Roth Accounts Explained: How to Grow Wealth Tax-Free
How to Use Roth Accounts
Roth accounts are often called the “Never Taxed Again” account. You pay taxes on the money you deposit, but you do not pay taxes when you withdraw it or on the earnings. This tax benefit is rare and offers a great opportunity for income growth without taxes.
Understanding Roth Accounts
Most people know about the Roth IRA. But many employers also offer a Roth 401(k). You can contribute to both a Roth and a non-Roth 401(k) in the same year. Remember, contributions to Roth accounts are not tax-deductible. This means you pay taxes on the money when you receive it in your paycheck.
Optimizing Your Investments
You can boost your investments in Roth accounts if you also have Taxable and Traditional accounts. These accounts should hold investments that we expect will achieve the greatest growth. This is because you will never pay tax on that income.
Imagine growing your investments at high rates for 20 or 30 years. Now, picture not paying any taxes on that growth!
Balancing Strategy and Risk
Your tax strategy should never override your risk tolerance. While you may choose to hold some lower-growth investments, try to keep these to a minimum.
Remember, investment allocation is more of an art than a science.