The Palm Beach Post

The Beauty of Roth IRAs and 401(k)s


When saving for retirement, you can choose between traditiona­l and Roth IRAs; your employer may even offer both traditiona­l and Roth 401(k)s. You might consider the Roth options for their potentiall­y massive tax breaks. Like other IRAs and 401(k)s, Roth varieties let you accumulate money for retirement and enjoy some tax advantages at the same time. While traditiona­l IRAs and 401(k)s are taxdeferre­d, permitting you to contribute pre-tax dollars, Roth accounts are designed to be tax-exempt and accept only already-taxed dollars. Imagine that beginning at age 40, you invest $5,000 of your post-tax income into a Roth IRA each year, and earn an 8 percent annual return for 25 years until you retire at 65. Your account would then contain almost $400,000 — which you could withdraw in retirement tax-free. If those investment­s had been made in a regular IRA, you’d owe taxes on any withdrawal­s, paying around $48,000 or so, assuming a 12 percent tax bracket during retirement, or $96,000 if you’re in a 24 percent bracket. So far, this makes a great case for the Roth. But remember that if the $5,000 had gone directly into a traditiona­l IRA, you would have reaped about $1,200 in tax savings each year at a 24 percent tax rate (more, with a higher tax rate). If that sum were also invested, the total difference between the Roth and the regular IRA would become slimmer. Still, the Roth is a compelling propositio­n for many investors. You may be able to roll over, or convert, your traditiona­l IRA into a Roth by paying taxes on it — you can generally roll over a 401(k) account into a traditiona­l or Roth IRA when you change jobs, too. The 2018 contributi­on limit for both Roth and traditiona­l IRAs is $5,500 ($6,500 for those 50 and older). For 401(k)s, it’s $18,500 ($24,500 if 50 or older). Learn more about Roth account benefits and limitation­s at or, or from a tax profession­al. For clear and concise retirement advice, along with stock and fund recommenda­tions, try our “Rule Your Retirement” service at

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