I've weighed in before on the Roth IRA and how much I like it. After contributing to get the full match in your 410k, this is my preferred retirement savings vehicle. I was reminded of why I liked it the other day when I saw this piece from Kiplinger's. The article is titled Ride a Roth to Riches and is best summarized by this short paragraph:
If a 25-year-old contributes $4,000 each year to a Roth until he retires and makes an average annual return of only 8% on his investment, he'll have more than $1.1 million saved by the time he retires at age 65. If he had invested the money in a taxable account instead, he'd have only $810,000 if his earnings were taxed at 15%. That's more than one-fourth less money than if he'd invested in the Roth.
$300,000 more in a Roth than in a taxable account. Not bad at all, huh? Seems like a worthwhile investment to me. How about you?
I have a Roth IRA, but am having difficulty maxing them out. Because I'm a student, I have no income. Until I have a full time job, I'm just going to try to contribute what I can every month. Every little bit helps in the long run.
Posted by: Brett McKay | March 19, 2007 at 06:15 PM
Reading stuff like this is such a good encouragement to keep putting money in my IRA :-D
Posted by: MissPinkKate | March 20, 2007 at 10:42 AM
No one pays 15% taxes per year when they are investing for the long-term.
Posted by: Kurt | March 20, 2007 at 01:28 PM
Brett: Definitely. Put whatever you can into the Roth. I wish I had started my Roth IRA when I was back in school even if it meant not fully contributing. I started as soon as I was out, but it would have given me a couple year headstart.
I also agree that doing your 401k up to matching first makes the most sense.
What are people doing when the Roth IRA is not available? Are there other accounts where you pay tax now but do not pay tax in the future? The Roth 401k comes to mind, but that tends to have limited fund/stock selection and requires that your employer offers it.
Posted by: OL | March 25, 2007 at 04:48 AM