Why You Need a Roth IRA

Why You Need a Roth IRA [the broken link was removed] by Erin Burt:

If a 25-year-old contributes $4,000 each year until she retires and makes an average annual return of 8% on her investment, she’ll have more than $1.1 million saved by the time she retires at age 65. And the money is all hers — she won’t have to give the IRS a cent of it if she waits until retirement to cash out.

If that same 25-year-old invested that same $4,000 a year in a regular taxable account earning the same 8% return, she’d only have about $802,000 after 40 years if her earnings were taxed at 15%. That’s more than one-fourth less money than if she’d gone with the Roth.

And the second figure would be less, if the tax rate were higher than 15%. The Roth IRA is a great way to save money. With a Roth IRA you pay taxes on the money you put in (unlike a traditional IRA), but you pay no taxes on the money you take out (once you reach retirement age). The tax benefit of avoiding taxes on the accumulated funds is much greater than the tax deduction up front (if you have a long period of time to invest and your return is good: you also have to consider the difference in tax rates today versus at retirement).

Which IRA Is Best? [the broken link was removed] – short article from Smart Money.

Along with matching contributions from an employer on a 401k plan (where you can get an immediate 100% return and accumulate gain tax deferred) the Roth IRA is where you should invest if at all possible (see more on articles on investing for retirement).

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