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

Are You Still Chasing the Almighty Dollar, Even Though You Have Plenty to Retire?
retirement

Are You Still Chasing the Almighty Dollar, Even Though You Have Plenty to Retire?

In our experience, many have saved enough money to retire comfortably. Yet too many worry about their money running out and want more. Maybe it’s tim…
May 6, 2021
Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs

People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021…
May 4, 2021
9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)
tax deadline

9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)

Between due dates for extension requests, IRA or HSA contributions, and other deadlines, there's more to do by May 17 than just filing your federal in…
May 4, 2021

Recommended

7 Money-Smart Ways to Spend Your Tax Refund
Tax Breaks

7 Money-Smart Ways to Spend Your Tax Refund

Since this year's tax deadline was pushed back to May 17, many people are just now filing their tax return. That means there are a lot of tax refunds …
May 8, 2021
33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
May 6, 2021
Taxes, Taxes and More Taxes
tax planning

Taxes, Taxes and More Taxes

In light of the recent proposals by President Biden and Sens. Bernie Sanders and Chris Van Hollen, here’s what could be coming and some ideas on how t…
May 4, 2021
9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)
tax deadline

9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)

Between due dates for extension requests, IRA or HSA contributions, and other deadlines, there's more to do by May 17 than just filing your federal in…
May 4, 2021