I Use These 3 Overlooked Roth IRA Strategies Every Year

Key Points

• The humble Roth IRA is a widely owned, but under-utilized retirement account
• There are strategies Americans can use to dramatically increase their returns
• Owning high yield dividends, doing backdoor conversions, and custodial Roth IRAs are just a few options

The Roth IRA is one of the most widely held retirement accounts in the United States. According to ICI’s 2024 study, there are an estimated 34.6 million roth accounts today, trailing only the traditional IRA’s 43.1 million and 401(k)’s estimated 70m accounts. While many Americans appreciate that the Roth IRA permits tax-free withdrawals and has some benefits in retirement, there are many overlooked strategies and benefits that cause them to leave money on the table and retire later, or with less money than they otherwise would need to.

Even small optimizations can become meaningful. Assuming a $5,000 initial investment and annual $5,000 contributions for 25 years, the difference in improving your IRR just 1% and going from 8% to 9% annual returns results in nearly $67,000 more in your retirement account.

Source: 24/7 Wall st.

So it’s worth spending a little extra time to make sure you’re getting the most out of your Roth IRA by understanding all the various benefits and strategies. We won’t cover them all here, but after 20 years of investing here are the three overlooked Roth IRA strategies I use every year.

Put Dividends And Income In A Roth IRAFirst (With one exception)

One of the smartest ways to use a Roth IRA is to load it with assets that generate steady income, such as dividend-paying stocks, bond funds, or real estate investment trusts (REITs). You can even do something called a self-directed Roth IRA which allows you to own income producing real estate directly in a Roth account, but this is more involved.

In a taxable brokerage account, dividends and interest are taxed every year, either at ordinary income rates or at the qualified dividend rate, which can be as high as 20% depending on your bracket. Inside a Roth, however, that “tax drag” disappears. Every dividend, every coupon payment, and every reinvestment compounds tax-free for decades.

The difference may sound small, but over time it adds up to tens of thousands of dollars. Suppose you hold $100,000 in dividend stocks with a 4% annual yield. In a taxable account, a 15% qualified dividend tax would eat $600 of those dividends every year, leaving only $3,400 to reinvest. In a Roth, the entire $4,000 is reinvested. Over 30 years, assuming 4% yield and 5% capital growth (9% total return), the Roth account could grow to nearly $1.3 million, while the taxable account lags significantly because of the annual tax siphon. The Roth turns steady cash flow into an accelerating compounding machine.

There is, however, an important caveat: not all income-producing assets belong in a Roth. Master Limited Partnerships (MLPs), certain private equity structures, and other investments that generate Unrelated Business Taxable Income (UBTI) can create unexpected tax liability even inside a tax-sheltered account. If a Roth IRA generates more than $1,000 of UBTI in a year, the IRA itself may owe taxes, undermining the benefit of tax-free growth. For this reason, experts generally recommend keeping MLPs and other UBTI-producing assets in a taxable account, while reserving the Roth for dividend stocks, high-yield bond funds, or REITs that don’t trigger UBIT.

Some high yield dividend stocks that I have in my Roth IRA today include:

Extra Space Storage is a REIT that owns and operates self-storage facilities across the United States. At a $31b market cap, it is one of the largest in this space and has returned over 1,000% to shareholders since going public. Camden Property Trust is a vertically integrated housing REIT with over 59,000 properties across the United States, with large exposure to the in-demand sun belt region. Postal Realty Trust is a small REIT at only a $390m market cap. The company focuses exclusively on long term leases with the USPS, which are often stable, triple-net, and have predictable multiyear rent escalations.

All three pay at or above Treasury yields today, and all of that income is tax-free in a Roth IRA.

Make One, or Two Backdoor Conversions

Typically high income earners are prohibited from contributing to a Roth IRA. In 2025 the income limits are $165,000 if single, and $246,000 if married and filing jointly. However, there is a workaround.

A backdoor Roth IRA conversion is a strategy that allows individuals and couples above this threshold to get money into their Roth IRAs. Here is how it works; with the backdoor conversion you make a nondeductible contribution to a traditional IRA first, and then convert that amount into a Roth IRA. Since the contribution itself was nondeductible, only the investment gains are taxable at the time of conversion, allowing wealthier investors to sidestep the Roth income cap and still take advantage of tax-free growth. If you simply contribute cash to your 401(k) and leave it uninvested, then convert it to a Roth IRA there will be no gains to be taxed on. All of this can be done in just a few days.

In 2025 this approach allows you to convert up to $7,000per taxpayerif you are under 50 years of age. If you are over 50, this limit jumps to $8,000 per individual. There is another, more complicated strategy called a Megabackdoor Roth Conversion that lets you shift up to $46,000 per year into your Roth IRA. However, this requires working for an employer that allows after-tax 401(k) contributions beyond your standard employee deferral limit, some substantial contributions there, and then an in-plan roth conversion or rollover to a Roth.

Sticking with just the regular backdoor conversion for now, my family and I do two each year. One for me, one for my wife. This allows us to get an additional $14,000 per year into our Roth IRA accounts, making retirement that much closer.

Fund A Custodial Roth IRA, If You Can

This third strategy only applies to a narrow set of individuals who have children or grandchildren who are minors that also receive an income. However it is powerful and worth commenting on.

A custodial Roth IRA is simply a Roth IRA opened for a minor child, with a parent or guardian serving as the account’s custodian until the child reaches adulthood. The account belongs to the child, but the custodian manages the investments and paperwork. Once the child reaches the age of majority, full control shifts to them. The child must have earned income from work (babysitting, lawn mowing, a W-2 summer job, acting gigs, etc.). The contribution limit is the smaller of their total annual earned income or the Roth IRA cap.

While the contributions can not exceed what the child earned that year,anyone can fund it on their behalf, including grandparents. So if your child was enterprising enough to make money working part time it’s worth figuring out how to contribute on their behalf.

To understand how powerful this can be, consider the simple scenario in the chart below. It shows how much a single $3,000 investment would be worth at retirement age if made at age 15, or age 30. Both scenarios assume an 8% average rate of return.

Source: 24/7 Wall st.

That’s a $96,349 difference, simply from making the same contribution earlier.

Conclusion

The Roth IRA isn’t just another retirement account. It’s a powerful wealth compounder and tax shield that can help secure your retirement, or that of a future generation. But it requires a little planning and foresight to fully take advantage. For most investors, the key takeaway is simple: don’t just settle for the basic Roth contribution. Explore the account’s flexibility, pair it with smart strategies, and treat it as the compounding engine it’s designed to be.

There are plenty of other ways to utilize your Roth IRA for greater wealth as well, including writing options, doing a self-directed Roth IRA to invest in real estate, withdrawing contributions (but not the gains) early, or using withdrawals to stay below thresholds that would otherwise trigger