An IRA or Individual Retirement Account is supposed to be be a safe haven for your retirement funds so that one day you can retire with a peace of mind. There are a few simple and SAFE methods to generate extra cash in your retirement account without risking your investments.
Make Wise Investment Choices
Pick and choose the stocks, mutual funds or bonds your investing in wisely. If you are unsure of what to invest in, consult with your broker or investment adviser who has experience. You want a well-diversified, some-what conservative approach to investing that doesn't put your entire portfolio at risk.
Write Covered Call Options
With this income generating method, you are selling a Call option against one of your existing stock positions, and you earn a premium for doing this. You will often hear this term referred to as "Selling a Covered Call" or "Writing a Call." This method is generally considered a safe and conservative way of generating extra income and is usually allowed in most IRA accounts. The reason it is referred to as "covered" is because you are selling the Call option against a stock position you already own, so in the event you have to exercise the Call option, you will be covered. When you write a Call, you will earn a premium in your account and will get to keep that premium as long as the underlying stock position does not go over a certain share price. For example, you write a GE June 20 Call in your account. You will get to keep the premium earned, in this example lets say it's $125. As long as GE stock does NOT go over $20/share by the end of June, then you get to keep the $125 premium. It's that simple. This method of writing covered Calls has proved to be a great way to earn extra income in your IRA or investment account. Tell your broker your interested in writing covered Calls and see what they say.
Sweep Any Extra Cash into a Money Market or CD
If you have free cash sitting in your IRA account, it may not be earning interest. Some brokers, including online brokers, pay small interest on free cash that's not being used for investments. However they usually only pay low interest amounts. If you have free cash that your not using, you may as well put it to work for you and let it start earning interest. You can invest that money in a Money Market Fund (ex. Vanguard Money Mkt Fund VMMXX) which pays a bit higher 0.50%. Also consider investing that free cash in a short-term CD paying, say, 1%-3%. That's a little higher than you would be earning if your cash was just sitting around!
Invest in High Dividend Yield Stocks or Mutual Funds
There are many stocks and mutual funds that pay hefty dividends and can be generating a lot of money in your portfolio. After paying out huge dividends, several of these stocks yield up to 20% yearly...that's about 5 times what you'll get from a CD or savings account! Two Alpine funds in particular, AOD and AGD, both pay a monthly dividend and are currently yielding around 20%(as of 2009). AOD pays a monthly $.12 dividend, and AGD pays $.11 monthly (in 2008, they were paying $.18 and $.17!). Both of these are closed-end mutual funds and considered safe investments. For example, if you invest just $3,000 in AOD, you would be getting a $50 dividend every month.
There are several other stocks or mutual funds that pay large dividends. PHT (Pioneer High Income Trust) currently pays a $.138 monthly dividend and is yielding around 17%; CHY (Calamos High Income) pays $.085 monthly/10% yield; BHY(Blackrock High Yld) pays $.044 monthly dividend/10% yield. ATT (AT&T) pays $.39 quaterly dividend/6% yield. There are also some high yielding, but high risk, energy stocks; PGH, HTE, PWE. These funds tend to change their dividend payout frequently, so keep an eye on them for a good opportunity.
Re-Evaluate Your Investments Frequently
It's a good idea to make changes or "actively manage" your retirement account and your investments. An example of this would be if you expect a general decline in the market, you would sell your common stock and invest in safer Government bonds. Vice-versa, if you expect the market to go up, you would invest in slightly riskier common stocks.
Always consult with your broker or investment adviser before making any decisions your not sure about. Remember that your IRA account is a safe-haven and meant to be used after retirement.