Kerra Bolton

Sat, May 24, 2025, 7:01 AM4 min read

Roth IRAs are one of the most powerful tools for retirement savings, offering tax-free growth and tax-free withdrawals in retirement.

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Despite their benefits, many Americans fail to use them to their full potential.

According to financial experts, the number one mistake is playing it too safe by choosing conservative investments that limit growth and undermine the Roth’s biggest advantage.

Roth IRAs are funded with after-tax dollars, which means all qualified withdrawals, including investment earnings, are tax-free in retirement. Therefore, experts said the Roth is best used for growth-oriented investments, not conservative ones.

“The most common Roth IRA mistake I see is investors using conservative assets in their Roth accounts,” said Tim Witham, a certified financial planner and CEO of Balanced Life Planning LLC.

Investing too conservatively limits long-term returns and can undercut the entire benefit of the Roth structure. If the account isn’t growing, the tax-free advantage is effectively wasted.

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Whitman said one reason this mistake is so common is that many investors, and even advisors, apply the same asset allocation to every account, rather than taking a portfolio-wide approach.

“In general, an investor’s most aggressive asset should be placed in a Roth IRA in order to maximize the tax-free growth potential,” Witham said.

He explained, “By placing conservative assets in a Roth account, it can reduce the benefit of contributing to a Roth, to a point where you could potentially see more benefit by making a pre-tax contribution rather than a Roth contribution.”

Witham said it often comes down to convenience. He said many advisors still rely on outdated tools that don’t fully account for asset allocation.

“To fix this, investors should prioritize risk assets, like stocks in Roth IRAs, and adjust their asset allocation accordingly across their portfolio,” Witham said. “For more conservative investors, it may be worth analyzing if pre-tax contributions could provide a better after-tax return. If you’re working with or selecting an advisor, ask about their plan for asset location.”

While being too cautious is the most common misstep, several other mistakes can also keep savers from maximizing their Roth’s potential: