I'm a big fan of the Indy 500. Maybe it's because I lived in Indiana for several years. Maybe I just like fast cars. Whatever the reason for my love of the sport, I think investors can apply principles from the racetrack to add fuel and fiery growth to a Roth IRA.
Roth IRA 101
Roth IRAs are unique investment vehicles that offer tax-free retirement income. You can invest in stocks, bonds, mutual funds, and/or ETFs in a Roth IRA. So why not rev it up with high-octane investments to get the most tax-free bang for your buck?
Individuals who meet certain income restrictions (which I detail below) can contribute $5,000 each year -- plus an extra $1,000 each year if over age 50 -- into a Roth IRA. You have until the April 17, 2012, tax filing deadline to make a contribution for 2011. As an added bonus, and if you happen to be flush with cash, you can add additional money now to contribute for 2012.
Who, me? Yes, you.
Even if you already max out your 401(k), 403(b), or 457 plan at work (and a high-five if you do), you may still be able to open and fund a Roth IRA. Also, if you think you might be in a higher tax bracket when you retire, a Roth IRA may be a smart move for you.
Rev your Roth engine
Here are a few great companies to consider for your Roth IRA. All have seen amazing growth over the past several years and have strong prospects in emerging industries. Significant tax savings would have been seen if these stocks had been owned in a Roth IRA.
If $10K Was Invested
3 Years Ago,
Now It'd Be Worth
Tax Savings if Invested in
US Physical Therapy
Source: Yahoo! Finance. Tax savings compared to taxpayer paying maximum 15% rate on long-term capital gains.
MAKO Surgical is a medical device company whose advanced robotic arm solution and orthopedic implants are used in surgery suites. MAKO saw year-over-year quarterly revenue growth of 122% and its five-year expected growth rate is 20% per year.
US Ecology provides waste treatment, disposal, recycling, and transportation services to commercial and government entities. It saw year-over-year quarterly revenue growth of 5.3% and its five-year expected growth rate is 11% per year.
Westport Innovations converts diesel engines to be able to run on natural gas. It saw year-over-year quarterly revenue growth of more than 80% and its five-year expected growth rate is 30% per year.
US Physical Therapy operates outpatient physical and occupational therapy clinics. It saw year-over-year quarterly revenue growth of nearly 14% and its five-year expected growth rate is more than 18% per year.
NetSuite provides business solutions software via a cloud-computing format. NetSuite saw year-over-year quarterly revenue growth of 23% and its five-year expected growth rate is 32% per year.
Owning these stocks in a Roth IRA would save us Fools from a major tax bite if these stocks live up to their lofty growth expectations.
Other ideas for your Roth
If revving your Roth isn't for you, that's quite all right. Stocks that travel in slower lanes and/or mutual funds are great investments for Roth IRAs as well.
Dividend-paying stocks provide an excellent alternative. When these stocks are owned outside of a Roth IRA, dividends are considered ordinary income and are taxable courtesy of Uncle Sam. By holding dividend-paying stocks within a Roth, you get the tax-free advantage. As an added bonus, by reinvesting dividends, you are buying more shares each time the company pays its dividend.
Or consider mutual funds. Capital gains distributions from mutual funds are passed along to mutual fund shareholders each year and are taxed. The benefit of owning mutual funds inside of a Roth IRA is that you avoid the capital gains taxes altogether.
Regardless of which style of investing is for you, there is no better time than now to plan for your financial future. Consider a Roth IRA and these stocks today.
We Foolish investors know that the road to retirement can be full of twists and turns. Read about other companies that will position you well for retirement in the free report "3 Stocks That Will Help You Retire Rich."
Fool contributor Nicole Seghetti would love to drive (OK, maybe just ride in) an Indy car someday. She does not own shares of any of the mentioned companies. The Motley Fool owns shares of MAKO Surgical. Motley Fool newsletter services have recommended buying shares of MAKO Surgical, Westport Innovations, and NetSuite. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.