taxes

New Tax Law Makes Roth IRA More Appealing to Savers

As the Roth turns 20, the new tax law gives it an edge for savers.

The Roth IRA celebrates its 20th birthday this year, and like a lot of 20-year-olds, it has never looked so good.

You can't take a tax deduction for Roth contri­butions, but the money accumulates tax-free, and withdrawals are tax-free, too. If you contributed the maximum to a Roth for each of the past 20 years, you'd have nearly $200,000 in tax-free savings, assuming you invested it all in a fund that tracks Standard & Poor's 500-stock index and reinvested the dividends.

Ed Slott, a CPA in Rockville Centre, N.Y., recognized that Roths would become a game changer and started a newsletter in 1998 to teach advisers about the accounts. Slott calls Roth IRAs "tax insurance" because once you're invested in one, you won't have to pay taxes on contributions or earnings again.

The new tax law makes Roth contributions even more attractive, now that tax rates are the lowest they've been in years but could rise in the future.

K3-AHEAD.2.indd

Getty Images

Most Popular

How a Third Stimulus Check Could Differ From the First and Second Payments
Coronavirus and Your Money

How a Third Stimulus Check Could Differ From the First and Second Payments

There's a big push in Washington for a third round of stimulus payments. But the amount and eligibility rules for your third stimulus check could be d…
January 27, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your second stimulus check.
January 18, 2021
When Could We Get a Third Stimulus Check?
Coronavirus and Your Money

When Could We Get a Third Stimulus Check?

President Biden and others in Congress are pushing for a third-round of stimulus checks, but it might be a while before we get them.
January 20, 2021

Recommended

President Biden's Tax Plans for the Next Few Years
Politics

President Biden's Tax Plans for the Next Few Years

With control of both the House and Senate in Democratic hands, President Biden will be able to get more of his tax policy proposals through Congress. …
January 27, 2021
18 Believe It or Not Tax Breaks
Tax Breaks

18 Believe It or Not Tax Breaks

Your fellow taxpayers have successfully claimed write-offs for many things that most of us wouldn't even imagine. But be careful if you plan on follow…
January 27, 2021
There's Still Time to Save on 2020 Taxes
Tax Breaks

There's Still Time to Save on 2020 Taxes

The tax code didn’t change last year, but just about everything else did. We’ll guide you to a lower tax bill.
January 27, 2021
Biden's Stimulus Plan Includes $3,000 Child Tax Credits
Coronavirus and Your Money

Biden's Stimulus Plan Includes $3,000 Child Tax Credits

The president is calling for a temporary tax credit of $3,000 per child (more for younger children).
January 27, 2021