Roth IRA Investing Three Reasons Why a Roth IRA Earns You Much More Than Any Other Type of IRA
December 30th, 2010 Filed under: ira investing — Investing Author
Roth IRA investing is building substantial retirement funds for many ordinary people, and it’s easy to see why. It’s because there are some powerful tax advantages built into this amazing savings vehicle.
There are three tax breaks in particular that make this a safe, easy and effective way to invest for retirement.
First, is tax-free compounding.
The money you put into your Roth account is tax free. You have already paid tax on the money, so you are almost never taxed when you take it out. And neither are you taxed as it earns — which means every cent earned can be ploughed back into the Roth IRA investing account where it compounds and grows. Exponentially.
Other IRAs and a 401k are not like this. The money you put into these is tax deferred, and at some time you the tax man will come calling and you will have to pay him.
Next, Roth IRA investing gives you tax-free earnings
When you take money out of your Roth IRA account, after you are 59 1/2 years, you will not be taxed. The money you put in is not taxed on withdrawal. And neither is the capital gain taxed.
You can see how this benefit really kicks in when you have used your IRA to invest in something long term like real estate. Even if you don’t know anything about property investment, there are turn-key real estate investments available where you can put your Roth IRA contributions. Real estate is almost always increasing in value, and with Roth IRA investing you can rise up on that powerful price lift.
Third, Roth IRA investing gives you true capital gain.
The Roth IRA is the only investment instrument that genuinely allows you to get all — 100 percent — of the capital gain in an account tax free. Let that sink in. The Roth IRA is a very, very powerful retirement savings vehicle for this reason.
On the other hand, traditional IRAs are taxed when you withdraw the funds. So is a 401k. The IRD will come calling when you withdraw anything from these. (With a couple of exceptions, like if you are buying your first home.)
In conclusion, the Roth IRA lets you take what you have left after you’ve been paid and taxed, and invest it totally free of tax. There is no tax on what you invest, because you’ve already paid your taxes on your wages or salary. And neither is there any tax on the capital gains that build up in your investment over the years. Everything is yours. And that’s how it should be.
If this is the time to do some more reading on Roth IRA investing, you might like to start at my own web site that has some useful detail people find useful.
Leo Nardt writes extensively about setting up a retirement nest egg for yourself using your IRA. Click and get a free print copy of a book bursting with ideas and suggestions, from his web site http://www.ira-investmentpower.com
