New Tax Law Gives Roth IRA More Appeal

Roth IRAs

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.

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

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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.

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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.

See Also: 10 Things You Must Know About Roth Accounts