPL).
Transforming the way the globe searches for information, Google boasts almost 70% market share of all global search queries. The company generates the vast majority of its revenues from search advertising, but Google is diversifying through acquisitions like YouTube and DoubleClick.
Management has reinvented eBay's Marketplaces business, which is currently outpacing global e-commerce growth. And eBay's PayPal business has emerged as an innovative leader in next-generation payments and is well positioned for growth as the industry evolves.
Meanwhile, Apple's recent share price decline reflects a cautious outlook for the iDevice maker. Despite the stock pull back, the company still enjoys extremely solid demand for its products and ample growth opportunities overseas, most notably in China.
All three companies have enjoyed amazing growth over the past several years and possess strong prospects in emerging sectors. By owning these stocks in a Roth IRA, it saves us Fools from a big tax bite if these hot stocks live up to their lofty growth expectations.
Not so spicy
If fiery growth stocks aren't your thing, that's quite all right. More mild stocks are also terrific investments for Roth IRAs. For instance, dividend-paying stocks provide a great alternative. When these stocks are owned outside of a Roth IRA, dividends are considered taxable ordinary income. But by holding dividend-paying stocks within a Roth, you get the tax-free advantage. And by reinvesting dividends, you're buying more shares each and every time the company pays its dividend.
Consider Procter & Gamble (NYSE:PG) and 3M (NYSE:MMM), which have both increased their respective dividends for at least 55 consecutive years. Consumer goods powerhouse P&G pays nearly a 3% dividend yield. The company has recently suffered because of high input costs and has received criticism for lackluster new products, but P&G expects lower commodity costs. It also plans to focus more on new product innovation in developed markets and growth in emerging markets.
Meanwhile, industrial conglomerates 3M pays a 2.4% yield. Its diversified products across six major business segments (consumer and office, display and graphics, electro and communications, health care, industrial and transportation, and safety, security, and protection services) span the economy. This greatly reduces the company's exposure to big cyclical swings that typify the industrials sector.
Foolish bottom line
It doesn't matter if you prefer spicy or mild stocks for your Roth IRA. Regardless of which style of investing is for you, there is no better time than today to plan for your financial future. Make your 2012 Roth IRA contribution if you haven't already, and consider these exciting stocks today.
Fool contributor Nicole Seghetti owns shares of Apple, Procter & Gamble, and 3M. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends 3M, Apple, eBay, Google, and Procter & Gamble. The Motley Fool owns shares of Apple, eBay, and Google. Try any of our Foolish newsletter services free for 30 days.
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